RAKIA may defer E. Kalimantan coal, railway project
Monday, July 26 2010 - 02:08 AM WIB
The report quoted RAKIA CEO Khater Massaad as saying that the decision was made as the country cools on a domestic coal-fired power project, adding that the move was in line with the emirate?s strategy to pull back from overseas projects to and concentrate on attracting foreign investment at home.
However, the same media reported in separate article quoting Sheikh Saud bin Saqr, Crown Prince and Deputy Ruler of Ras al Khaimah as saying that the emirate is still studying how the project would directly tie in to its economy, but under the current plans, RAK entities may not have to put any substantial equity into the project.
MEC Coal and MEC Infra, two 50-50 joint ventures between the government-owned RAKIA and Trimex, a private Indian company, plan to open an inland mine in East Kalimantan that would initially produce 17 million tonnes of coal a year.
The coal would be transported to the coast by a 140km railway and exported under swap agreements to at least three major Indian power stations starting 2012.
Later stages of the project would expand the mine?s output and add a power plant and aluminium smelter to produce 500,000 tonnes of metal for export a year.
Reports at the time said the emirate would invest up to US$5.2 billion in the entire project.
But current plans for financing the first part of the project ? the $1bn railway and port ? show that RAKIA and Trimex will most probably not have to cover any of the upfront costs, said Madhu Koneru, the executive vice chairman of MEC Holdings, a Trimex subsidiary and RAKIA?s partner.
The partners expect to cover the equity portion of the investment with $250 million from Infrastructure Leasing & Financial Services (IL&FS), a fund backed by Indian state companies, a Japanese company and the Abu Dhabi Investment Authority.
IL&FS, which invests in projects tied to India, would initially own the railway and port and gradually transfer ownership to the partner companies over several decades.
It would use the coal contracts with Indian buyers as a financial ?safeguard?, Hari Sankaran, the IL&FS managing director, told an Indian newspaper in December.
With the expected $250m from IL&FS, MEC and RAKIA have been able to accept construction bids from contractors and start arranging project financing, Koneru said.
?We can find the $750m only if we come out with the [construction] contracts, which come out of the tender so we know that this is the total cost of it,? he said. ?Our investment is already in the development stage.?
The investors have sought to further stretch their burgeoning coal assets by negotiating swap agreements with Indian buyers. In return for selling the coal at below-market rates, MEC would take equity stakes in Indian power plants, Koneru said in February.
The power producers could also take stakes in the coal mine, further reducing the investment burden on MEC. (*)