KOLKATA (miningweekly.com) – The Indian government will prioritise advance supply contracts for coking coal in international markets over outright acquisitions of coal assets in countries overseas.

This at a time, when State-miner Coal India Limited (CIL) has initiated moves to invest in coal assets in countries like Canada, Australia and Russia.

“Freezing coking coal supply contracts will help India in securing coking coal at competitive prices. As of now, the thinking is not to acquire assets, it’s only to freeze orders in advance,” Coal Minister Prahlad Joshi told reporters on the sidelines of the eighth Asian Mining Congress in Kolkata on Wednesday.

Though not specifically stated by the Minister, it is understood that the Coal Ministry will increasingly nudge domestic State-run coal miners to enter into long-term coking coal supply contracts in key markets like Australia, South Africa, Canada and US, rather than outright acquire assets in coal-producing countries, ostensibly to lower foreign exchange outgo.

Ministry officials, however, were unable to offer any clarity on the impact of the change in government's policy direction on ongoing CIL plans to acquire coal assets overseas. It is speculated that the new priority of government to conclude long-term coking coal supply agreements could mean that State-miners like CIL will need to look at picking up minority equity stake in overseas coal blocks, instead of outright acquisitions.

A strategic minority equity investment would entail lower investments and, hence, lower foreign exchange outgo, but at the same time, facilitate CIL's conclusion of long-term supply agreements in an asset in which it had strategic interest, the officials hinted.

CIL has already identified operational coal blocks for acquisition in Canada and Australia. Though the miner has declined to identify the assets on grounds of a confidentiality clause in the course of conducting due diligence, sources said that the miner would submit binding offers by March 2020.

India and Russia are also conducting bilateral negotiations to expand economic partnership in the energy sector and Indian coal companies have already initiated moves to acquire premium coal assets in Russia.

In July last year, CIL CEO A K Jha held a meeting with Russian Deputy Prime Minister Yuri Trutnev seeking the Russian government’s support in identifying and facilitating the Indian miner's acquisition of equity stakes in a Russian coal block.

This meeting was to be followed up by a visit by a CIL official delegation to Russia to hold preliminary discussions on some of the proposals already with the Indian company.

According to the annual statement of CIL, “as an outcome of initiatives, a few potential coking, semi-coking coal assets have been identified in Australia and Canada for due diligence. Tenders have been floated for selection of investment bankers/merchant bankers to render financial due diligence and transaction advisory services for framing of assets specified for investment purposes.”