Jindal Steel and Power (JSPL) is optimistic it will get to retain control of two mines it won during the coal auction that are now being reviewed by the government, MD Ravi Uppal told CNBC-TV18.
In an interview with Latha Venkatesh and Sonia Shenoy, Uppal said the company's subsidiary won the Gare Palma IV/2 & 3 (at a price of Rs 108 per tonne) and Tara (at Rs 126) through a fair and transparent bidding process and it was hopeful it would get to retain it.
Coal secretary Anil Swarup told CNBC-TV18 in an interview yesterday that the government would reexamine a total of nine blocks between schedules II and III because the winning bids were "not at the same levels as similar blocks in the same group" and dubbed them as being "outliers".
But Uppal, whose company won two of such blocks currently under review, said the company had not heard from the government so far.
"The bidding [in the reverse auction] for Gare Palma IV/2 and 3 started at positive Rs 700 and it finally settled at a negative Rs 108," Uppal pointed out.
In a reverse auction, bidders start with how much they want to be paid (in this case, to undertake mining activity) before participants lower the amount – and in many cases, go from seeking to offering money to have the right to explore.
Below is the transcript of the interview on CNBC-TV18.
Latha: Have you heard from the government about any of the blocks you have won being up for review?
A: We have not heard anything from the ministry of coal yet. We only know that in the recently held auction process we were the most competitive bidder for the two blocks - Gare Pelma II and III and Tara block but we have not heard anything from the government yet.
Latha: In your judgement would some of the bids you put in, qualify as outliers?
A: I do not know what the definition of outlier is. We have gone through a bidding process which was very transparent, very fair. We have a huge respect for it and in that bidding process we were the most competitive bidders. There are many big blocks for which we quoted but we were not successful but in these two blocks our bids were most competitive.
Sonia: If the worst case scenario pans out and the government does find some false in the bids that were made for Gare Pelma IV/2 and 3 blocks then what would the impact be on your power business?
A: I think this question is hypothetical at this point of time. I see absolutely no reason why we should not be awarded the two blocks for which we have been competitive. We have followed the process and in government's own version the process has been very transparent and fair. Therefore, the outcome of this should also be respected by all the agencies which are running the process. I must tell you that the bids that we have put in were fiercely competitive. If you look at the ceiling prices which were stated by the government, they were way up above compared to what the final outcome has been.
Sonia: You have to have a backup plan because as we spoke to the secretary yesterday, he did mention that there are some outliers. Reports suggest that there is a probe been done for perhaps cartelisation as well. If the adverse situation pans out then which are the other blocks that you can bid for and what is the impact that it would have on your power business?
A: As of this moment we have not thought about anything else because we are so convinced that the blocks that we have bid for, we are the successful bidders in that and we should get that. And for me it's a remote possibility that any deviation should happen on that front. If anything happens then we will have to see what the options are but at this point of time we think that we deserve to be given these blocks. We have gone through a process which was very transparent.
Latha: I agree the process was transparent but I am assuming when Mr. Swarup said outlier. He is referring to the fact that Rs 108 per tonne for Gare Palma IV/2 and Rs 126 per tonne for Tara block were little lower than the kind of bidding we saw in the other blocks.
A: I want to ask you a question – what is the purpose of this whole bidding process. In my mind and as also stated by the government, the idea is to make sure all the projects which are running, the coal must be made available to them on fair basis.
The idea is not a question of maximizing revenue but the idea is to make sure that on fair basis the coal mines are distributed among the bidders. You are saying some of them were outliers. It makes no sense to me.
Latha: I am not saying anything. I am just placing in front of you what Mr. Swarup might say because he used the word outlier and he said that eight blocks are going to be reviewed. I am just looking at the two prices; Gare Palma, one of the bids was negative Rs 940 per tonne which you won and the other one you won is negative just Rs 108 per tonne. You will probably be confronted with this data, therefore what will your reaction be and how do you see therefore the process going forward.
A: Let me state some facts for your information. If you look at the ceiling price fixed by the government for Gare Palma IV/2 and 3 blocks, it was Rs.700 plus. Which basically means that if you bid anything more than Rs.700, the offer is not valid and the price which we finally quoted and we became the most competitive bidder was a minus 108.
So, look a the amount of climb down that we have done, Rs.808 we have come down. And, when the documents were framed for auction at that time, the government initially did not even think there is anything less than zero. Now, we are coming into the negative zone. So where is the question of outlier? I simply cannot comprehend.
Latha: Sir, you climbed down Rs 940 negative for one, so you may be be confronted with that -- is my guess -- and for one you climbed down only Rs 208.
A: No, we have not. If you look at the ceiling price for Gare Palma IV/2 and 3, the ceiling price fixed by the government was Rs.700 and for the Tara block it was Rs.920. So, we came down in case of Tara from 920 to minus 126 and in the case of Gare Palma IV/2 and 3, we came from 700 to minus 108.
So it is a huge climb down. Any price we finally quote, it must make business sense. It is not a question of just having one day celebration, we have to live with it for 25 years. It must make economic sense. That is why we lost many at the blocks, we lost them because we simply cannot go beyond a point.
Sonia: That point is taken. You know because of these bids that you have made and the profitability hit that the company will have to take compared to what the situation was a couple of years ago, how does the company really plan to make up for it in terms of improvement in productivity, reduction in operating costs? If you can give us a game plan of whether there is higher capacity utilisation that we can expect from JSPL or perhaps merchant power sale at higher rates. What is the company's plan from here on?
A: Yes, actually you have already laid out the various things that we are going to focus on. JSPL plants have been known for their efficiency. The plants have been running anywhere between 95-102 percent plant load factor (PLF) and the plants are considered to be among the best run plants in this country.
We today have a total capacity of 3,500 Megawatts of Jindal power which is absolutely ready to go. And out of which, 2,200 Megawatts is already functioning. So, what we intend to do as you just mentioned, that we will increase the operation efficiency, we will make sure that the fuel costs and other things, we keep it under check and basically move towards operation excellence.
And also have the right mix of sale between what is covered under PPAs and under the merchant power. So, all the options which are available to us, we are definitely going to look at them to make sure that we retain a reasonable level of profitability for the business.
Sonia: What is the merchant power sale rate that you are looking at, at this point? Will it be higher in the near future?
A: The merchant rates are very fluctuating. There is a change with the season, the change with the time of the day. During the monsoon time and the winter time, the merchant rates generally come down and during summer season and parts of winter, the rates tend to go up. But this year the rates have been fluctuating anywhere between Rs.2-3.50. But as summer wears on, the rates will generally tend to improve.
Latha: Mr. Swarup also said tha PPAs will be reopened to factor in the lower coal cost. Any of yours?
A: We did not have PPAs, but we have a few. So, the whole issue has to be looked at, like what are the terms of reference for review of PPAs. So, we will wait for a proper notice in this regard. So, far we have not received anything from the government.
Sonia: So, the total tariffs might not really go down if you look at what is actually happening, right? Because, the tariff reduction due to lower fuel costs can actually be made up by the companies by showing higher capacity cost. So, in a sense, we do not expect the total tariffs to o down?
A: In our case, we go on a rail-check basis. We do capacity charge using the components which are supposed to go in the capacity charge and when it comes to the energy charge, it is basically the cost of fuel largely and the transportation cost. So, we are not choosing one to subsidise the other. This is the reason why we quoted the rate which we thought were realistic rates.
Latha: One final word, in case the government went in for re-bidding of the blocks you already won. What will your reaction be? Will you take them to court?
A: I do not want to jump the gun. As of this moment, we are very optimistic. Right now we have a government which is so progressive and so responsible. I think they will take a very fair decision in this regard. End of the day, any capacity that we have is not only capacity of the company, it is the capacity of the nation. So, therefore I do not believe the government will take any such step whereby the plants will be paralysed in any way and I have full faith in the fairness in government's decision making.
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