Coal India Set To Finalize 10-Year Import Contract.

Coal India Ltd will soon finalize a 10-year contract to import the mineral to supplement production, chairman N.C. Jha said, as the world’s largest coal miner looks to fill a supply shortfall.

“We have floated this (10-year tender) last week after an expression of interest earlier showed companies were interested in being suppliers,” Jha said. “Those who have shown interest will be given three weeks to make submissions. After that we will analyse them and finalize it.”

Jha said at least 14 entities from India and abroad had shown interest in the tender, the size of which is yet to be decided. He expects to import at a discount to index prices.

Coal India produced only 431 million tonnes (mt) in 2010-11 against a target of 461.5mt because of stalled projects, then chairman Partha Bhattacharyya had said. Its target in the current financial year is 452mt.

Difficulties in setting up new mines because of regulatory, environmental and social hurdles have slowed output growth.

The company wanted to import 4mt in 2010-11, but could not import at all. “There were issues regarding deliveries,” said a company executive who did not want to be named. “Power companies generally want the coal at their plant.”

Analysts said the long-term import strategy would assure consumers of a steady supply of coal, but it may face difficulties in implementation.

“It is not a bad idea,” said Rahul Jain, equity analyst, metals and mining, RBS Equities (India) Ltd. “There is a lot of requirement in the system and a lot of companies can’t go overseas by themselves.”

Coal-buying industries, mainly power, steel and cement plants, imported nearly 84mt in 2010-11; this year’s import projections are rising above 100mt.

Coal India may face difficulties in finalizing the 10-year import contract, said A.K. Sarkar, a former director of marketing at the miner.

“The difficulty is that most of the companies want coal to be delivered at their doorstep,” Sarkar said. “Coal India must not take the price risk as in the transit there is pilferage.”

Sarkar said the remote location of many power plants made deliveries difficult. “A 10-year contract is a very good strategy, but there need to be back-to-back arrangements for buying and selling the coal.”

Another analyst with a foreign institutional investor, who declined to be named citing company policy, said the success of such a contract was not guaranteed.

“Most of the importers are power plants who have difficulties with payments as power costs are capped in many places and generators can’t recover input costs,” the analyst said. “Also, the whole system of making short lists, evaluating and finalizing the contract needs many approvals and is slow.”

Regulatory changes in countries such as Indonesia and South Africa may also cause problems for such a contract in future, the analyst added.

India’s largest power generator NTPC Ltd’s move to directly import coal may be another potential stumbling block for Coal India’s import plans.

Last year, Coal India was expected to import coal for NTPC. But after it failed to do so. the power company floated its own tender for 4mt in March—directly importing coal for the first time.

In future, if NTPC again chooses to rely on its own means to import the mineral, Coal India may not find enough big buyers for its imports.

Source : livemint.com