Essar Energy hit by project delays

Essar Energy hit by project delays

London: India-focused refiner and power generator Essar Energy said three projects would be delayed as it continues to battle hold-ups from regulators, hurting its shares.

The company said on Monday there would be “minor delays" to its Salaya I, Mahan I and Vladinar phase 2 power projects and that it is still awaiting forest clearance from the government for its Mahan, Chakla and Ashok Karkata coal blocks which will provide fuel for the Mahan I and Tori power stations.

Shares in Essar traded down 4.4% to 246.3 pence, paring earlier losses of as much as 6%, and making the company the biggest loser on Britain’s bluechip index.

“We believe that Essar Energy now faces a trust deficit and therefore there will be an even greater investor focus on project delivery times," said analysts at JP Morgan in a note.

Essar Energy said in its statement: “Delays to regulatory approvals and delays to the access of fuel supplies are a cause for concern."

“Not only do these delays impact the economic returns on projects, but they are acting to discourage investment in the sector from project sponsors, debt providers and equity investors."

For the six months ended 30 June, the company posted earnings before interest, tax, depreciation and amortization (EBITDA) of $477.9 million, up from $320.2 million last year, boosted by higher refinery margins.

This compared with a company-supplied analyst consensus figure of $467 million.

JP Morgan said in a note that when measured on a current price basis, earnings missed consensus, having been negatively impacted by a foreign exchange loss in the company’s oil and gas unit.

The FTSE 100 company was positive on the future of its refining business, saying it expected margins to stay at their current high levels to the end of 2011.

“Strong global demand, the earthquake in Japan and events in the Middle East and north Africa pushed up refining margins in the first half of 2011," the company said.

The company, which agreed to buy Royal Dutch Shell’s Stanlow refinery in northwest England for $350 million in February, said its focus was on its Indian power projects and integrating Stanlow into its business.

“We do not have any plans for any further acquisitions of refineries in Europe or elsewhere," chief executive Naresh Nayyar said in a conference call with reporters.

Essar Energy, the majority shareholder in India-listed Essar Oil, is itself 77%-owned by privately-held Indian conglomerate Essar Group.