India, currently embroiled in a coal supply shortage owing to various complicated issues at the home front, is set to enter into a memorandum of understanding (MoU) with Mongolia that will enable it to acquire a coking coal mine in the coal rich country.

A report by The Hindu said an Indian delegation led by C.S. Verma, Chairman of Steel Authority of India (SAIL) and U.P. Singh, Joint Secretary in the Ministry of Steel, is scheduled to fly to Ulaanbaatar today for the contract signing.

"We are signing an MoU with the Mongolian government for allocation of some coking coal mine. We have been talking about this for about a year," The Hindu quoted Verma as saying.

"Mongolia has very good quality of coking coal mines. We do not have such quality coal mines ourselves. Let Mongolian government allocate some good coking coal mine and we will have reciprocal arrangement to set up a steel plant there," he said.

In exchange for the coal mine acquisition, India has proposed to construct a steel plant in Mongolia, the country's first ever plant.

"We will be too keen to get good volumes, good coal mine with lot of reserves, so that we feed the steel plant which we will be setting up there and the surplus will be brought to India," Verma said.

The coal mine India targets to acquire should be able to meet the requirement of the proposed steel plant. The coal will first be used to power the plant. An excess will then be transported to India.

The mine and expected quantity of the coal will be drawn out after the MoU has been signed.

India is fast tracking the acquisition of coal mines overseas in order to support plans of its steel industry to increase production from the current 80 MT to 200 MT by 2020. To produce one tonne of steel alone already requires 0.9 tonne of coking coal. Unfortunately, India lacks quality coking coal mines at home.

India, which imports 35 MT of coking coal every year, mostly sources 60 per cent to 70 per cent of these from Australia, while the rest comes from the US and New Zealand.

However, Australian coking coal price is already excessively expensive, going up from $125 per tonne in 2010 to $350 per tonne in 2011, Verma said.

Currently, Australian coking coal is priced between $200 per tonne and $210 per tonne.