Coal India: The Largest Coal Producer To Diversify Its Portfolio

Coal India (CIL) the largest coal miner in the world is planning for a joint venture with GAIL India, Rashtriya Chemical & Fertilizer (RCF) and Fertilizer Corporation of Inida (FCIL) for producing fertiliers and chemicals using coal gas in India. The joint venture is expected to be worth around Rs 10000 crore. As per the media report there will be two joint ventures, one with GAIL for upstream coal gasification, where GAIL will hold 80% of the total stake, 10% stake will be held by the technology provider of coal gasification and the rest with Coal India. While in the other joint venture CIL will join hands with RCF and FCIL, where CIL and RCF will be holding around 42% each of the total stake and the rest will be with FCIL.

The main motive behind the joint venture is to use around 6 million tonnes of coal from the coalfields at Talcher, the closed unit of FCIL in Odisha and manufacture about 3 lakh tonnes of urea annually and also to produce 300-400 tonnes of ammonium nitrate per day. Ammonium nitrate is the principal ingredient to make explosives, which is used for blasting materials at coal mines. The demand of ammonium nitrate is increasing but growing rate of natural gas prices led the prices of ammonium nitrate to rise.

The fertiliser companies uses natural gases for producing urea and ammonium nitrate. And as the price of gas is expected to rise from1st July of this year, the working capital of the chemical and fertiliser manufacturing companies are expected to rise by around Rs 3000 per tonne of production. This is going to impact the profitability and the margins of the company. As this joint venture will use coal gasification for producing chemicals and fertilisers. This is going to reduce the cost of raw material and hence the profitability of the company is expected to rise.

GAIL will be responsible for sourcing technology for manufacturing ammonium nitrate and urea using the gasified coal. For this Coal India will supply around 6 million tonnes of coal. The company will use gasified coal for producing urea and ammonium nitrate and as the government is expected to reduce the imports of urea and expected to hike the price of natural gases, the joint venture is going to reap the benefit from this as they will be using gasified coal.

Today on BSE, GAIL closed at Rs Rs 420, up by 7.52% from its previous close, while Coal India remained flat as compared to its previous close at Rs 391 and RCF today closed at Rs 57.4, down by 1.29% from its previous close.