CHALLENGES & STRATEGIESOF

ACQUISITION OF COAL BLOCK ABROAD

BY

DR. M.M. SEAMADVISOR (MINING), ESSAR GROUP

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ACQUISITION NEED – WHY :

NATIONAL COAL INDIGENOUS

DEMAND (2016 -17) : 980.50 Mt SUPPLY (2016 – 17) : 795 Mt

PROJECTED GAP : 185 Mt THROUGH IMPORTS

SUPPLY SECURITY NEED ACQUISITION OF COAL MINES ABROAD

CHALLENGES / STRATEGIES

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COAL FROM WHERE: INTERNATIONAL COAL MARKET

PRODUCTION (2011) : 7678 Mt (TABLE-I) COKING : 967 Mt THERMAL : 5670 Mt LIGNITE : 1041 Mt

COAL TRADE (2011) : 1142 MT (TABLE-II & III) COKING : 276 Mt THERMAL : 861 Mt LIGNITE : 5 Mt

SOUTH EASTERN ASIA / INDIA : 665 Mt (COKING : 150 Mt)

EUROPE : 120 Mt (COKING : 25 Mt)

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COAL FROM WHERE Continue…

TABLE – IMAJOR COAL PRODUCING COUNTRIES (IN Mt)

S. NO. COUNTRY COKING STEAM LIGNITE TOTAL

1 P R CHINA 504 2831 136 3471

2 USA 82 849 74 1004

3 INDIA 35 509 41 585

4 AUSTRALIA 146 199 69 414

5 INDONESIA 3 373 - 376

6 RUSSIA 78 178 78 334

7 S. AFRICA 3 250 - 253

8 GERMANY NA NA 176 189

9 POLAND 11 65 NA 139

10 KAZAKHSTAN 13 98 NA 117

11 COLOMBIA NA 80 NA 80

TOTAL WORLD 967 5670 1041 7678

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COAL FROM WHERE Continue…

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TABLE – IIMAJOR COAL EXPORTERS (IN Mt)

S. NO. COUNTRY STEAM COKING TOTAL

1 INDONESIA 309 - 309

2 AUSTRALIA 144 140 284

3 RUSSIA 110 14 124

4 USA 34 63 97

5 COLOMBIA 75 - 75

6 S. AFRICA 72 - 72

7 KAZAKHSTAN 33 1 34

TOTAL WORLD 861 276 1142*

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COAL FROM WHERE Continue…

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MAJOR COAL IMPORTERS (IN MT) TABLE – III

S. NO. COUNTRY STEAM COKING TOTAL

1 P R CHINA 146 38 190

2 JAPAN 121 54 175

3 S. KOREA 97 32 129

4 INDIA 86 19 105

5 CHINATAIPEI 62 4 66

6 GERMANY 32 9 41

7 UK 27 6 33

TOTAL WORLD 861 276 1142*

* Includes 5 Mt of Lignite

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FUTURE COAL TRADE:

USE OFFICIAL GLOBALLY : +28% (YR 2001-2010)

CURRENTLY (YR 2011) : 1142 Mt

PROJECTED (YR 2020): 2000 Mt

DEMAND : ASIA

FAREAST / S.E. ASIA / INDIA

SOUTH & EAST AFRICA

NORTHERN S. AMERICA

COAL LIKELY TO STAY AMONG MAJOR ENERGY FUELS FOR NEXT FEW

DECADES

COAL IMPORTS INTO INDIA TOO LIKELY TO STAY

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TARGETS FOR COAL IMPORTS:

LIMITED CHOICE

ASIA – MONGOLIA, VIETNAM

AFRICA – S. AFRICA, MOZAMBIQUE, BOTSWANA, ZIMBABWE

AMERICAS – CANADA, USA, COLUMBIA

OTHERS – EX-USSR (RUSSIA, UKRAIN, KAZAKSTAN) & CHINA

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ACQUISITION PROCEDURE:

NATURE OF BLOCK – GREENFIELD / BROWNFIELD

PROCEDURAL STEPS:

INITIAL CONTACT :

EMBASSY

FINANCIAL INSTITUTION

DIRECT OWNER / AGENT

NON DISCLOSURE AGREEMENT

ENGAGE FINANCIAL / LEGAL CONSULTANT

DUE DILIGENCE

ESCROT ADVANCE – NO OTHER DEALINGS

CHECK DRILLING

ENGAGE MINING CONSULTANT - PREFESIBILITY STUDY

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CHECK PERMISSIONS , OWNERSHIP DOCUMENTS , LEGALITY

OF TRANSACTION

BROWNFIELD – MINING PLANS, EQUIPMENT CAPITAL EX/

MANPOWER ETC.

PRICE NEGOTIATION

COMPLETE TRANSACTION THROUGH LEGAL PRINCIPAL CONSULTANTS /

GOVERNMENT AGENCIES.

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CHALLENGES:

LACK OF GOVT. SUPPORT

RESOURCE NATIONALISM :

SPECIAL TAXES

JV WITH LOCAL

POPULIST TAXATION MEASURES – (LOCAL POLITICS)

DIFFICULT MINING DESTINATION

INVESTMENT NOT ONLY IN MINES BUT ALSO ON LOGISTICS – RAIL / ROAD / PORT

DIFFICULT LAND ACQUISITION DUE TO ABSENCE OF LAND RECORDS

R&R HURDLES

LANGUAGE BARRIER

IGNORANCE OF LOCAL LAWS

ADMINSTRATIVE RED-TAPE

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STRATGIES:

REWORK WORKING GROUP PROJECTION – INDENTITY TARGET

COUNTRIES FOR LONGTERM IMPORTS

UPGRADE POLITICAL EFFORTS FOR STRONGER BILATERAL DIPLOMATIC

RELATIONS

INSTITUTE SPECIAL FUND FORFOREIGN COAL ACQUISITIONS

PROD PSU’s FOR FOREIGN ACQUISITION

FORMULATE LONG TERM COSTAL THERMAL POWER-GENERATION

STRATEGY

DIVERSIFY COAL IMPORTS

MODERATE RESOURRCES NATIONALISM BY GREATER COMMERCIAL /

CULTURAL PRESENCE

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THANK YOU

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