The Hindu Business Line : Tatas will set up offshore SPV for Indonesia coal mine buy

FINANCIAL STRATEGY: Mr Prasad Menon (right), Managing Director, Tata Power Company Ltd, and Mr Amulya Charan , Vice-President, addressing a press conference in Mumbai on Monday. — Shashi Ashiwal

Mumbai April 2

Tata Power, which is buying 30 per cent equity stakes in two coal companies in Indonesia owned by Pt Bumi Resources for $1.1 billion (Rs 4,950 crore), may finance as much as 70 per cent of the investment through debt. The acquisition will be made through an offshore special purpose vehicle.

Mr Prasad R. Menon, Managing Director of Tata Power, said the financial strategy for the equity purchase was yet to be finalised. He, however, said when the company was planning the equity purchase, it was proposed that the SPV could raise between 50 and 70 per cent of the investment through debt in a foreign currency.

The two Indonesian coal companies, PT Kaltim Prime Coal and PT Arutmin, together are among the top three largest exporting thermal coal mines in the world, with total marketable reserves estimated at one billion tonnes.

Coal requirement

Mr Menon said the company had also signed an offtake agreement with KPC, which entitled it to purchase about 10 million tonnes of coal per annum.

This is expected to secure the company's coal requirement to the extent of 50 per cent from 2011, by which time it would require about 21 million tonnes of imported coal.

Mr Menon was not willing to divulge what discount Tata Power will get for buying coal from these two mines, stating that it would be "appropriate".

He pointed out that the equity acquisition would also help Tata Power get a hedge against coal price movements. "More importantly, we will be getting closer to the business of coal mining," he added.

Tata Power is expanding its generation capacity by about 10,000 MW within the next five years. Of this, 7,000 MW is coming up on the west coast, which would require imported coal, while the company's projects on the east coast will primarily depend on domestic coal.

The agreement also ensures that Tata Power has two members on the five-member board of directors of the coal companies and two out of the five commissioners in the board of commissioners, apart from having the right to appoint its own chief financial officer.