Faced with constraints such as environmental and land acquisition issue in increasing its output, Coal India Ltd plans to start imports to meet customers' demands. The world's largest coal producer with an annual output of over 400 million tonnes, has shortlisted 16 global suppliers to import coal on a long-term basis. Amidst increasing demand-supply gap, Coal India Chairman, Mr N.C. Jha, feels that 10-year long-term import contracts is the only way to serve its customers. Getting into imports would not dilute the company's focus on producing coal or its acquisition strategy, Mr Jha told Business Line in a recent interview. Excerpts.
What prompted you to look at long-term import agreements?
We are unable to meet the complete demand from our domestic production and need to import. The idea is that if we go in for a long-term contract, there will be a discount to the market price. As per the LOA issued to various consumers, the total additional quantity adds up to 450 million tonnes in any year, which is much more than our production capacity.
Considering the volatility in global prices, do you think you would be able to get a discounted price from the suppliers?
The idea of long-term contract is to get a discounted price. If the suppliers don't give us any discounts, then there's no reason for our consumers to buy coal from us. Even if we are able to get a small discount, it would be a saving to our consumers.
Typically, how much discount is offered in such kind of deals?
This kind of a long-term deal has not taken place. At present, coal import is through yearly contract. It is for the first time we are importing coal on a long-term basis. We had invited expression of interest (EOI) twice in 2009 and 2010, but those deals did not take off. Now that we have received the proposals from 16 firms, we will have to wait and see the quantities they can offer and also the price.
By getting into imports, will Coal India's focus on producing coal get diverted?
No, not at all. We have also acquired some property in Mozambique where we have to start prospecting. That does not mean that our focus on Mahanadi Coal Fields gets diluted. We will have to expand. We will have to recruit more people, oriented to these experiences. We are short of people as we have not done entry level recruitment for past 10-12 years. To resolve that, we will be recruiting 1,400 management trainees at one go this year. About 1,500 will be moved internally from the supervisory to executive role. In the next phase, we will take requisite people with expertise in specific areas such as trading.
By when do you expect to start importing?
Next six months will be crucial, as we have to tie up with consumers and also the suppliers.
Does India have adequate infrastructure to handle such a voluminous quantity?
Our ports have capacity, but there are very few dedicated ports for coal. It is estimated that our ports can handle about 100 million tonnes of coal. As far as capacity goes, there does not appear to be any limitation. At the same time, we are discussing with the Vizag Port Authority about investing in a dedicated berth. Depending on the offer we get for East Coast and West Coast, we will be discussing with various ports for the required capacity.
Now that you are getting into long-term contracts, will your acquisition efforts take a backseat?
Long-term contract is not a deterrent to our acquisition strategy. It will be a supplementary activity. Coal India has to be a global company. We are constrained here because of certain issues which disable us from mining coal. That aspect we are tackling. Simultaneously, we will have to acquire overseas properties, which is a difficult task, because of the volatility in prices impacting valuations.
What is the update on buying stake in Peabody?
We have to take it to the Board. The deal is not yet closed.
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