Saturday, September 12, 2009

Indonesian company MEC keen on trading coal for equity in power projects

Mumbai, Sept. 11: The large-size power projects announced by various Indian companies seem to have prompted a standalone Indonesian coal miner to come knocking on their doors.
Middle East Coal (MEC), a joint venture between Trimex Group (Prasad Koneru, Chairman and MD) and the UAE Government-owned RAK Minerals and Metals Investment, has initiated talks with these players to swap equity for coal. The company assures coal supply at $35-$40 a tonne for 15 years. Currently, coal prices are around $50-$55 a tonne.


MEC is developing a coal mine at East Kalimantan in Indonesia with proven reserves of two billion tonnes at an investment of $1 billion.

Mr Madhu Koneru, Executive Vice-Chairman, MEC, said production would begin with two million tonnes by the middle of next year and would be ramped up to 15 million tonnes by November 2011.

“We have floated a tender of $1 billion to develop a coal jetty and rail link of 130 km to transport the coal from the mine. With such huge investments, we thought of forward integration by joining hands with the promoters of large power projects,” he added.

The company wants to sell 70 per cent of its production to India and the balance to China.
On an average, about 17 million tonnes of coal are needed for a generation capacity of 5,000 MW. Coal accounts for about 60-70 per cent of the power production cost in India for producers dependent on imports.

Though companies such as Reliance Power, Tata Power and Adani Power have their own mines in Indonesia, MEC is confident of convincing Indian companies as the price it is offering is quite attractive.

It has managed to offer a lower price compared to others as the rail link being developed will result in savings of about 50 per cent of transportation costs.

The company is targeting new power projects as existing companies use coal with calorific value of 6300 KCal while MEC will produce coal with calorific value of 5300 KCal. The stripping ratio of MEC mines is 1:1 (mud to coal), while for most mines it is 8:1, said Mr Koneru.

MEC has also signed an agreement with Nalco which plans to set up a one million tonne alumina smelter at the coal mine site in Indonesia. Nalco will hold 74 per cent stake in the project while MEL will have 26 per cent equity to provide assured coal supplies. The company is in the process of negotiating the price, he said.

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