Last week was a rollercoaster ride for Jindal Steel & Power at the coal auctions. The company successfully retained the richest mine for the lowest price but also missed out on one block.
Speaking to CNBC-TV18’s Shereen Bhan, JSPL MD and CEO Ravi Uppal discussed the company’s strategy for the coal auction.
Excerpts from the interview.
Q: Talk to us about the Gare Palma win.
A: There are a couple of things about this block. Number one, it is a very large block with about 185 million tonnes of extractable reserves. We know this block quite well because we have been operating there for nearly a decade we are right at the pit head. So, when we talk about Rs 108, many people seem to misunderstand, they think this is the price at which we are buying it. It is actually the amount that we have to pay to the government and in addition to this we have our mining cost, we have our…
Q: [Interrupts] Yes but it is still much cheaper than everything else that is being sold in the auction so far?
A: Well, if you look at the list of the blocks which are auctioned, you break it into two categories. Number one, the power and the non-power blocks. The power blocks are the ones where you have to go for the lowest rate whereas in for the other ones, the highest rate.
Power blocks typically if you look at the trend they were much larger in their total extractable reserves whereas in the industrial side the blocks were anywhere between 6 million to 45-50 million tonnes. So, therefore the average rate the non-power sector could pay was much higher whereas the power, the pressure is that you have to reduce the tariff.
Q: Because you cannot pass it on.
A: You cannot pass it on so, therefore we think that the price that we paid is just about the right maybe little on the excess side.
Q: Why is it that nobody else wanted these blocks?
A: Well, they wanted it. If you remember that there were as many as 11 parties which were short, which participated out of which they shortlisted about six of them and all the big names were there.
But then everybody understood that for them there is no road infrastructure. There is no other infrastructure for them to take out the coal, they have to build it up again and there is not even a rail head there.
Q: So you are saying it did not make commercial sense for them.
A: Did not make commercial sense. For them cost of logistics will be mind boggling, number one. The second thing which is very important now that this mine already has a mining rate which is 6.5 million tonnes and it is an operating mine.
This means that the day you take it over you have to start producing 6.5 million tonnes and if you do not have a use for this one you have to give this to Coal India and therefore you are a loser in every account. Everybody worked out as to how much they will tend to lose if they take such a big block with so much of mining rate if their end user projects are not full set up.
Q: Why is it that nobody else wanted these blocks?
A: Well, they wanted it. If you remember that there were as many as 11 parties which were short, which participated out of which they shortlisted about six of them and all the big names were there.
But then everybody understood that for them there is no road infrastructure. There is no other infrastructure for them to take out the coal, they have to build it up again and there is not even a rail head there.
Q: So you are saying it did not make commercial sense for them.
A: Did not make commercial sense. For them cost of logistics will be mind boggling, number one. The second thing which is very important now that this mine already has a mining rate which is 6.5 million tonnes and it is an operating mine.
This means that the day you take it over you have to start producing 6.5 million tonnes and if you do not have a use for this one you have to give this to Coal India and therefore you are a loser in every account. Everybody worked out as to how much they will tend to lose if they take such a big block with so much of mining rate if their end user projects are not full set up.
Q: So that is as far as the big win is concerned but let’s talk about the loss because you lost the Gare Palma IV/1 block. That was a commercial decision you are saying, you decided that it was not worth bidding higher than what the block finally went for?
A: That exactly was the case. You know that we have been running that block for more than 10 years and we knew what are the kind of extractable reserves are there and what is the calorific value and keeping all this in mind, we thought it is just worth up to a certain amount and there is not point going beyond that.
We also have a view, we believe that in about two years time the coal situation in this country is going to really ease off and because Coal India is also trying to apparently ramp up their output and they are going to be in the market with so much coal so, there is no point in tying yourself with a block with a commitment of 25-30 years at such exorbitant rates. So, let me say that we took a business decision which we thought will serve us well in the long run.
Q: But how does it impact you in the short-term?
A: Well in the short term there are still about 180 plus mines which are going to go for auction. There are certain among them which we are targeting which we think will make a good business sense for us and I am quite optimistic that we will home in with the quantities that we need
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