India's Coastal Energen Finalizes Loan of $800 Million for 1,200-Megawatt Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Coastal Energen Private Limited (Energen) (Chennai, Tamil Nadu), the power generating arm of Coal and Oil Group (C&O) (Dubai, United Arab Emirates), recently finalized procurement of project funds worth $800 million for its upcoming 1,200-megawatt (MW) thermal power plant in Tuticorin, Tamil Nadu. The funds have been raised through a consortium of 16 banks led by State Bank of India (BSE:500112) (SBI) (Mumbai). The 15-year loan has been granted with an interest rate of 12%. According to Ahmed Buhari, Founder, President and CEO of C&O, this is the first merchant power plant in India to obtain financing. This will be Coastal Energen's first project in the power generation sector.

Both the government of India and the state government of Tamil Nadu have identified Tuticorin as a center of power generation for Tamil Nadu, as the city is located in the middle of the power corridor. This gives Tuticorin easy access to the state's power grid. The project site is located 13 kilometers from Tuticorin and 21 kilometers from the Tuticorin port. Tuticorin has excellent air, rail and road connectivity. According to Buhari, Tuticorin was an easy choice for the project location because of its proximity to the Tuticorin port, which will be the point of entry for the lower quality Indonesian coal that will be used to fuel the power plant. The fuel supply agreement have already been sealed. Coastal Energen intends to sign "cap and collar" deals with Indonesian suppliers in order to protect itself from price volatility. Such deals would involve fixed maximum and minimum coal prices.

The $864 million project has been making rapid progress since its inception. Construction of the coal-fired power plant, with two units of 600 MW each, is expected to be completed within 36 months, and the commissioning date has been scheduled for sometime in 2011-12. Land for the project has been acquired, and site preparation has also been completed. Clearance from the Ministry of Environment and Forests has been successfully obtained. The required geo-technical investigations have also been completed. The Tamil Nadu Water Supply and Drainage Board (Chennai) has allocated water for all process requirements, and the necessary water and power infrastructure is already in place. The company will be making provisions to increase the power generation capacity of the plant to about 3,600-4,000 MW in the future.

In March 2009, Energen signed a $450 million agreement with Chinese power equipment supplier Harbin Power Engineering Company Limited (Heilongjiang) for procuring the required boiler, turbine and generator units. The order will be fulfilled in 22 months. All other equipment orders have been placed.

The Tamil Nadu government is promoting the power project under the state's merchant power project policy whereby the power generated can be sold to any party. Most of the power generated will be purchased by Tata Power Trading Company Limited (Mumbai), the trading arm and a wholly owned subsidiary of Tata Power Company Limited (BSE:500400) (Mumbai), for its industries within and outside Tamil Nadu. The Tamil Nadu State Electricity Board (Chennai) will purchase about 300 MW, while some of the power will be sold to Kerala. The Tuticorin power project has been designed to be one of India's largest merchant power plants.

Buhari said that with this project, C&O would no longer remain only a trading company, but will also become an integrated and diverse energy provider. He said that it was no longer enough to trade in coal alone and urged India's coal traders to diversify into power production and mining in order to survive the highly competitive coal-trading business. India's coal imports are expected to reach 70 million tons in the next fiscal year. Since domestic supply is unable to meet the growing demand, imports are expected to grow rapidly during the next decade or two. According to Buhari, a few large players currently dominate the import market, but the competition is getting intense. All the big consumers, including government bodies, are constantly looking for stable supplies of coal. By diversifying into power generation, companies such as C&O can fortify their presence and use their years of experience as fuel suppliers to enter the new market of power generation.

C&O has been a key supplier of coal to India since 1998. It sells more than 6 million tons per year of imported coal and has supply agreements with the major coal producers of Australia, Indonesia and South Africa. The company's turnover in 2008 was $500 million.

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