Calcutta, March 31: Tata Power Company will buy 30 per cent equity stake in two Indonesian coal mines and a trading company owned by PT Bumi Resources Tbk.
The Indian company today signed a definitive agreement to buy the stakes for $1.1 billion to secure fuel supplies for its 4,000-mega watt (mw) Mundra power project in Trombay and a coastal power project in Maharashtra.
PT Bumi Resources is the third-largest coal exporter in Indonesia, one of the largest coal exporting countries in the world.
According to the equity purchase agreement, Tata Power will pick up 30 per cent in each of the coal mines — PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia — and trading firm Indocoal Resources.
Bumi Resources had acquired KPC from British oil company BP and Australia’s Rio Tinto and had bought Arutmin from BHP Mineral Exploration and another Indonesian firm.
Tata Power’s agreement with PT Kaltim Prima Coal gives it an additional entitlement to purchase 10 million tonnes (mt) of coal every year.
The two Indonesian coal companies together produced 53.5 mt in 2005-06, of which 95 per cent was exported.
They have an excellent coal export infrastructure and are strategically placed to act as a source of supply for increasing regional demand.
Tata Power managing director Prasad R. Menon said, “We are happy to have acquired this stake in KPC and Arutmin mines of Bumi Resources. This not only secures our fuel requirements for the company’s growth plans, but also opens up opportunities to own and operate a range of world class, competitive and profitable electricity and energy businesses in India and overseas.”
The acquisition will address the fuel requirements for the 4,000-mw Mundra power project in Trombay.
“The company also made the assumption of acquiring coal mines overseas when it bid for the Mundra power project,” Menon said.
The acquisition will also support Tata Power’s upcoming power projects on the west coast of India, having a total capacity of 7,000 mw. The plants will be developed over the next five years.
“These projects will require approximately 21 mt of imported coal, which the company intends to secure through a combination of equity stakes in mines and coal purchase contracts,” Menon explained.
Tata Power has a generating capacity of 2,300 mw. The company plans to invest Rs 16,000 crore for the Mundra project, which it bagged with the lowest tariff bid of Rs 1.26 per unit. It is also looking for opportunities to set up power projects in Bangladesh and South Africa.
Tata Power will pay $1.1 billion prior to the working capital and other adjustments for the acquisition.
The deal will be made through a special purpose vehicle and will be funded through a combination of debt in the SPV and internal accruals. Macquarie acted as the exclusive adviser to Tata Power for the acquisition.
The latest deal takes forward the Tata group’s overseas acquisition spree, started some three years ago, with the crown jewels being the Corus Group Plc, Natsteel of Singapore and Millennium Steel of Thailand.