India's Tata Power enters RI coal sector with $1.3b purchase

Veeramalla Anjaiah, The Jakarta Post, Jakarta

In the early 1990s, India adopted the "Look East" policy to enhance its engagement with the dynamic East and Southeast Asian regions. After 15 years, Indians are not only looking at Southeast Asia, but are actually coming to the region in a big way.

The entire world is currently captivated by India, thanks to its booming economy and billion-plus population, with 300 million people in the affluent middle class alone. But India's big companies are eager to gain a foothold in Indonesia, which boasts the biggest economy in Southeast Asia.

India's Tata Power Company Ltd. (TPCL) signed an agreement in Singapore late Friday with PT Bumi Resources Tbk. (Bumi) for the purchase of 30 percent stakes in leading Indonesian coal miners PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia for US$1.3 billion.

PT Bumi is the 100 percent owner of both KPC and Arutmin, while TPCL is the second-largest power producer in India after the National Thermal Power Corporation Ltd.

TPCL had initially offered $1.6 billion for the stakes, but this was later reduced to $1.3 billion. TPCL has three months to complete the deal, under which it has to pay the entire $1.3 billion in cash to Bumi.

TPCL beat out strong competition from Reliance Energy Ltd., which is from India as well. It also outgunned other contenders, like Glencore International AG from Switzerland, Mitsubishi from Japan, KEPCO from Korea and BHP Billiton from Australia.

Indian Ambassador to Indonesia Navrekha Sharma hailed the deal.

"I'm very happy. We should now also see a higher profile for Indonesia in India, apart from a higher Indian profile here," Ambassador Sharma told The Jakarta Post.

Given the high price paid, it would appear that TPCL is desperate to secure coal supplies for its giant power projects in India.

TPCL managing director Prasad R. Menon recently said in India that his company would need 21 million tons of coal imports starting 2012 to fire its power plants.

With the recent deal, Tata will get 50 percent of its coal imports from the two Indonesian companies.

Menon praised the deal. "These particular assets are truly world class, not just for the coal mines themselves, but because of the infrastructure they have for shipping," Menon told Reuters.

Indonesian coal is much superior to Indian coal in terms of quality.

For instance, a power plant needs 6 million tons of Indian coal to produce 1,000 MW of power. But just 4 million tons of Indonesian coal can generate the same amount of power.

TPCL, which has a power-production capacity of 2,300 megawatts, is currently building a 4,000 megawatt (MW) coal-fired power plant at Mundra in Gujarat state. It is also building a 2,000 MW coal-fired power plant in Maharastra state.

"We are looking at coal mining acquisitions or coal supplies in Indonesia, Australia and South Africa," Menon said.

It was against this background that TPCL wanted not only a stake in KPC and Arutmin, but also a long-term relationship with the Bakrie Group.

For the Bakrie Group, the owners of PT Bumi Resources, the sale of the stakes will yield a net profit of up to $315 million. The Group bought a 100 percent stake in KPC for $500 million from BP Plc. and Rio Tinto in 2003, and a 100 percent stake in Arutmin for $185 million from BHP Billiton.

Last year, the two companies produced 53.5 million tons of coal.

TPCL, established in 1911 and currently India's largest energy utility, belongs to that country's biggest and most respected salt-to-software conglomerate, the Tata Group, whose annual revenue amounted to $22 billion in 2005, or the equivalent of 3 percent of India's gross domestic product. It employs 246,000 people.

Tata, which owns 96 subsidiaries around the globe and produces almost everything from pins to planes, made its biggest-ever acquisition just three months ago when it took over London-based Anglo-Dutch steel company Corus for $12 billion.

"It's a two-way street now. India is seeking foreign investment, but Indian companies are emerging to invest in other countries," Indian commerce minister, Kamal Nath, said while welcoming the Tata Group's move.

Tata Group acquired Singapore's Natsteel in 2004, as well as Millennium Steel in Thailand. A number of Indian companies, like TVS Motor Co. and Tata Consultancy Services, also recently arrived in Indonesia to set up shop.

Armed with the new Investment Law and abundant natural resources, Indonesia has the potential to attract the attention of many more Indian companies in the future.
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