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India may set up Sovereign Wealth Fund to buy coal blocks abroad: Jaiswal

The government of India is thinking of creating a ‘Sovereign Wealth Fund’ to make it easier to acquire coal blocks in other countries, coal minister Sripraksh Jaisawal said.

“There are issues which need to be resolved urgently in regard to acquisitions abroad especially in view of the fact that other energy deficit countries are rapidly buying assets abroad,” Jaiswal said in an obvious reference to China and its acquisitive activities in places like Africa.

India will target Australia, South Africa, Mozambique, USA and Indonesia for the acquisitions.

‘Sovereign Wealth Funds’ are investment funds that owned and operated by governments directly or indirectly, such as the Temasek of Singapore, Kuwait Investment Authority and the Korea Investment Corporation.

They are used to acquire high-priced assets, such as companies, ports and oil blocks, in foreign countries to advance the interests of the country to which the fund belongs.

For example, China, through its government-owned companies, has acquired large tracts of land, mines and ports in several African countries — ensuring a long-term supply of raw material and markets for its companies.

So far, India’s acquisitions abroad has been done through companies — mostly private. Companies such as Tata Steel, Essar group, Bharti group, ONGC, Indian Oil and Tata Motors have assets abroad.

Coal India even has a dedicated division called Coal Videsh that focuses on acquisitions abroad. India also has “International Coal Ventures Private Limited” (ICVL), a consortium of different public sector companies, targeting coal blocks abroad.

However, Jaiswal said, the method has been found wanting.”We need to be more aggressive in acquiring energy assets abroad,” he said.

“The decision-making process needs to be fast tracked and a policy support framework needs to be established to overcome risk aversion,” he said.

In several cases, coal blocks don’t have related infrastructure — such as roads and ports — and the acquirer has to develop those as well.

“It is important to have financial support from the Government for acquiring very large assets abroad and bilateral understanding between the two countries,” Jaiswal added, at a CII event.

Unlike developed countries, India makes nearly all of its electricity by burning coal, apart from a small portion that it makes by damming rivers.

“We are facing tough challenges in meeting the energy needs of the country. The nation’s energy requirements are envisaged to increase to about 1667-2077 million tonnes by 2031-32 as per the projections made in Integrated Energy Policy Committee Report.

“The overall import dependence of energy in 2031-32 is projected to be in the range of 58-67%. This kind of growth in energy demand and the increasing gap between domestic supply and demand, will make it imperative to secure energy supplies through imports,” the minister added.

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