Difficulties in sourcing fuel for its coal-fired electricity plants may force Essar Energy to shelve its plans for three power projects. The piece of news comes at a time when the power and oil and gas company is facing continued delays at the government level on coal block clearances. What’s more, weaker refining margins and depreciation of rupee and a Supreme Court ruling on a sales tax deferment scheme have weighed heavily on Essar Energy Plc’s full-year financial results.
The Mauritius-based India-focused firm said it had to source higher cost coal from outside India to fuel its power stations even while awaiting government clearance to start mining its own coal. Result: it might shelve plans for three power projects that entail an investment of $3.1 billion. “We have decided to regulate the capital commitment and the progress of three of our power projects — Salaya II, Salaya III and Navabharat I, totalling 2,970 Mw,” according to Essar Energy Plc’s Chief Executive Officer Naresh Nayyar. “The construction of these will now progress only against specific milestones,” he said over a conference call.
The Port Louis-headquartered Essar Energy reported a net loss of Rs 2,841 crore ($568.2 million) for the full year, compared with a profit of Rs 1,241.5 crore a year ago. The 1998-founded company, which is a subsidiary of Mumbai-based MNC Essar Group, said its profits since August were also badly impacted owing to the rupee’s 13 per cent depreciation against the dollar. The company said it has taken an exceptional adjustment of $970 million in its 2011 financials to reflect a reversal of the sales tax benefit.
Amid this, Essar Energy suffered another setback on January 17, when the Supreme Court rejected its 125 per cent sales tax deferment benefit claim on the company’s investment in the Vadinar refinery project. The company has already filed a review petition.
Nayyar said Essar Energy was disappointed the country’s apex court had set aside an earlier Gujarat High Court judgment that enabled it to benefit from a sales tax deferment scheme. “We are seeking a review of this decision,” he said. “We are also engaged in discussions with the Gujarat government regarding repayment of the amount due in instalments.” Besides filing the review petition, Essar Energy was also taking steps to “ensure” that it had “adequate liquidity and funding” to make the repayments. “We have $380 million available through Essar House. Essar Oil is in the process of arranging a new corporate loan facility,” Nayyar added.
In addition, Essar Oil has announced a proposal to issue $600 million worth of fresh equity over the next 12-15 months. “This will improve the networth and liquidity of Essar Oil,” Nayyar said. “It would also increase the public holding of Essar Oil shares to around 25 per cent, in line with Sebi requirements.”
Essar Oil’s share was down 7.49 per cent at Rs 61.10 on the Bombay Stock Exchange.
The company said it was also looking at converting the FCCB, which is almost Rs 1,400 crore into equity.
The company found 2011 as a “challenging period” in terms of delivery of Essar Energy’s power generation growth projects. “There have been continued delays at the government level on coal block clearances to allow startting mining the coal blocks previously allocated to us and adjacent to our Mahan and Tori power projects,” Nayyar said.