by ajoy k. das

Indian state-run Coal India Ltd. (CIL) is banking on Russian government support to acquire a minority equity stake in operational coal assets in that country with buy-back provisions.

High-ranked company officials said CIL CEO A.K. Jha has already held a meeting with Russian Deputy Prime Minister Yuri Trutnev seeking the Russian government’s support in identifying and facilitating the Indian miner acquiring an equity stake in a Russian coal block.

This meeting would be followed by CIL visiting Russia to hold preliminary discussions on some of the proposals already discussed. According to the company officials, the bilateral involvement of the Russian government and ministry of coal here would ensure “deeper commitment and engagements” in CIL attempts to invest in an operational Russian coal mine.

The Indian investment was also likely fall within the limits of the ongoing India-Russia negotiations to enlarge bilateral cooperation between the two countries in the energy sectors.

In its talks with Russian official, CIL said it has conveyed its priorities in making investments in preferably high-quality coking coal assets. The Indian miner intends to make minority equity investments with provisions to ship part of the production back to India and even ramp up investments to a majority stake in subsequent stages.

While still at a nascent stage, CIL was likely to fund the investments from its internal accruals considering the fact that international financial lending institutions were wary of investing in global coal projects.

The Russian planned investments would be in addition to CIL’s ongoing efforts to secure similar coking coal assets in Australia and Canada, as already announced by the miner.

Officials said merchant bankers were in the process of appointing advisors to identify suitable coking coal assets Down Under and conduct due diligence on targeting assets.

Indications from sources suggest that CIL had earmarked around $900 million to pick up a minority equity stake in an Australian coal mine with the option of increasing it to a majority stake subsequently. Currently non-disclosure agreements have been signed with targeted assets and could not be identified.

CIL’s renewed focus in acquiring global assets could be because of the challenges it faces in rapidly increasing its domestic production
in line with a projected growth target of 8% in the current fiscal year, and its tardy past performance in investing overseas.

It must be noted that CIL’s maiden overseas venture in securing coal assets in Mozambique failed to move ahead and the miner surrendered the block after preliminary exploration established unviable and poor-quality coal in the block.