NTPC gets approval to exit International Coal Ventures consortium…

• The power ministry has approved NTPC Ltd’s proposed exit from International Coal Ventures Pvt. Ltd (ICVL), in a move that could hurt India’s efforts to acquire overseas coal assets. ICVL was promoted by five state-owned firms two years ago to buy coal mines overseas. While Steel Authority of India Ltd (SAIL) and Coal India Ltd own 28% each of ICVL, NTPC, Rashtriya Ispat Nigam Ltd and NMDC Ltd own 14% each. The 14% share of India’s largest power generation utility in the consortium, which hasn’t managed to close a single purchase, is expected be split proportionately among the remaining partners.

• The exit will end the acrimony among the partners that surfaced last year when then steel minister Virbhadra Singh had said that NTPC and Coal India could exit the consortium if they wished to. ICVL was floated on the coal ministry’s initiative and has an initial equity capital of Rs.3,500 crore and authorized capital of Rs.10,000 crore. An NTPC spokesperson confirmed that the exit is taking place and that the details will be worked out after “requisite due diligence”. Coal India continues to be part of the consortium. A top power ministry official, who spoke on the condition of anonymity, said earlier that it had informed the steel ministry “that NTPC would like to opt out”.

• Mint reported on 21 September that ICVL seemed headed for a split with NTPC wanting to exit. NTPC subsequently made a presentation to its parent ministry elaborating on the reasons for this. According to NTPC, while the power producer needs thermal coal to fuel its power projects back home, ICVL’s o ther stakeholders are largely interested in metallurgical coal reserves to feed their steel mills. And the thermal coal offered to it does not meet the utility’s technical requirements. “Our controlling ministry has given its assent to our proposal. We have already received a letter in this regard. Now, only the process part is left. Our share will be proportionately acquired by the remaining partners,” said a senior NTPC executive aware of the development who didn’t want to be identified.

• The exit could actually work to the benefit of NTPC, said an expert. “For NTPC, the development may mean a focused approach in the pursuit of coal resources,” said Dipesh Dipu, director, consulting (mining), at Deloitte Touche Tohmatsu India Pvt. Ltd. “Chasing opportunities on its own and simultaneously being part of a consortium may have led to strategic ambiguity.” Still, the breakup will pose a challenge to “the efforts of the government to create a sovereign fund like arrangement and create a unified acquisition resource pool in the form of ICVL,” he said.

• NTPC’s decision comes at a time when the country is facing its worst coal shortage. India faces a shortage of both metallurgical and thermal coal. A top ICVL executive who didn’t want to be identified said the company “had received a copy of the (power ministry’s) letter”. This person said the company would discuss what needs to be done with the power utility’s stake. While private Indian firms have been successful in securing coal resources overseas, government-owned entities such as ICVL and NTPC have not been able to do so. The split in ICVL only highlights the challenges involved, Dipu said.

• “While government-owned firms have been in the race too it seems the compliance requirement (for) procedures and lack of tolerance to risk-taking has caused them to be slow. Alignment of individual corporate objectives may hav e been yet another reason for the same,” he added. NTPC, which generates 8 megawatts (MW) of every 10MW it produces by burning coal, is looking to increase installed capacity from 34,854MW now to 75,000MW by 2017 and 128,000MW by 2032. It needs 160 million tonnes (mt) of coal in fiscal 2012, of which around 16 mt has to be imported. The utility has already placed orders for importing 12 mt of coal and placed a tender on Monday to import another 4 mt.

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