Bloomberg News

JSW Energy Delays Power-Project Expansion on High Coal Costs

July 22, 2011

(Updates with share price in fifth paragraph.)

July 22 (Bloomberg) -- JSW Energy Ltd., the Indian power producer controlled by the billionaire Jindal family, delayed expansion of an electricity project because of high coal costs.

The company will shelve a planned 3,200-megawatt expansion at a plant in Ratnagiri in the western state of Maharashtra as it waits for coal-pricing “clarity” from Indonesia and Australia, Chief Executive Officer Lalit Kumar Gupta said in an interview in Mumbai yesterday.

JSW Energy, which imports all the coal it needs to fire its 1,730 megawatts of plants, faced a doubling of raw-material costs in the year ended March as floods in Australia pushed up coal prices and fuel consumption increased with the addition of generation capacity. The utility added 735 megawatts last year and plans to import 7 million to 8 million metric tons of the fuel this year, Gupta said.

Australia this month unveiled plans to make polluters pay a charge of A$23 ($24.90) for every ton of carbon dioxide they emit, starting in July 2012. The tax will increase by 2.5 percent a year, plus inflation. Indonesia has announced plans to link its coal charges to global benchmark prices.

JSW Energy gained 3.5 percent to 73.45 rupees at the close in Mumbai. The stock has declined 26 percent this year, compared with an 8.7 percent drop in the benchmark Sensitive Index.

“The new regulations being proposed in Australia and Indonesia will only make prices more volatile,” Gupta said. “We will depend on domestic coal for expansion until some clarity emerges.”

Russia, Latin America

JSW Energy plans to increase its power generation capacity more than sixfold to 11,390 megawatts by 2015, according to its website. Environmental restrictions and delays in land purchases have hampered India’s coal output, forcing consumers to increase imports. JSW Energy has said it’s now considering acquiring coal from suppliers in Russia and Latin America.

In November, JSW Energy agreed to buy Canada’s CIC Energy Corp. for C$422 million ($446 million) to add coal assets in Africa, shielding itself from rising spot prices. CIC Energy subsequently terminated the deal, saying it wouldn’t be completed by the May 31 deadline. JSW Energy continues to explore potential mine acquisitions, Gupta said.

“What we need is a good deal that benefits all our stakeholders,” he said. “Regulations will be there. There needs to be absolute clarity on how they will impact our costs.”

--Editors: John Chacko, Jane, Ching Shen Lee

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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