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Mandakini may surrender its coal block: Nomura

Exorbitant bids at the recently concluded coal auctions may be coming to haunt those who won. Mandakini Exploration and Mining, unlisted and 27% owned by Monnet Ispat and Energy Ltd, could be one of them.
The power company is contemplating surrendering the Mandakini coal block owing to its economic unviability and more companies could follow suit, analysts said.
Surrendering the block on grounds of unviability could expose chinks in the grand plans to quickly scale up coal production to support economic growth.
“Mandakini Exploration and Mining Ltd won the Mandakini coal block in the auctions with a ‘negative INR650/ton’ bid implying an outgo of INR550/ton of coal consumed from the block to the state government,” a Nomura report said, underscoring the poor profit margins projections.
The report said the firm is planning to surrender the coal block on account of the government of India issuing an advisory to regulators to cap the fixed charges of electricity from power plants using such captive coal. “Litigation on this issue is ongoing in the Delhi high court,” it said.
The report added that in the recent coal block auctions, Monnet Power Company Ltd won the Utkal-C coal block. Its winning bid was ‘negative INR770/ton’ implying an outgo of INR670/ton of coal consumed from the block to the state government.
The spokesperson of Monnet group said the company would not be able to comment as the cap on electricity case was sub-judice and because the company is a minority stakeholder in Mandakini Exploration and Mining.
India’s coal ministry auctioned 28 coal blocks earlier this year under which power companies did a ‘reverse bid’ wherein the lowest bidder won the blocks. Several analysts had then flagged it as unviable.
A power analyst said he would not be surprised if blocks are surrendered. “It is a chicken and egg situation. While companies have bid aggressively, they also need the coal to utilize the significant investments made in the plants,” said Girish Shirodkar, partner, infrastructure and resources practices, at Strategic Decisions Group, a consulting firm.
“It is possible some of them may realize their bids may be too aggressive and therefore surrender the blocks,” Shirodkar said.

source: http://www.livemint.com