Adani Group to invest $6 bn in three business segments

Money to be raised through equity infusion, internal accruals, debt; most of it will go to new operations in Australia

The ports-to-power Adani Group on Thursday said it plans to invest $6 billion (around Rs.30,000 crore) by 2015 to develop three businesses—resources, logistics and energy. A large portion will be pumped into its new Australian coal mining exploration, which began operations on Thursday, and is expected to produce up to 60 million tonnes (mt) annually from 2015.

The resources business includes coal mines and trading for now and will include oil and gas in the future, according to a company statement.

The investment by the Gautam Adani-controlled group, part of a larger overhaul and rebranding of its corporate entity, will be raised through a mix of internal accruals, equity infusion and debt, said group spokesperson Ameet H. Desai. He declined to give details on how much will be raised through each of these channels.

“It is a clear positive. Roughly 26,000 megawatts (MW) of power plants are looking for linkage from Coal India (right now),” said Rabindranath Nayak, lead analyst, power and capital goods, SBICAP Securities Ltd. Faced with a severe coal supply deficit, power producers are typically forced to stall operations or depend on expensive imported coal, with profitability taking a knock.

The company’s coal mining exploration in Galilee Basin in Queensland, Australia, was acquired in 2010 from Linc Energy for A$3 billion ($3.2 billion). “Overseas, there are mines but they need help with infrastructure development while in India we need the coal supplies. Moreover, the Adani Group can sell it to India or China or anyone else in the open market,” depending on where they get the best prices, Nayak said.

There is, however, a trade-off among price, quality and cost of transportation. Australian mines produce better quality coal compared with those in Indonesia but part of the advantage is eroded as transport costs more—$20-25 a tonne from Australia as against $10-15 a tonne from Indonesia, Nayak said.

Government policies are also making coal imports costlier in these two countries, jeopardizing plans of power producers in India who had bid aggressively for supply contracts from various distribution utilities. Indonesia changed its policy in July last year and linked the sale price to international indices, rendering redundant all the long-term contracts Indian power producers signed with coal miners at competitive prices.

In November, Australia imposed a carbon tax of $24.70 per tonne on coal exports. Projects with a total capacity of around 14,000MW are stuck because of the changes in policy by the two countries.

Meanwhile, both India and China are competing for resources and continue to rely heavily on imported coal to meet demand and spur growth.

Outlining the company’s other plans, Desai said it was considering the acquisition of BG Group Plc’s 65% stake in Gujarat Gas. The company had announced its intention to sell the stake in the western India-focused gas distribution company in November. The Adani Group has also announced its exit from the real estate business, which will be privately owned by the group’s promoters.

The group has ambitious targets for 2020—a five fold increase in Adani Power Ltd’s generation capacity from 4,000 MW currently to 20,000MW; handling 200 mt cargo in its Mundra port, making it the largest port in the country; and supplying 200 mt of imported coal by then, up from 30 mt it supplied to Indian companies last fiscal.

However, Adani Power’s existing projects are facing problems due to issues such as environmental clearance and the Indonesian pricing change. The company had sought a higher tariff hike from Gujarat Urja Vikas Nigam Ltd (GUVNL), with which it had signed a power purchase agreement (PPA) for 2,000MW from its Mundra project. But GUVNL rejected Adani’s demand, a decision that was upheld by the state power regulator as well as by the Appellate Tribunal for Electricity.

Similarly, the union government’s ministry of environment and forests revoked environmental clearance granted to the captive coal mine that would have supplied the company’s 1980MW power project at Tiroda in Maharashtra. The company is yet to sign up alternative fuel supplies for the plant.