CAG calculation of gains from coal blocks inaccurate: JSPL

The CAG report on allocation of coal blocks and the continuing logjam in parliament impacted Jindal Steel and Power Ltd (JSPL) as its stocks collapsed yesterday on apprehension of what could happen to the blocks allocated to the company.

Sushil K Maroo, Director & Group CFO of JSPL allayed the fears and stressed on the fact that their mines were on a firm footing. According to him, the CAG calculation of gains from the coal blocks was inaccurate and the CBI has so far not communicated anything to the company on the blocks mentioned in the CAG report.

Maroo further stated that the coal blocks in question will not impact their FY14-15 earnings. JSPL also expects the mining agreement at Utkal to be finalised in two to four months.

Here is the edited transcript of the interview on CNBC-18.

Q: How vulnerable are the mines of Jindal Steel and Power Ltd (JSPL) which have been mentioned in the Comptroller and Auditor General (CAG) report for some kind of action from the government post the probe, deallocation, reallocation or anything of that kind?

A: Our mines are on firm footing and, in fact, in JSPL we have shown that we have done a wonderful job on whatever mines that have been allotted to us. We have opened those mines. We have made thousands of crores of investment on those mines. We have also created a lot of economic activities, lot of employment and made a lot of contribution to the exchequer in the form of royalty, taxes, excise, income tax and all that.

We have not just taken the mines as allotted by the government in the past and very recently also we have done a lot of economic activity. We are doing well on those mines.

Q: But that is not the point of contention, the point of contention is the process through which the allocation was made. The Amarkonda mine for example, has outlined a huge derived loss on that mine. Do you think it might be opened up and in the wisdom of the government might even go for deallocation?

A: All the mines which have been mentioned in the CAG report are in fact going to be in use after 2015 only, not before that. All the expenditure and all the investments are about to be met going forward from now to 2015-2016. In any case, from now whatever operation is going on till 2014-15, there is no impact of any decision on the existing operation of the company.

Besides that you also talked about the benefits accruing from them. That itself is a contention and it has been very widely reported and very widely contested also whether the kind of benefits being talked about accrued to the private sector or not. If you do the net present value calculations, if we account for the income tax which is paid to the government, if we account for the royalty which is paid to the government, if we account for the new Mines and Minerals Development & Regulation (MMDR) bill which is already there, 26% of mining profit which goes to the local area development, the benefits that we are talking about  virtually comes down to even less than 10%.

I do not think that is there and there are a lot of debates and discussions already going through on this subject. Besides, these blocks are not for merchant mining purposes, a lot of investment is called for these blocks. Lakhs and crores are being invested on this and employment opportunities and the economic development that happens, the benefits of all that has to be accounted for.

Also read: CAG on ONGC: Co didn't complete work in 74% of blocks

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Q: It's not the quantum of derived loss, which many people agree might be overstating the case. But if there is a sense that there has been some loss to the exchequer and the government could have extracted a better price or the process was untoward, do you think there is a real possibility that the process itself might be reviewed and all the allocations which have been made in your case might be relooked at completely which may not affect operations in FY13 and FY14 but certainly has a bearing on future projects?

A: Let's divide the question into two sections. One is the benefits coming in and the other is the loss to the exchequer. When we talk about the loss to the exchequer, virtually we do the total analysis in terms of the investment likely to come in and in terms of economic activity which moves on these allocations. We feel that it's quite in favour of economic activity and in terms of process - the process is very well let down and it is there in India for many years and the allocation is being made world over.

I do not remember if there is any country where for a captive consumption there is any auction checking prices, not in any of the countries in the world. In fact, a large number of companies in India including us, have acquired large number of mines overseas whether in Australia or in Africa or other places. All those are largely done on allocation basis only.

I do not think there is any kind of issue relating to the method as such. There maybe differing views over here on how they should be done and how they should not be done but, that's the practice followed everywhere in the world.

Q: Are you going to the extent of saying that you do not support an auction based allocation of coal blocks and may even not participate if that's the chosen route by the government in the future?

A: I didn't say that. I am only trying to say what the practice is world over and what is the practice followed in India. That's the practice followed everywhere. If we want to change the practice, let it be so and government can take a decision about what kind of a practice it wants to follow. Whatever practice government follows, we all will take a view on it. Whatever the best practice is, based on our needs, we should do follow it and we will take a decision based on the process decided by the government.

Q: Has the CBI reached out to you because the CBI, as we know officially is investigating the 55 mine cases and the handouts. Has there been any communication from them to you already?

A: Not at all on this subject.

Q: Want to ask you about the Utkal coal block because there have been some questions raised by the Orissa government on that front as well, that's not part of the CAG report but could the delays extend to that as well in the light of the controversy which is on in the country right now?

A: The Orissa government is only asking for a clarification that in the light of the Supreme Court judgment whether they should sign the mining lease agreement or not. There are large numbers of mine lease agreements which have been allotted in the last ten years and are pending. They are about to be signed in many cases.

So the Orissa government has asked for the clarification and as and when the central government issues clarification, Orissa government will probably take a call on that and will sign the mine lease agreements for the pending mines.

In terms of time involvement in this, we cannot say at this point of time; it maybe two months and it maybe four months also. Relating to our project which is likely to be commissioned – basically we need this for the purpose of our coal gasified direct reduced iron (DRI) and it is likely to be ready in June 2013. Thereafter, we need it in any case. Around that time we will need small quantities of coal because the project will take time to ramp up and settle down.

So our need starts from there and after the mine lease agreement has been signed we will be in a position, probably within six months time to open the mine and source the coal. We are quite well placed so far.

Q: Why I asked this question is while some of the projects in the CAG report pertain to your projects post 2015, some of these issues like Utkal etc and the hold up that you have already seen in Angul, maybe in Tamil Nadu as well, they are current projects at hand and they might affect your operations, earnings, revenues even in the next couple of years. Do you see the prospect of delays getting extended because of the environment that we are in today?

A: I do not think so because the present operation is in no way getting affected. Angul project is doing well and yesterday we announced the commissioning of the plate mill. The power plants which are getting commissioned are already moving as per schedule and the balance three units of 135 megawatt will get commissioned in the current financial year, most probably by 2012 itself.

In Tamil Nadu we are setting up 2,400 mw power plant and all the units are well on schedule. The environment is basically affecting that particular area where there is controversy, but the rest of the business activities are not at all affected and they are doing pretty well. I do not see any kind of impact, at least till 2015 or 2016 based on whatever business plan we have as of now.

Q: The general suggestion seems to be that this whole allocation process of mines had a lot of maybe underhand, kickbacks – the award process involved a lot of these kind of procedures. Do you think that the allocation process of the last six-seven years will standup to a stern CBI's scrutiny of whether such underhand dealings were part of the process?

A: I think it should be because as far as we are concerned, we have given all the information to the screening committee. They asked for a lot of presentations, lots of information and we have made rounds of presentations to them at various levels. They asked for information regarding the financial ability and the capability to open the mine.

We have submitted all that information to them and after a lot of debate and discussions in the committee at various levels, where large number of people are involved and aftera  very thorough debate on each and every aspect, the mines were allotted. That's what we know and that's how mines have been given to us, whether in Jharkhand, Orissa or elsewhere. We are not aware of anything else beyond this.