Tata Power is in talks to pick about 15% stake in MEC Coal, the Dubai-registered company that owns more than two billion tonnes of coal reserves in Indonesia, said a person familiar with the development.
The Tata Group subsidiary, which the source said is negotiating with MEC co-promoter Ras-al-Khaimah Investment Authority, is keen on augmenting its foreign coal assets to reduce power generation costs at its plants in India, where fuel shortage often leads to outages.
"Negotiations are in early stages and may or may not result in a transaction. But Rasal-Khaimah has been keen on having an Indian partner in the coal mining project," the source said on condition of anonymity. It is, however, unclear whether Ras-al-Khaima has approached other Indian companies too.
While a spokeswoman for Tata Power declined to comment on the issue, queries sent by ET to MEC Coal executive vice-chairman Madhu Koneru, who is also head of co-promoter Trimex Group, remained unanswered.
MEC Coal is developing coal concessions in Indonesia, along with an integrated heavyhaul rail transportation system and ship-loading jetty in the East Kalimantan province. The coal railway project is estimated to cost about $1 billion.
The source said the a deal would include a provision for an offtake arrangement. If the deal goes through, it will be the second time the Tatas will be buying stake in Indonesian coalmines.
The group already owns 30% in mines promoted by the Bakrie Group, one of Indonesia's biggest business houses. Tata Power managing director Anil Sardana had recently said the company was keen on building power plants in Indonesia and Africa to grow its business, which has been capped by a shortage of coal in the country. The company currently has a capacity of 3,797 mw, and is aiming to raise it to 25,000 mw by 2015.
Shortage of coal and natural gas in the country and problems with land and environment clearances have prevented power generators from setting up new plants and operating at full capacity to meet the country's growing demand for electricity. To bridge the raw material gap, most power producers are forced to import costly coal, but cannot pass on the full cost differential to customers.
"Indian companies are ready to acquire mines in Indonesia, despite the country's move to impose a tax on coal exports, as captive mines will ensure smooth supplies and insulate against price fluctuations," said PricewaterhouseCoopers senior consultant Pukhraj Sethiya, who has handled mandates from Indian companies to scout for opportunities to build power plants overseas.
The South-east Asian nation recently brought in legislations that discourage foreign ownership in mines and is now scheduled to implement a draft legislation by 2014 which will require miners to carry out minimum processing on minerals before exporting.
Indian companies are looking at Indonesia, among other countries, to source coal, after encountering supply issues in India. The lone state-owned coal producer, Coal India , has not been able to expand capacity.