The Indian government will prioritise advance supply contracts for coking coal in international markets over outright acquisitions of coal assets in overseas countries
at a time when State-owned 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, last week.
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 acquire assets outright in coal-producing countries, ostensibly to lower foreign exchange outflows.
Policy DirectionMinistry 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 government’s priority to conclude long-term coking coal supply agreements could mean that State miners like CIL would need to look at picking up minority equity stakes in overseas coal blocks, instead of outright acquisitions.
A strategic minority equity investment would entail lower investments and, hence, lower foreign exchange outflows, 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 name the assets on the grounds of a confidentiality clause in the course of conducting due diligence, sources said that the miner would submit binding offers by March 2020.