Monday, December 21, 2009

Middle East Coal to invest $1.4 bn in Indonesia

MUMBAI: It could soon become a model to emulate for companies wanting to export minerals from Indoa. Singapore-based, India-oriented Middle East Coal (Madhu Koneru Vice Chairman), which owns coal mines in Indonesia, will invest $1.4 bn (about Rs 5,600 crore) in the SouthEast Asian country, as part of its deal, to mine coal and ship it to Indian power producers.

Middle East Coal has assured the Indonesian government to spend a fifth of the coal it mines in Indonesia itself, besides building infrastructure, in return for shipping coal from its mines in the Kalimantan province that are estimated to hold reserves of more than 2 billion tonnes.

This development may be closely watched by India for adopting to its iron ore policy — India has abundant reserves of the ore, while Indonesia is rich in coal — as the Indian government is currently in a bind on the issue of ore exports.

While homegrown steel companies such as Tata Steel, SAIL, JSW Steel have been vociferous in limiting iron ore shipments from India - the ore is a key raw material for steelmaking - the sharp rise in demand from China and the resultant benefits to state-owned ore exporters such as NMDC has prompted the government to pursue a lenient mining policy.

“It’s a business deal for us and would ensure early closure of our deals with Indian power producers,” says Middle East Coal vice chairman Madhu Koneru. “The environment in Indonesia is similar to that in India and the government there, is also worried about exporting precious natural resources. We understand that and we’re taking care to assure them,” he added.

The infrastructure that Middle East would build, would include a railway line that can be used to transport coal from the mine to the port from where it would be shipped to India. The railway line would be financed by IL&FS on a build-operate-transfer basis and Canada’s Canac would be the operator in handling the commodity at both railhead and the port. “The offtake agreements that Middle East would have with the Indian power producers, would be the contractual safeguard,” IL&FS CEO Hari Sankaran told.
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