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Mon 26 Oct 2009 10:12 PM

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UAE fund eyes India power for Indonesian coal

Middle East Coal says close to deal to supply coal to meet Indian power plants needs.

The UAE's Middle East Coal (MEC) is in talks to buy equity stakes in India's power plants in exchange for long-term coal supply, an executive said on Monday.MEC is joint venture between UAE investment fund RAK Minerals and Metals Investments (RMMI) and UAE-based mining company Trimex. RMMI won a license in March to build a 150 km (93 miles) rail link carrying coal from a mine in Indonesia's East Kalimantan province to a coal terminal.

"We are close to signing a contract with a number of Indian power plants who need to be supplied with coal over the coming 15 years, the deals will be finalised by the end of next month," said Madu Koneru, vice chairman of Middle East Coal.

"India has one of the fastest growing economies and also has a shortage of power supply so that's why we have decided to go ahead with these deals," he told Reuters on the sidelines of a mining conference in Bahrain.

The deals would help MEC find the $500 million in financing it needs for the project, he said. MEC would start approaching institutions for funding once the deals were in place, he added.

RMMI plans to provide $100 million of the initial $600 million investment. Around $500 million will come from institutions such as the World Bank. The rest of the investment would come from additional partners that the company is now seeking, Koneru said.

The project has a cost estimate of around $1 billion.

Middle East Coal plans to start shipments of 3 to 5 million tonnes of thermal coal via road. Once the rail project is complete, shipments would rise to 17 million tonnes, Koneru said.

MEC had raised its projections for how much coal it could ship as it had progressed with planning for the project, Koneru said. Earlier this year, the company said that it would ship 15 million tonnes of coal.

Coal production in East Kalimantan accounts for over half of Indonesia's total coal output, forecast to reach around 230 million tonnes this year. Indonesia is the world's top exporter of thermal coal.

Of the 17 million tonnes, 10 million would be shipped to India, 7 million to China and the remaining two million tonnes to the UAE's northern emirate of Ras al-Khaimah, home to RMMI, said Koneru.

"And right now we are also in talks with Australian and Canadian companies, we hope one of them will operate the rail project," said Koneru.

The mines would be operated by local Indonesian companies.

The company had finalized in the past few weeks a deal to own 130 km of land in East Kalimantan which includes the coal mine.

"This is now private owned land and before we bought it no one was living on it," said Koneru. "But there are six villages in the area. We hope to create job opportunities for their people," he added. (Reuters)

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