A year after JSW Steel said its Mozambique coal block would be valued and sold to another group company, JSW Energy, the move is nowhere in sight, and the block lies unused. Sajjan Jindal, vice-chairman and managing director of the JSW Group (JSW Steel and JSW Energy are the two flagship companies), during the initial public offering (IPO) of JSW Energy last year, had said 80 per cent of the coal in the Mozambique block had turned out to be thermal, not coking, coal. Therefore, the asset would be valued and transferred to JSW Energy for its power plans in India. The estimated cost of the block was Rs 300 crore.
However, over a year has passed since the listing of JSW Energy on the Indian bourses but the process to transfer the asset to the company hasn't been initiated.
Pramod Menon, Chief Financial Officer of JSW Energy, told Business Standard it was unlikely the two companies would take up the asset sale anytime soon. JSW Steel did not comment for the story.
Coal is a very important raw material in making steel and in generating power. Whether thermal or coking coal depends on the ash quantity. The former is suitable for power generation and the latter is used in making steel.
Menon said, “There was talk during the IPO time with respect to looking at the mine, but, as of today, it is an asset of JSW Steel. At this point in time, there is nothing happening on that front.”
On what was said during the IPO, Menon said: “That is so, but the boards of both the companies have to decide. It hasn’t happened till now because the proposal at the board level hasn’t been made. As and when it is opportune, we will look at it.” However, as the vice chairman of the company clearly stated during the IPO that the asset sale was being considered, it caught the fancy of the investors.
"With sky-rocketing coal prices, raw material integration is something every power generation company is looking for, including JSW Energy. Hence, when the company said it might get its sister concern's coal asset, it definitely made an impact for the investors," an analyst tracking the group said, citing anonymity.
Menon said, “I don’t think we said that JSW Steel will sell the asset to (JSW) Energy anywhere in the offer document. During the IPO time, this (asset sale) was thought about at the management level.”
He said there were infrastructure issues with the coal block and as and when it was opportune, a decision would be taken. On how soon a deal could be expected, he said, “JSW Steel also has to decide whether it wants to sell it off or not. At this point in time, we are not really looking at the mine but are looking at coal opportunities external to the group.”
Coal hunt abroad
JSW Energy, in its quest to have its own coal assets, took majority stake last year in South African Coal Mining Holding. It also concluded talks to buy CIC Energy, Canada, which has reserves of 2.7 billion tonnes in Botswana, Africa. However, the latter deal is still to be finalised, due to some pending clearances. It was also looking very closely at Hancock Coal, Australia.
The company has 59.5 per cent stake in the South African coal vompany and is looking to increase it to 75 per cent, the permissible limit for foreign ownership under the laws of South Africa. Menon said the company was looking at acquiring coal assets in Australia, South Africa and Indonesia.
This is important, as is currently sources its entire coal requirement from the spot market. Volatile thermal coal prices have already affected the company's earnings, as its net income went down 25 per cent, even as its revenues went up 68 per cent in the last quarter. For the quarter, its fuel costs are at Rs 2.80 per unit, which is 31 per cent higher than the Rs 2.13 in the corresponding quarter last year.
"JSW Energy continues to face uncertainty over long-term fuel supply arrangements—inability to source coal from Sungai Belati (in Indonesia) further increases the dependence on spot purchases. We estimate JSW Energy’s dependence on spot purchase of coal to increase to 4 mtpa, which was 2.8 mtpa previously," said a report by Kotak Institutional Securities.
An Indonesian Supreme Court cancelled the company's Sungai Belati mine licence, on the ground of overlapping licence with another company.