Adani ties up Indonesian coal supply with Rs 7700 crore investment

Gujarat-based infrastructure company Adani Enterprises announced the contours of its investment into Indonesia, crystallising a preliminary agreement entered into in August 2010. It will invest about $1.65 billion or about Rs 7,700 crore, over a period of 4 years, to build a 250km railway line and port infrastructure to handle about 60 million tonnes of coal. The announcement is part of the Indonesian President, Susilo Bambang Yudhoyno, visit to India, which includes signing of a number of business deals to further the nation’s economic growth.

Adani will make the investment through a subsidiary PT Adani Global. The railway line will connect the coal mine, in Tanjung Enim, South Sumatra, to Tanjung Carat, where the port will be set up. The coal will be supplied by PT Bukit Asam, a government-owned coal mining company. It has given coal purchase rights to PT Adani Global on take or pay basis, with a minimum volume of 35MT per annum. This agreement will be initially valid for 30 years.

The company will sell 60 per cent of its coal from Tanjung Enim to Adani, at a government-notified price. The balance coal, according to the statement, will be used as contract carriage for Bukit Asam. That is, it can use Adani’s facilities to ship its coal. Bukit Asam claims to have the largest coal reserve in Indonesia. Of total resources of 7.29 billion tons of coal, 6.36 billion tons are located in Tanjung Enim. Availability of coal transportation facilities is a constraint to hiking production.

Adani already operates a coal mine in Indonesia and also has mining rights in Australia. The coal from these mines is shipped to India, and it supplies about 30 million tons of coal in India and it is targeting a figure of 200 million tons by 2020. The current agreement will add about 35 million tons to its capacity, but Adani may also have to invest in the power sector.

Indonesia, just as other commodity producing countries, is seeking to ensure that its resources are used to propel its own economic growth, than to be exported without any value addition. Keeping in mind the government’s desire, Adani has said it will consider the possibility of setting up power plants with a capacity of 2 units of 1160 megawatts each or 3 units of 660MW each, of lignite-based power plants in Indonesia.

The Adani Enterprises share was down by 1.3% at the time of posting.

Read the announcement made by Adani Enterprises to the BSE and the read the August announcement made by PT Bukit Asam on the MoU.

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