In an interview to CNBC-TV18, Ajay Bhat, Group CFO, Monnet Ispat said all the clearances for the 1050 Mega Watt (MW) coal based power plant in Angul, Odisha are in place except the mining lease. The company expects to receive coal from its captive coal block – the Mandikini coal block.
The company is looking at signing new power purchase agreements (PPAs) for this power plant and expects it to be at Rs 4.50-4.75 per unit
Answering a query on the outlook for iron ore prices he said the medium to long-term prices are expected to remain under pressure and may not go up further since there is likelihood of the ban on some the Odisha mines to be lifted, he said
The honorable Supreme Court of India delivered the much awaited order on the Odisha iron ore mining . The Court has ordered closure of twenty iron ore mines operating without second and subsequent renewed mining leases (RML), similar to the lines of verdict in Goa case
Below is the transcript of Ajay Bhat, Group CFO, Monnet Ispat with Nigel D'Souza and Reema Tendulkar on CNBC-TV18.
Nigel: With regards to steel prices I want to ask you, what is happening on the ground and also going ahead will your margins improve because your margins have been getting a bit of a hit owing to pig iron sales? Could take us through both those two factors?
A: In the last couple of months steel industry has definitely looked up and we are seeing definitive increase in the price of end products across all the segments. What has happened in the same period is that the raw material prices have cooled off globally. We have seen some cooling off in the prices of iron ore, we have seen the prices of coking coal coming down.
So, this has helped the industry for expansion of the margins. We are seeing this phenomena after a long time when raw material prices on account of supply issues are coming down and end product prices are going up. So, it is a very healthy trend for the industry and we have definitely seen some good price appreciation.
We believe that the current prices or current trend of the raw material price should continue because we expect the supply of iron ore to continue to rise in the global markets which would put some pressure on the iron ore prices.
In the domestic market there has been some ban on some mines in Orissa which could temporarily impact the price of iron ore. It has in fact hit the prices by about Rs 500 in the last few days but we believe that the ban could be temporary in nature. May be in the next few months ban on Odisha mines could be partially lifted as the government actually proceeds to give the clearances of all those mines.
So, we would expect medium to long term trend for iron ore not on an upscale, the price should remain under pressure. That is the same trend that we follow in the coking coal.
As far as the price of end products is concerned we would be quite happy if the prices remain at the current levels, that would be quite helpful for the entire industry.
Reema: You are also setting up a 1050 megawatt power plant through Monnet Power. Have you got the required regulatory clearances for the same and when will it get commissioned? Have you set out a timeline?
A: Approvals we have got much earlier. In fact we are almost complete with the implementation to the extent of about 65 percent or so. By next year, in calendar 2015 we will be completing both the units of that power plant.
Simultaneously we are developing a captive mine and on that mine also we have obtained all the clearances and we only have mining leases pending and hopefully now we expect this mining lease also to be signed with the state in the next few months. So, that is the update on the power plant. We have all the clearances; we have everything in place today.
Nigel: Where is the coal going to be coming from for this particular power plant? What are the rates that you have signed your power purchase agreements (PPAs) at? I believe it is sub Rs 3.
A: We have got a captive mine for this power plant. This mine is about 20 kilometers away from our project. We will be conveying the coal through a coal conveyor to the power plant.
Nigel: Could you name the coal block?
A: Mandakini coal block. It is a joint venture with Tata and Jindal's. All the clearances have come, only the mining lease is pending.
As far as power is concerned, we have signed one PPA with West Bengal and that is at about Rs 3.20, not at sub Rs 3 and then there is obligation to sell some power to the state government but that is very small. So, we are looking at new PPAs. We have kept our PPAs on hold. So, let us see how the scenario develops in the industry and then we will go ahead with the balance PPAs.
Reema: How soon would you be looking to sign the other PPAs? Have you narrowed down any? What would be the rough price range, would it be similar to Rs 3.2?
A: There is definitely a different price scenario in the industry. We would expect that their future PPAs would be signed at around Rs 4.50-4.75 not less than that. We would be doing that in this year, may be in 2014. Due to the elections all decisions remain pending. So, we haven't seen many state electricity boards coming forward to sign fresh PPAs. However that should happen in the next few months. So, we will be looking at those opportunities.
Let us also evaluate what are the prices that are getting discovered in the market. So, obviously we would like to tap the best price.
Nigel: You are going to be commissioning a 1.5 million tone steel plant and also for that particular plant where are you going to be sourcing your coking coal from?
A: 1.5 million steel plant has already commissioned. In fact we have already started the production. In the current financial year the impact of that would be seen in the balance sheet of the company. Our board meeting is already nnounced, I cannot talk about any earnings for the current quarter or for the previous quarter. However the plant is already implemented and we are scaling up the production.
As far as the raw material is concerned we have got a captive coal block at Raigarh, and we source thermal coal from there. Our requirement for coal ironically is very low because it is a combination of sponge iron and blast furnace. So, we just need about 4,00,000 of coking coal which we are sourcing from outside India. Coking coal prices as I told you have also cooled down in the recent past.
For iron ore we are putting up a complete pellet plant which is now getting complete. So, we will be replacing iron ore with pellet mainly in our plants now.
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