Coal India buries foreign M&A plans post African safari

From Rs 4,500 crore to Rs 500 crore to Rs 2 crore. That's how the nominal value of Coal India's intent to acquire mining assets overseas has dwindled over a three year period. With a provision of just Rs 2 crore for 2016-17 disclosed in its recently released annual report, Coal India has virtually abandoned its lingering desire to buy coal assets abroad to improve energy security. Despite its disastrous effort to develop its maiden foreign coal mine acquired six years ago in Mozambique, Coal India has been budgeting funds for probable acquisitions every year.

But a bitter experience in the African country, where Coal India had to relinquish last year 75% of the allocated two blocks as no worthwhile mining deposits were found, has now forced the PSU mining major to gradually cut the provision for acquiring mining assets overseas plus probable investments in Mozambique from Rs 4,500 crore in FY15 to Rs 2 crore in FY17. Coal India, instead, would now focus on spending more on raising domestic mining capacity, upping its capex plan for 2016-17 to Rs 12,000 crore from Rs 8,000 crore planned earlier. Country's near-monopoly coal miner has fixed its investments at Rs 12,834 crore for the current financial year, higher than previous year's target of Rs 10,140 crore, and also more than about Rs 8,000 crore planned earlier for 2016-17. The rise in capex, needed to significantly hike planned output and improve rail infrastructure facilities, comes at a time when investors have raised concerns over fund outgo on account of recent buyback of shares coupled with high dividend payout.

"The capital expenditure for 2016-17 has been set at Rs 7,765 crore. Further, the company has planned to invest Rs 5,069 crore in various projects like railway infrastructure, super critical thermal power plant, solar power, revival of fertiliser plant, procurement of railway wagons and CBM. Coal India had earlier formed an SPV (special purpose vehicle) to build a 1600 mw power plant, work on which would start this year," chairman Suthirtha Bhattacharya has told shareholders. The major non-mining projects include three major last-mile rail connectivity projects at Jharkhand, Odisha and Chhattisgarh, while work on a special purpose vehicle to build a 1600 megawatt power plant would start this year. Additionally, Coal India has also started work on shell gas exploration and has dig 20 bore holes for study in FY16, the report said.

Even as Coal India management outlined its desire to raise the capex, the report revealed significant erosion of resources. While reserves have improved marginally to Rs 24,947.89 crore in FY16 from Rs 23,319.38 crore in the previous fiscal, cash balance has dropped by about Rs 9,000 crore to Rs 38,312.77 crore from Rs 47,268.89 crore in FY15. This has been mainly due to Rs 17,306.84 crore outgo on account of interim dividend this year against Rs 13,074.88 crore in the previous year. On the positive side, Coal India has saved around Rs 800 crore over the past two years in the procurement of equipment and explosives. It saved Rs 588 crore by procuring explosives through reverse e-auction process and another Rs 244 crore by getting over 100 heavy earth moving equipment through e-procurement.