Govt needs to be pragmatic on coal block sale: JSPL's Uppal

He said the task of managing power production cannot be handled by public sector undertakings alone.Below is the transcript of Ravi Uppal’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.

Latha: What exactly did the court tell you, do you now believe that coal block whose end use was originally for a steel company and then allotted to power could be returned to steel companies? What are you expecting at the end of the court judgement?

A: The honorable High Court has asked the government's technical committee to review the use of the two mines in question. The Gare Palma IV/6 and Utkal-B, the initial use was coal meant for steel project.

We have signed way back in 2005 the MoU with the government of Odisha under which we were to setup a direct reduced iron (DRI) plant, steel plant and power plant and we did that.

We fully commissioned the plant; it has been running for last one year based on imported coal and the coal we have been buying on auction. However, that is not viable. For a short period you can do it.

Our plant is located just about 5 kilometeres (km) from the Utkal-B mine so the whole premise of starting up this plant was the only assertion that we will have access to the coal from this mine.

Same is the case with Gare Palma IV/6 which is applicable for the Raigarh plant. In these two plants we have invested close to Rs 31,000 crore and there is so much at stake. Therefore if we don’t get the coal supply from these mines, the projects are simply not viable.

This is precisely what the content of our petition to the Delhi High Court that this is not an option for future. Here we are talking about what we already have done. So, that must be taken cognizance by the review committee, by the technical committee when it comes to reviewing the decision taken by the government.

It is our ardent plea to the government to take a very pragmatic view. It is not just a question of JSPL’s investment but the investment of India in the project.

The Utkal-B project at Angul, this is a world class project. We are very proud of it because so many new technologies have been implemented including coal gasification using ordinary coal with 40-50 percent ash. If this model becomes successful which it has been in the last one year, I think we are opening a completely new avenue for generating another source of fuel which is synthetic gas.

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Reema: Do you think from hereon while the government is reviewing the process, it makes sense for the government to further split up the non-regulated sector into steel or cement or is the current structure okay?

A: Steel and cement are very distinct businesses. The propensity of consumption of coal is very different from one phase to the other. I think the sector which comes very close to power is steel in terms of propensity of consumption of coal. So, it does make eminent sense to separate the steel, sponge iron away from cement and even the captive power consumption.

Latha: If that is the case then won’t the entire auction process be stymied? If there has to be a rethink in terms of end uses to this extent do you think this current auction process, the February process itself could be pushed back?

A: The Schedule-II mine auction process underway and the plan to complete the whole thing by March 3, that is doable. What is coming into question is Schedule-III mines. Schedule-III mines process is yet to start; it is expected to start from 14th onwards. So, for the moment the High Court has directed that our mines should be excluded from the scope until the review by the technical committee is completed.

Reema: What is the latest that you have heard from the government, are they looking to challenge the Delhi High Courts ruling in the Supreme Court?

A: I have no idea about what government wants to do. However, for the moment the only thing that I know is that the technical committee of the government would be reviewing their decision with regards to the end use of coal for these two mines.

Reema: By when will you know the outcome of the technical committee, has any timeline been indicated to you all?

A: No timeline has been intimated so far but I think in the interest of completing the auction process, I am sure they would take some quick steps and do a quick review and come to a final decision.

Latha: Yesterday we got a statement from Piyush Goyal who was speaking at one of our functions that if the Schedule-II auctions are put off then he will have no option but to turnover those coal mines to Coal India; basically once again nationalise. How are you reading this statement of Goyal?

A: Anything the honorable minister decides, we will respect his decision. However, my personal view is that the task of increasing the coal production cannot be handled by the public sector alone.

In 65 years after independence, India has managed to come only to a level of 550 million tonne of coal production whereas countries like China are producing today 2.5-3 billion tonne of their own coal.

I think it will be good if the private sector can join hands with the government sector and they can jointly undertake the task of producing coal on an accelerate basis.

Q: When you say Q4 will be better, can you give us some sense of what the revenue range could look like because in September quarter your revenues were more than Rs 400 crore. In December quarter it came down to about Rs 150 crore – that’s a very large swing. What is an average revenue run rate in January to March quarter?

A: If you look at the agrochemical industry and divide into four quarters then Q1 is generally 20 percent, Q2 which is the monsoon quarter is the highest at 40 percent and Q3 and Q4 are again 20 percent then there are seasonal circumstances that will make any quarter plus-minus 5 percent. Therefore, in Q3 we lost 5 percent and I believe we will recover that 5 percent in Q4.

Initially, we had given a guidance of Rs 1,200 crore but looking at the market conditions we brought it down. We say Rs 1,200 crore then we may be suffering about 10 percent in the topline but the good part is we will be making it in the bottomline because some interesting molecules have started.

Dahej is working efficiently now and that will strengthen the bottomline of the company. Therefore, our guidance for bottomline will go down but for the topline yes, talking about 1,200 number, which was in the starting phase of this year then there maybe a downfall of up to 10 percent

Q: What is your bottomline guidance for the current year and what will it be for next year?

A: We are going to make an increase of 150-200 bps this year in EBITDA and profit after tax (PAT) margins which will improve in the next year by 150 plus-minus points in the next year again and of course for the topline we will be looking for 20-25 percent increase in next year.

Latha: Piyush Goyal’s statement referred to the fact that he has no option. The courts said that by March 31 if the process is not complete, the blocks have to be handed over to Coal India. So, he was actually bound by what the court had told him, he was referring to that statement of the court.

A: Let me clarify this matter, the court has basically referred March 31 for the mines that are already operational and not the mines that were closed to completion or other mines that are in Schedule-I.

So, I am certain that the mines which are under Schedule-II, their auction will get completed by March 31. I don’t see any impediment. There is no end use change which has been done on their case and therefore this process must go on.

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Latha: How much coal is at stake in the subsequent schedules? If they get postponed, if Schedule-IV for instance those auctions get postponed how much of coal will be denied to you, what goes out of the market?

A: We have three schedules. Schedule-II which is under auction at the moment, Schedule-III was to start and then you have Schedule-I. Schedule-I in any case is not for captive use; only Schedule-II and Schedule-III are for captive uses and Schedule-III is open to one and all.

Schedule-II will get completed by March 31; this is my personal assessment and Schedule-III, the process will go on. The only mines that could be kept out are where the use has been changed and they are limited in number. So, rest of the mines which are there, their auction can progress without any interruption.

Latha: How much coal is been produced by the mines that are being questioned?

A: These mines haven’t started the production, they were about to start; Schedule-II which is already operational, Schedule-III is close to completion or close to operation.

There is no output as such but these two mines that we are talking about, one of them was supposed to produce 5 million tonne a year, the Utkal-B1 and the Gare Palma is supposed to produce 3 million tonne. Both of them put together with a combined production 9 million tonne a year.

Reema: Do you have an estimate of how much coal can be produced from the mines that are not currently operational and so, it is an estimate but where the end use has been changed?

A: I don’t have a number for that as it is not readily available with me. I told you about our two mines that they together will be in a position to produce 9 million tonne.

Latha: You expect it to be largely uninterrupted?

A: Overall yes, it is subject to whether we are able to win back these mines. Two, there are few other issues which need to be addressed with government. So, if every process can continue then these mines can continue as before.

Reema: You have interest in power sector as well, not for Schedule-II but for Schedule-III. Generally there is a fair amount of aggressive bidding that we have seen for power sector, now if the pool gets smaller via this way do you think that the bidding might be so aggressive that it could turn unviable for a few players?

A: I don’t want to conjecture on this whether the bidding would be aggressive or moderate. I only want to say one thing that any prices anyone quotes, he must remember that these mines will remain operational throughout 25-30 years and any price at which you source the coal from this mines it must make business sense that must be viable otherwise you would be saddled with liabilities, you won’t know what to do with them.

Latha: You have bid for all your own mines which originally belonged to you and for which others?

A: We will bid for all the mines that we had earlier and then few other mines which are in close proximity to our plants. One thing we have to remember is that we are not a trader in coal; we make use of coal for our main lines of business which is steel and power.

Therefore, we are looking very selectively for all those mines that make business sense to us and most of them happen to be in close proximity of where our plants are located.