Tata Power has decided to exit one of its two coal assets in Indonesia by selling its entire 30 per cent stake in PT Arutmin Indonesia (Arutmin) to the local Bakrie family for $500 million. Tata Power had acquired two blocks in the country from the Bakrie family almost seven years ago for $1.1 billion.
The private sector power generation firm said it is selling the asset as it is facing under-recovery challenges in its Mundra ultra mega power project and cash flow concerns. The move will also help it cut its debt.
The firm said that Arutmin, which is a mine spread across number of pits in South Kalimantan in Indonesia, had started posting production and cost viability challenges.
Tata Power continues to own its equity stake in the other asset PT Kaltim Prima Coal (KPC), which owns one of the largest thermal coal producing mines in the world.
The transaction to sell Arutmin is expected to close in the next three months.
Anil Sardana, managing director of Tata Power, said, “The current coal price scenario has presented a challenge to the entire coal mining sector. The proceeds from the sale of Arutmin will provide cash to meet the company’s current challenges. We do not expect any impact on the coal supplies to our plants since we stay invested in KPC mines and our coal supply agreement continues as it is.”
Tata Power had bought 30 per cent equity stakes in KPC and Arutmin from Bakrie family’s PT Bumi Resources Tbk in March 2007. As part of the purchase, it had also signed an off-take agreement with KPC which entitles it to purchase about 10 million tonnes of coal per annum.
This was to support its power projects on the west coast of India.
Together, KPC and Arutmin produced approximately 53.5 MT of coal in 2006 with over 95 per cent of the output set for exports.
Tata Power paid $1.1 billion for this purchase prior to working capital and other adjustments. The acquisition was through an offshore Special Purpose Vehicle (SPV).
(Edited by Joby Puthuparampil Johnson)