By Malini Menon
NEW DELHI (Reuters) - India's GVK Power and Infrastructure Limited faces a one-year delay in lining up funding for a $10-billion Australian coal project, but is determined to build its mine, railway and port even while bigger rivals scrap less challenging plans.
The conglomerate's vice chairman told Reuters the initial target had been too ambitious in view of the complexity of the project, the first of its kind in Australia's coal industry.
"There was a small delay in approvals, but frankly the main reason is that the target was unrealistic, given the size and scale," G.V. Sanjay Reddy said.
The Alpha coal project cleared a major environmental hurdle when it won federal approval this month.
GVK now expects to cut its stake to 51 percent and reach financial closure by the third quarter of 2013, Reddy said. Earlier, it had planned to trim its 79 percent stake in Alpha by late this year to lighten its funding burden.
"While we have already started our preliminary discussions with bankers and financiers, these will start taking serious shape once we have the construction contracts also in place," Reddy said.
GVK signed one of the first such contracts last Wednesday, worth around A$2 billion, with South Korea's Samsung C&T and Australia's Smithbridge Group Pty Ltd for a 60 million tonnes per annum (mtpa) port terminal in Abbot Point, Queensland.
It hopes to conclude most construction pacts by February.
The Alpha project is one of five in the Galilee Basin, a coal-rich region untapped because it is further away from the Pacific coast than other coal deposits in Queensland, and will require billions of dollars worth of new rail lines and ports.
Rival Indian group Adani Enterprises is also developing a A$10.9 billion coal and rail project in the basin.
GVK believes it can still justify building the Alpha mine, a 500-kilometre rail line and a 60-mtpa port even after bigger miners with established infrastructure, including BHP Billiton and Xstrata , have cancelled or delayed coal projects in Queensland.
The large miners have cited escalating construction and operating costs, higher royalties, new taxes and slowing growth in China for their rethink.
"Even in this environment, the reason why this project is going to take off is primarily because of our cost," Reddy said. "Our free-on-board cost per tonne for the life of mine is going to work out to around A$55 a tonne."
The venture is key to the coal ambitions of GVK, which also has interests in airports and hotels, and could help feed voracious appetite for coal in India, where two-thirds of power output depends on the mineral.
Indian companies have been scouting for overseas coal assets to secure their energy needs as domestic production fails to keep pace with galloping demand.
The open pit Alpha coal mine will be amongst the cheapest thermal coal producers in the world, Reddy said, adding it will be built on a turnkey, fixed lumpsum contracts-based model, to hold down costs.
"We are not a large mining company and their (large miners') cost practices are exactly what we don't want to do."
GVK is entering into long-term coal supply contracts with Japanese, Chinese and South Korean markets. It aims to sign such supply pacts for 15 million to 20 million tonnes.
Alpha, with a mine life of 30 years, will produce 32 million tonnes of coal a year, with first output targeted for early 2016. In the first stage, it will produce 30 million tonnes.
The coal project awaits a mining lease from the state, the only pending major approval required, but he foresaw no hitches.
"I have always told our team, even at A$75 a tonne coal price, we still have to be a viable company.... Today's prices are around A$80 to A$90 range."