RAK seeks lift on coal deal

A coal-mining venture in Indonesia partly owned by the RAK Government is looking to Indian firms to bolster the project by financing a key railway and buying nearly all of the coal output.

Excavators move coal for shipping at a processing area in East Kalimantan in Indonesia.

A huge coal-mining venture in Indonesia partly owned by the Ras al Khaimah Government is looking to Indian firms to bolster the project by financing a key railway and buying nearly all of the coal output, a top project executive says. The integrated coal mine, railway and port in a sparsely populated corner of East Kalimantan, an Indonesia province on the island of Borneo, has been reorientated towards India after initially being described as a strategic investment by RAK to secure fuel for a proposed coal-fired power station in the emirate.

MEC Holdings, a 50-50 joint-venture between Trimex of India and the Ras al Khaimah Investment Authority, hopes to sign coal export agreements with two Indian power firms by the end of next month, said Madhu Koneru, the executive vice chairman of MEC. India "is the primary market", he said. "We are on the good side of commodities - energy - and the market we are targeting is India: both are doing very well."

Previously, Mr Koneru had said that several million tonnes of coal would be shipped to RAK, but yesterday he said the outlook for that market was uncertain. The two Indian companies, which he did not name because the contracts were still under negotiation, would buy between 15 million and 17 million tonnes of coal a year, he said, which amounts to the mine's entire first-stage output when it starts exports in the first quarter of 2012. Reuters has cited officials as saying Tata Power is one of the two Indian companies.

One deal is likely to be structured as a swap, in which a power company takes an equity stake in the mine and MEC takes a stake in the power plant, Mr Koneru said. MEC expects the US$1 billion (Dh3.67bn), 140km railway connecting the inland mine and port to be financed by Infrastructure Leasing and Financial Services (IL&FS), a large Indian conglomerate with a mandate to focus on projects that tie into India's economy.

IL&FS was once fully owned by Indian government entities, but 12.3 per cent is now controlled by the Abu Dhabi Investment Authority, and 23 per cent by ORIX, a private Japanese lender. "IL&FS is so much involved in funding power plants in India, they understand the requirement of coal," Mr Koneru said. "There is an indirect Indian story as a reason for why they're coming in, not just because it's another business project."

If IL&FS approves the deal, MEC will not have to make any investment of its own, Mr Koneru said. "As far as we're concerned they'll come in and take care of the whole thing." MEC expects to award a construction contract for the railway by early May and to start construction in the third or fourth quarter. The RAK Government has not updated its plans, announced in December 2008, to build a large coal-fired power station in the emirate that would consume 3 million to 4 million tonnes of coal per year.

"As part of the RAK entities, our job is to supply the coal," Mr Koneru said. "We are not involved in the power plant." Mr Koneru said he was confident that the RAK Government would remain a shareholder in the Indonesia project even if the power station in the emirate was never built. He said the government had not taken a hands-on role in the details of the business in Indonesia. "They're more involved in the master plan activities because of the experience they've had in mining resources," he said.

Nonetheless, the emirate's government officials took a highly visible role last year in securing a licence for the railway from the Indonesian government and welcoming the Indonesian president on a visit to the UAE in December. In promotional materials, the RAK Government is described as the leader of the project. @Email:[e-mail]