CIL to acquire 50% of IndianOil's explosives unit to form equal JV
New Delhi   16-Jul-2012

Coal India (CIL) will sign a memorandum of understanding with IndianOil to take over 50% in its explosives division, which will be spun off into a different company where CIL and IndianOil will have 50% stake each.

CIL's move comes just after Competition Commission of India (CCI) imposed a penalty of 60 crore on 10 private explosives manufacturers following its complaint that they had formed a cartel. The competition regulator found that Gulf Oil Corporation Ltd, Ideal Industrial Explosives Ltd, Solar Industries India Ltd, Blastec India Pvt Ltd and Indian Explosives Ltd, among others, had formed a cartel to supply explosives to Coal India.

"We have decided to take a 50% stake and the MoU to this effect will be signed next week. We intend to infuse funds into the company to bolster its production process," S Narsing Rao, chairman of CIL, told ET.

The financials for stake acquisition will be worked out after the MoU is signed. A consultant will be engaged for valuation of the units, and the amount of money CIL will have to invest for taking a stake in the company. At present, the company procures about 3 lakh tonnes of bulk explosives from these units, which is only about 20-25% of the total requirement.

CIL spends about Rs 1,500 crore annually in purchasing explosives and the project is expected to result in significant savings. It will also take care of CIL's essential input supplies in case private players squeeze supplies or are unable to procure ammonium nitrate from the international market to produce these.