Essar Power said to be in talks to recast Salaya-I debt

1,200-Mw project hit by change in Indonesia coal export norms

Essar Power is in talks with lenders to re-structure the principal debt of its coastal Gujarat power project in Salaya, bankers have said.

Special purpose vehicle Essar Power Gujarat is said to be seeking a longer tenure to repay the principal. The interest payments are being done regularly. The debt is around Rs 3,600 crore, said sources. State Bank of India is one of the major lenders to the company.

The 1,200-Mw coal-based Salaya-I is facing a problem haunting all projects drawing coal from Indonesia. “The pricing of coal has become more market-based, and that has changed the financial profile of the project, as the cost of fuel has gone up. That has led to inadequate coal supply to the unit,” said a senior executive of a public sector bank.

In response to an email query, Essar Power said the unit is running at 100 per cent plant-load factor. “We confirm that we are meeting all our debt commitments according to schedule,” the company said, without commenting on the repayment schedule.

The power plant has grappling with increased international coal prices, and a change in Indonesian regulations for coal import, like many other coastal power plants in India. The new regulations have altered the plans of companies that have bought coal assets in Indonesia with the hope of keeping coal costs under control in the long term. According to the changed regulation, coal exports from Indonesia are benchmarked to international prices.

Essar had acquired the Aeries mine, at East Kalimantan, in 2010 for $118 million. The coal block is known to have 64 million tonnes of mineable reserves, and an annual potential production of four million tonnes. The reserves were seen suitable for the requirements of Salaya-I in Gujarat. Essar has started construction of supporting road and port infrastructure, and the coal is expected to become available in nine-12 months.

Tata Power, Reliance Power and Adani Power, too, have been facing the same predicament. Recently, Tata which has an imported coal-based power plant at Mundra, went through a rating change after Standard & Poor’s changed its outlook to negative. Tata could not maintain the debt-equity ratio as agreed with the bankers, and is in negotiations with them.

In February, Essar put on the back-burner expansion plans of the Salaya project. “We have decided to regulate the capital commitment and progress of three of our projects — Salaya-II, Salaya-III and Navabharat I — totalling 2,970 Mw.

Construction of these will now progress only against specific milestones,” said Naresh Nayyar, the chief executive officer of Essar Energy, in a conference call.