The move will ensure fuel supplies for Tata Power's coastal power projects -- mainly the 4,000 mw ultra mega power project at Mundra.

PT Bumi Resources, Asia's third-largest coal miner, has agreed to sell stakes in two mining units, PT Kaltim Prima Coal and PT Arutmin Indonesia.

In addition, Tata Power has also signed an offtake agreement with one of the units, PT Kaltim Prima Coal, to purchase around 10 million tonnes of coal a year.

Tata Power managing director Prasad R Menon said in a statement, "This move not only secures our fuel requirements in light of the aggressive growth plans, but also opens up opportunity for the company to own and operate world-class, competitive and profitable electricity and energy businesses in India and overseas."

A special purpose vehicle will be formed for the acquisition, which is expected to be completed by a couple of months.

The buyout will be funded through a mix of debt in the SPV and internal accruals and borrowings from Tata Power. The company will take management participation of these units.

Tata Power beat six bidders, including Reliance Energy, to acquire the stake. Bumi decided to sell a part of its stake in the coal mines after it failed to raise $3.2 billion through a share sale last year. It will use the proceeds of the sale to pay off about $1 billion debt.

Menon added that the acquisition would specifically address fuel requirements for the Mundra ultra-mega power project, Trombay and coastal power projects in Maharashtra.

The company is setting up 7,000 mw power projects on the west coast, to be developed over the next five years for nearly Rs 29,000 crore (Rs 290 billion). These projects will require nearly 21 million tonne of imported coal.

Powerplay

Tata Power buys 30 per cent stake in two coal mines and one trading firm

Pays Rs 4,740 cr to owner, PT Bumi

Tata Power to nominate CFOs

PT Bumi will control remaining stake

Tatas sign assured coal purchase of 10 million tonne a year

SPV will execute the acquisition over two to three months