The absence of a right of first refusal (RoFR) to existing owners of captive coal blocks at the proposed e-auctions is a big blow to producers of power, steel and cement who could end up bidding way more than they might otherwise have to ensure they ‘re-acquire’ their mines at the auction. The increased cost of the mine could throw the project estimates out of gear with the possibility of some of them becoming financially unviable.
As analysts have pointed out, the cost of the logistics is an important part of the total costs and companies would bid aggressively to acquire a block if the location is strategic to their business. “For instance the Gare Palma coal block is close to many new capacities that are running at suboptimal utilisation due to restricted coal availability,” an analyst observed. The stakes are especially high for firms like JSPL, Hindalco and Essar whose projects are located near the blocks and have either been commissioned or are close to being commissioned. Since the number of blocks are relatively few, bids are likely to be very high.
Already, an estimated at R65,000-70,000 crore of exposure to owners of captive coal blocks that were cancelled by the Supreme Court on September 24 is vulnerable, although production at these mines has not been disrupted.
Moreover, depending on whether the payment for a block that is won is staggered or one-time, companies may need to borrow afresh, albeit for a short period. Approximately 9% of the total financial exposure to the power sector relates to linkages for 18 GW of power capacity, or around 60% of the 30 GW that is based on captive coal. “The debt/Ebitda ratios in the industry are stretched including for most large players. An entire upfront payment-based auction may not be preferred by most in the industry,” an analyst said.
Source: The Financial Express
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