Finance Minister P Chidambaram's Union Budget 2013-14 on Thursday, garnered mixed reactions from experts. Ravi Uppal, MD, JSPL, who found the Budget "moderately pleasing", feels a lot could have been done to stimulate more investment into the power sector.
Power projects have been facing several issues over the past two quarters.
"The supply situation is not improving. I know it is a period of two hours in which he has to make the statement, but he could have atleast announced among intentions that he did, the government is working seriously to bring down lending rates," Uppal told CNBC-TV18.
Below is the verbatim transcript of Ravi Uppal's interview on CNBC-TV18
Q: What will be the impact of equalising the status between customs duty on steam coal and bituminous coal on your company? Does it immediately have an impact? Do you import any coal at all or will it shortly have an impact when your expansions get underway?
A: Before I comment on the individual custom duties, let me first say that the Budget, which was presented yesterday, is moderately pleasing.
The Finance Minister stayed within the parameters of what he has said earlier that he wants to maintain stability, he wants to build trust, he wants it to be a inclusive Budget. There was a lot of cheer for the banking and insurance sector because he focused a lot on the expansion and growth, but when it comes to the manufacturing sector there are two distinct things that he mentioned.
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One, they were quite favourable to the power industry and the steel industry, the 15 percent investment allowance that he announced was indeed a very welcome move and the period for which he has allowed it is two years. That will definitely be an impetus for making more investments within the steel sector as well as the power sector.
Secondly, the power sector extending the tax holiday for a period of one more year was a much needed relief. The power projects that are under execution, have been beset due to shortage of coal and many input materials including land and environmental issues.
If you give them one more year, it is a relief for them to wrap up their projects and get them on stream. So these were the positive ones where I thought that he could have done more was to stimulate more investment into the sector.
The sector has not been putting more money into it for want or demand and there is no demand. The supply situation is not improving. I know it is a period of two hours in which he has to make the statement, but he could have atleast announced among intentions that he did, the government is working seriously to bring down lending rates.
Until the lending rates improve, there are not many people who are willing to come forward, to make more investments. So, that is one issue which caused me a lot of concern that nothing is stated even in terms of intent. As far as custom duties, a very small cosmetic change has been done, reducing the duty on the bituminous coal and putting the duty on thermal coal is not much of a change.
Thermal coal is used for the power plants and also in moderate quantities in the steel making. Increasing the duty on that was uncalled for. As it is imported coal works out to be so expensive and if you put more duties on that, duty and countervailing duty (CVD) that makes the job even tougher. So that was uncalled for.
On the bituminous coal whose quantity requirement is as it is pretty modest from the steel industry point of view is not much of a relief. I don’t think that any kind of changes made on these two coals are a matter of great consequence for the steel as well as the power industry.
Q: How much coal does Jindal Steel and Power import and how much comes from captive coal mines? Going ahead, will you increase the amount of imported coal?
A: We are commissioning new power plants and new steel plants. We are already importing certain grade of coal from our own mines in South Africa, which we call as anthracite coal. It is used for making steel and we have now opened our Mozambique mine from where we will be mining the hard coking coal. We will definitely bring that coal in to meet our internal requirement of coking coal.
But when it comes to thermal coal, importing for the power projects, our import volumes should be very much linked with how much capacity we build up. We are always comparing the cost of imported coal against the cost of the procuring coal locally. So, depending as to how the tariffs will be in future and what kind of projects we undertake, we will decide the quantum of the coal that we are going to import.
Q: You have fairly aggressive expansion plans as well as inorganic expansion in Australia also with respect to Gujarat NRE coking coal. Given that your financial costs have started rising sharply, will you be able to maintain this kind of an interest in acquisition in inorganic moves?
A: We are always searching for minerals because they are a critical input to whatever business we do whether it is steel or power. So, for us the need is indispensable. We always look for option from where we can source coal or iron ore of acceptable quality at minimum cost. We don’t get fixed or rigid on any option that we look at and are focused on optimising them in a dynamic setting.
Q: The reason we ask is because in your power business anyway your margins have got in restricted a whole lot to about 50 percent plus versus the 60 percent that you guys were sitting on earlier. Due to this duty increase on steam coal how much will it push up electricity tariffs in general for the industry and would it have any further impact on your margins in due course of time?
A: Let us not mix two things. The kind of coal that we need for steel is different from the kind of coal that we need for power. Power coal is called the thermal coal whereas the kind of coal that we need for steel making process will either be hard coking coal or anthracite and these are two completely different tracks.
Most of the coal that we are using at this point of time for our power plants is sourced within the country. However, as we go for our expansion plans in future we will try to source the coal locally because you get it at a much lower cost than any imported option. If we are put against a wall and we find there is no way that we can get local coal despite the best of our efforts, than we are going to look at the imported option.
The good thing with the imported option is that the gross calorific value of that coal is far superior compared to the coal that we get in India. So, we compare the cost of sourcing coal on a per kilo calorie basis, the imported option against the domestic option. However, we will remain keenly focused to see how much coal we can get within the country.
Yesterday the Finance Minister announced a new initiative. He has suggested that Coal India will also go into the public–private partnership (PPP) with the local miners. It is a positive development and in next three to four years it will help to improve the availability of power grade coal within the country. This is because it is not that we don’t have coal, it is just that we are not able to mine it and move it around in the volumes that we need. Therefore, the PPP will spur the growth of the mining grade of coal.
Q: For the past 10-12 months the government has been taking assiduous effort on the coal front, on the power front, as well the investment allowance. Are you seeing the capex cycle returning anytime soon or anytime in 2013, people walking away from projects or shelving them altogether, anything positive on the capex front?
A: The government in the last 12 months has made laudable effort to see the issues relating to coal get addressed seriously. They have tired to bring all stakeholders together and a lot of ground has been covered. With regards to the imported coal, government is coming up with policy and is blending with the local coal. There is some rapid movement, but we lost two precious year’s time between 2010-2011 and 2012-2013 for addressing the issues of the coal-based power industry. It is difficult to recover that time.
If you look at 2012-2013, there were hardly any power projects that took off the ground from the independent power producer (IPP) sector because the whole community of IPPs is disillusioned. They have a risk element on every front they touch, whether it is land acquisition, getting water, getting fuel or the environment and forest clearance.
Now, the government has moved very decisively to see how some of these problems can be addressed. Some movement has taken place, but that is going to take another 12-18 months atleast, so that people can get a positive sentiment again and also gain the confidence that they lost in the merits of investing in the power sector.
There will be a bit of a lag here, but let us work assiduously and not get carried away, how much investment is made in power sector in the next six month's time.
The power sector in India is very precariously placed because of the under estimation of power required. I feel amused being a power engineer myself that people tell me that the peak time shortage is 12 percent and the base-load shortage is 8 percent.
People who made these claims don’t seem to understand that there is so much latent demand waiting if power is available. Power is one industry where the demand follows supply and is something people must understand. We have a huge pent-up demand, but it is not being articulated. We are trying to decide the amount of power required based on the amount of load shedding that we do and that is not the correct area.