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India’s power generator seeks coal assets in South Africa
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10th August 2011
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KOLKATA ( - After pulling out from the race for Australian coal miner Bandanna Energy, India’s largest thermal power producer NTPC Limited is seeking to acquire coal assets in South Africa.

Simultaneously, to cope with the shortage of coal feedstock from domestic mines, NTPC was also considering entering into long-term coal supply contracts that would start at levels of four-million tons a year, ramping up to 16-million tons a year over a period of time, with mines in South Africa.

NTPC pulled out from bidding for a stake in Bandanna Energy, perceiving the price to be too high. The total capital expenditure on the mines was estimated at $3-billion, including related infrastructure like railway connectivity to evacuate the coal, and this was perceived by the company to be too high, an NTPC official said.

“Return on capital and investments or appreciation in coal mines are very difficult to know in advance. We don’t know how it will behave. It is very speculative,” NTPC chairperson and MD Arup Roychowdhury said.

“Supplies through long-term contracts provide assured quantities of coal at predetermined prices. We will have to give priority to domestic sources of coal but to bridge the gap between supplies and our projected captive demand, we will have to acquire mines overseas,” Roychowdhury said.

“South Africa is our preferred destination for securing coal supplies and assets. There are a lot of bilateral initiatives between the governments of India and South Africa and these have received further impetus following a visit by Deputy Minister of Trade and Industry, Elizabeth Thabethe,” an NTPC official said on condition of anonymity, since they were not authorised to speak on the issue.

“As a government-owned company, NTPC naturally is comfortable in following up Indian government policies in promoting bilateral cooperation between India and South Africa. Acquisition of coal assets in that country should ensure supplies for at least 25 years,” the official said.

Destination South Africa has also gained momentum for NTPC following the erosion of the viability of at least two ultra mega power projects, operated by Tata Power and Reliance Power. These projects of 4 000 MW each were linked to imported coal from Indonesia.

Recently, however, the Indonesia government changed its policy deciding to benchmark its coal prices to international indices with retrospective effect, making the Indian power projects unviable since long-term supply agreements based on discounts and flat prices would no longer be honored.

NTPC, a predominantly coal-based thermal power producer is also diversifying its fuel mix to reduce dependency on coal. Under a new fuel-mix portfolio, by 2017, the company aimed to produce 53 000 MW from coal, 10 000 MW from gas, 9 000 MW from nuclear and 1 000 MW from renewable energy, thereby achieving a total compounded average growth rate of 13%.

But ironically, while NTPC is faced with a shortage in coal supplies from domestic and international sources to feed new projects, allocation and mining rights to two virgin coal blocks allocated to it have been cancelled by India’s Coal Ministry for tardy progress in developing these mines.

The two coal blocks of Brahmini and Chichro-Patsimal with estimated reserves of two-billion tons, located in the eastern Indian province of Jharkhand, had been allocated to the company, which proposed a $112-million development of the mines, linked to plans to construct a 1 500 MW thermal power plant, entailing an investment of $1.6-billion.

However, following intervention from the office of Indian Prime Minister Manmohan Singh at the behest of NTPC's chairperson and MD, the Coal Ministry decided to review the cancellation notice provided the power generator submits a new timeframe for development of the mines.

NTPC is India’s largest power producer with an installed capacity of 33 000 MW from its 15 coal-based power plants, seven gas-based plants and other gas- and coal-generating plants which the company operates through joint ventures. NTPC currently has 17 000 MW of new coal-based capacity at various stages of construction.

Edited by: Esmarie Swanepoel


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Picture by: Reuters