Hyderabad: In a setback to its expansion plans in India, Nava Bharat Ventures Ltd is shelving its Indonesian coal mine and thermal power projects after it failed to get a forest clearance and a tariff approval.
The company had planned to use coal supplies from Indonesia to fire its power plants in India. Now, it will have to begin a search all over again for new sources to be able to expand its domestic power business.
The Hyderabad based firm in January 2009 agreed to buy a 75% stake in Indonesia’s South Kalimantan coal mine, with 100% off-take rights, for about $18 million (Rs 80 crore). It has paid $4 million so far.
Subsequently, it emerged as the preferred bidder to develop a 300MW power project in Indonesia for state-owned nickel smelter PT Aneka Tambang Tbk (Antam), at an investment of $230 million.
Nava Bharat planned to ramp up the Indonesian mine’s production to 1 million tonnes (mt) a year by March 2013 and use the coal for its 150MW power project in Andhra Pradesh, which is to be commissioned in 2013-14.
In the meantime, it wanted to sell the coal in the open market but did not get a forest clearance from the Indonesian government for extracting and trading in coal. “Non-receipt of forest clearances is the reason for shelving the coal mine plans,” said executive director G.R.K. Prasad. The company will, however, continue to pursue coal assets in Indonesia, he said. It has a total power generation capacity of 237MW in India and is building another 364MW of capacity.
“Despite being the cheapest source of imported coal for Indian companies (compared with South Africa and Australia after accounting for shipping costs), Indonesian mining environment has not been favourable to foreign companies due to regulatory hurdles,” said Pavas Pethia, an analyst with brokerage Asit C Mehta Investment Intermediates Ltd.
“With this development, the company has to look for other sources to secure fuel supply... This also doesn’t augur well for other Indian companies looking to secure fuel linkages from Indonesia,” he added.
Asit C Mehta last week affirmed its buy rating on the Nava Bharat stock, after the firm reported a 29% decline in second-quarter profit but a 19% rise in sales.
India, the world’s third largest coal producing country, produced 532.06 mt of coal in the year to March 2010. It imported 67.74 mt of coal, or about 12% of its total consumption of the fuel, according to the ministry of coal.
As at end-June, India’s total installed power generation capacity was 162,366.8MW, according to the Central Electricity Authority. Of this, 53% was from coal-fired power plants.
Kameswara Rao, executive director with audit and consultancy firm PricewaterhouseCoopers, said Indonesia’s coal policy is being reworked, which has led to a few new licences being put on hold.
“There is a short-term problem as end-users seeking new coal resources would find it risky to do business with a new law still in development... But in the long run, Indian companies are likely to benefit from these legislative and regulatory changes as improved transparency and established procedure will help reduce risk and facilitate investment.”
As for Nava Bharat’s power project in Indonesia, the state-owned nickel smelter agreed to most of its suggestions but disagreed on the tariff.
The nickel smelter meets its power requirements through a 160MW diesel power plant, at a lesser price than Nava Bharat’s quote for supplying power from its coal-fired plant.
“As a result, both of us found it unviable and decided to drop the project,” said Prasad.
Pethia said the scrapping of the power project would not hurt Nava Bharat much as the firm had not made any significant investment in it.
Other analysts see more to worry about in coal supplies.
“This (shelving Indonesian coal mine project) would be slightly disappointing as the coal mined in Indonesia was to fuel a power project in India, which was part of our valuations,” said an analyst with a Mumbai-based brokerage that recommended a buy rating on the Nava Bharat stock in September. The analyst, who did not want to be named, said his firm would evaluate the development in Indonesia and look at re-rating the stock.
Nava Bharat shares have lost about 14.5% this year and ended Monday on the Bombay Stock Exchange at Rs 350.00, down 1.63%. The benchmark Sensex index stayed flat at 20,852.38 points.
“The material impact might be less but the qualitative impact could be greater as the fuel risk for the power project rises,” he said.