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Coal-to-oil $20 billion projects said to stall

JSPL, Tata group had planned to produce a combined 160,000 barrels of crude oil a day


India will halt a $20 billion plan by Tata group and Jindal Steel & Power Ltd. to turn coal into crude oil after scrapping rights to two mining blocks allotted to the companies, two people familiar with the matter said.
The coal mines, located in the eastern state of Odisha, are part of 11 blocks to be canceled because their development was lagging behind schedule, said the people, who asked not to be identified pending an announcement. New Delhi-based Jindal Steel and Strategic Energy Tech. System Ltd., a venture of Sasol Ltd. and Tata, had planned to produce a combined 160,000 barrels of crude oil a day, valued at about $6.2 billion annually based on average Brent prices this year.
Bureaucratic hurdles are holding up India’s maiden attempt to produce synthetic crude oil from coal and cut imports, as a probe into corruption in coal mine allocations prompts state officials to defer decisions. Delayed approvals thwarted development at Jindal’s mines, while the Tata venture is awaiting clearance from the regional government to start prospecting, more than four years after the allocation.
Companies are running from pillar to post to get approvals and are then getting penalized for delays by government agencies, K. Rajagopal, group chief financial officer at Jindal Steel, said in a phone interview. The government should try to streamline its own clearance processes so that projects are not held up.
‘Rigorous process’
The Odisha government is examining the documents submitted by the companies, Deepak Kumar Mohanty, director of mines in the regional government, said in a phone interview.
We’ve made the process more rigorous, Mohanty said. One can’t bypass the process.
India spent a record $144.3 billion to import 184.8 million tons of crude oil in the year ended 31 March, almost a third of the nation’s total import bill. To curb dollar outflow, the government changed the law in 2007 to allocate coal blocks for coal-to-liquid projects and allocated the first two blocks in 2009 after considering more than 20 applications.
India, the world’s fifth-largest coal producer, has resources of 293.5 billion metric tons, of which 118.1 billion tons are proven, according to the coal ministry. Almost 80% of the production comes from state-run Coal India Ltd., the world’s biggest coal miner, and more than 70% of the coal is used to generate electricity.
Higher cost
The cancellation order will be dispatched to the companies in several weeks, the two people said. The decision to scrap the licenses was taken after a review by an inter-ministerial panel. Coal minister Sriprakash Jaiswal signed off on the panel’s recommendations last week.
The delays may have increased Jindal Steel’s project cost by as much as 42%, Rajagopal said. The spokeswoman for the Tata venture declined to comment on the group’s investment. S.K. Srivastava, the top bureaucrat at the coal ministry, also declined to comment.
Jindal Steel, which tied up with a unit of Air Liquide SA, said in 2009 it would spend Rs42,000 crore ($6.7 billion) on the project. Jindal Steel will appeal to the government and may also contest the ministry’s decision, Rajagopal said. Besides the Odisha block, the company is also set to lose its license for two other mines in neighboring Jharkhand and Madhya Pradesh.
The company, controlled by Naveen Jindal, a lawmaker from the ruling Congress party, also has been awaiting for almost a year a permit for another coal mine in Odisha, where it wants to produce natural gas from coal to run a steel plant. In the absence of an approval, the company plans to buy coal sold in electronic auctions to run the plant, Rajagopal said at an earnings press briefing on 30 October.
Mine probe
India’s Central Bureau of Investigation is probing cases of favoritism in the allotment of coal licenses, after the federal auditor last year said the nation lost out on Rs1.86 trillion ($29.9 billion) by giving away coal mines to non-state companies without auctioning them.
The probing agency has questioned industrialists, including Jindal and billionaire Kumar Mangalam Birla, and some government officials years after they quit office.
Jindal Steel has lost 37% in value since the auditor’s report in August last year. The shares gained as much as 1% to Rs253.20 in Mumbai and traded 0.7% higher as of 9:42 am.
Coal-to-liquid projects are capital-intensive and have long gestation periods, said Debasish Mishra, the head of the energy practice at Deloitte Touche Tohmatsu India Pvt. in Mumbai. Given the coal shortage in the country, they are set to be non-starters.

Source: Bloomberg