Tata pays $1.3b for stake in Indonesian Mines

The Times of India

MUMBAI: Tata Power Company (TPC) has shaken hands with Indonesia's Bumi Resources (KPC and Arutmin) and agreed to pay $1.3 billion (approximately Rs 4,830 crore) for a 30% stake in two coal mines controlled by Bumi.

Both of these mines, among the largest in Indonesia, will give TPC access to high quality coal. This will eventually be used as fuel in the company's upcoming power projects over the next five years.

As for the Bakri family, which controls Bumi, they need the money to fund their expansion into the fast growing Indonesian telecom market.

The Times of India had first reported that TPC is willing to pay in excess of a billion dollars for the stake on February 17.

TPC managing director Prasad R Menon said this acquisition finalised on Friday, among others, specifically addresses fuel requirements for the Mundra ultra mega power project (UMPP).

One of the challenges the company now faces is to supply power from this project at Rs 2.26 per unit as opposed to current rates of Rs 3-4 per unit.

One of the ways it can get around this problem is by using high quality coal that will boost the efficiency of the plant it is building.

For instance, to produce 1,000 MW of power, a plant consumes 6 million tonnes of Indian coal. But Indonesian coal can generate the same power with 4 million tonnes.

The other reason this purchase makes sense for TPC is because an assured supply of coal will de-risk the company from price fluctuations.

In the last two years, for instance, coal prices shot up by 30-35% to $55 for high quality Indonesian coal and $70 for the Australian variety.