Mozambique production project uncertainty

State-run monopoly Coal India is likely to scrap its maiden overseas coal production project as the deposits in the acquired blocks are "not good enough to be called coal," a top company executive said. The executive, who spoke to ET on condition of anonymity, said the coal in the two blocks acquired in Mozambique is unfit for consumption by even Indian power plants, which can use the lowest variety of coal.

Coal India (CIL) has already spent close to Rs 500 crore in exploring reserves in the two blocks. "The reserves in the two blocks do contain carbon, but it is not good enough to be called coal. This reserve cannot sustain a 12% rate of return on investment in the medium to long run. Simply put, it is not coal," the executive said.

CIL won a five-year license for exploration and development of A1 and A2 blocks, acquired about six years ago, in Mozambique's north-western province of Tete. The blocks were un-explored and it was upon CIL to explore and ascertain the quality of the coal. Following the acquisition of the blocks, CIL floated Coal India Africana in Mozambique, the company that is supposed to execute exploration and production.

CIL won a five-year license for exploration and development of A1 and A2 blocks, acquired about six years ago, in Mozambique's north-western province of Tete. The blocks were un-explored and it was upon CIL to explore and ascertain the quality of the coal. Following the acquisition of the blocks, CIL floated Coal India Africana in Mozambique, the company that is supposed to execute exploration and production.

CIL was given to understand that 20% of the deposits in these blocks are expected to be of superior variety, good enough to be used in steel making, while the remaining were expected to be thermal coal, which could be used as fuel in power plants.

It took CIL almost two years to explore the entire area. Sample coal was sent to India for analyses. After extensive exploration, the quality of the reserve was found to be extremely inferior. "The substance that was found does not contain enough carbon to even quality as coal," added the executive.

CIL had earlier targeted production from the block by 2014 but delays in securing the exploration license held up the process. It also had to renew the license once as a result of the delay. CIL planned to bring the mined coal to India to meet the nation's rising demand for thermal and coking coal.

The company lost about a year in appointing an explorer for the blocks. It had to scrap tenders twice due to technical reasons, leading to delays in launching exploration.

Source: Economic Times

Edited from source by Joe Green

Read the article online at: https://www.worldcoal.com/mining/09022015/mozambique-production-project-uncertainty-india-1867/