Coal India to announce $1.7 billion coal purchase, leans toward United States

The chairman of Coal India Ltd., Partha Bhattacharyya, says he’s leaning toward choosing the United States to win a $1.7 billion coal purchase agreement that’s been under consideration for the past year.

During his recent visit to the U.S., Bhattacharyya told me that in 2009 India received 39 proposals from coal mining companies from four major producers—the U.S., Indonesia, Australia and South Africa. Those proposals have been culled to five finalists.

Each country wants to sell India the 280 million tons of coal per year the subcontinent needs to sustain its economic growth over the next decade.

Bhattacharyya would not dislcose the names of the finalists but indicated the U.S. looked the most attractive. He has visited Australia and the U.S. twice in the past year. He sent other company officials to Indonesia.

In May Bhattacharyya said we’ll know within “two to three months,” but the eye toward the U.S. is obvious.

Australia has introduced a new export tax which could increase the cost of coal to India.
Bhattacharyya would not comment on whether political tensions between India and Australia might play a role in India’s decision.

He noted the U.S. coal industry is “large but it’s not growing,” he said. Australia has “a small but growing industry.” “The fact that I can offer growth makes more sense in the US than in Australia.” Bhattacharyya said. India has gotten “better response from the U.S.” he added.

And, “with the U.S., the only negative aspect is the distance. Freight is going to be more expensive,” he said. But, “coal production here [in the United States] is done fairly efficiently.”

“Here the companies are efficient. They’ve been in the business for quite some time. The law is very clear and established and there is a legal recourse available,” he added.

Even if the U.S. snags the $1.7 billion contract or most of it, there may be opportunities down the road for other countries, according to the chairman, “considering the quality [of imported coal] is better and it’s washed.”

During the washed coal process, rocks and coal ash particles are removed from the coal. Washed coal is clean, has less ash and more moisture. This makes it more efficient for power plants, like putting higher grade gasoline in your unleaded engine. It’s also arguably bettter for the environment because washed coal, when burned, releases less sulfur into the atmosphere.
Bhattacharyya  said it costs India on average $21 per ton for high ash coal. It costs another $6 per ton to wash that coal. What’s more, washed coal imports have historically been sold to India at spot market prices. From Indonesia, the coal cost about $47 per ton for the high-quality washed coal, the chairman said.

“Spot prices are substantially higher than the prices at which we sold in India,” Bhattacharyya said. “We are [now] engaging with coal mining companies so we can forge certain kinds of strategic partnerships so that we can get coal at cheaper prices, at more stable prices back in the country.”

When I asked him whether it was a good time to be in the coal business, Bhattacharyya said it is a “tremendous time” to be in the business.

I asked the chairman if he sees it a bit ironic that while much of the industrial world tries to cut emissions, India is expected to increase its use of coal, not the most popular fuel of choice these days.

His answer didn’t surprise me that much. Moderation, he said. India consumes only one third of the electricity China does, and only five percent of what the US does. That number did surprise me.

More than 400 million people in India do not have electricity–more than the entire U.S. population.
And, Bhattacharyya said that in areas where coal is mined, the company has brought prosperity, built 85 hospitals, and 665 educational institutions.

India is also becoming a world leader in clean solar technology and increasing its use of nuclear energy.

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