Thursday, April 25, 2013

“A lot of our key people have come back from Bolivia”

Sushil Maroo, Group CFO, Jindal Steel and Power Ltd. discusses raw material prices as well as the situation with the Bolivia project

B&E: You have a planned capex of around Rs.80 billion for FY ‘13. How are you planning to spend this money?
SM: We are planning to divide this money almost equally for our steel and power businesses. We have major expansion plans going on in both businesses. We are setting up a DRI-based plant in Orissa, which will have an annual capacity of 2.5 million tonnes. Our pellet mill is about to be commissioned. We are also setting up six power plants of 135 megawatts each. Two of them are already commissioned and work is going on in the remaining four. Apart from this, we are also working on a 2400 MW power plant for Jindal Power Ltd. in Raigarh. We have already acquired land for these projects. Therefore, expenditure on land is all for future purposes. So, all the expenses that I have just talked about are basically towards acquiring the necessary equipment and infrastructure.

B&E: International prices of coking coal have gone down significantly in the last 2-3 quarters. Do you think that the industry is set to gain from this in the long term?
SM: The Chinese steel industry is growing at an aggressive pace. Since they are consuming a lot of coking coal, there is a sustainable demand for it. Coking coal prices were down for a while. But from $145, they are again touching a level of $200. There are only two major consumers of coking coal – India and China. Production is not rising rapidly in India. So, it depends on the pace of production in China. If they continue to go this way, coking coal prices will not remain down in the long run. To add to the worries of Indian producers, the rupee has depreciated significantly. So, we are also incurring a notional foreign exchange loss. For JSPL, 100% requirement of coking coal is fulfilled through imports. Our current requirement for coking coal is about 1.3 million tonnes, which is further increasing as we are undertaking expansion plans.

B&E: You have been trying to tap one of the largest iron ore resources in the world in Bolivia. There have been a lot of issues there. What do you think are the most important lessons from this experience, which you or any other steel company can keep note of when negotiating with a foreign government?
SM: We were looking at Bolivia because there was iron ore as well as natural gas promised to us by the Bolivian government, when the MoU was signed back in 2007. But till date, the government has not been able to provide us with the gas as the contract is yet to be signed. We are not sure about what is going to happen there. The detailed contract should have been finalized by now. We cannot wait till eternity for the Bolivian government to come out with a solution. The situation led to a dispute and encashment of two bank guarantees by the government. The lesson is that when you are negotiating with foreign authorities, you must be commercially and contractually very clear. Whatever you want from the government, you should try to get it upfront on the table, otherwise the situation can get very tough. The gas supply contract, which was not signed in 2007, became a problem in 2012. The second lesson is that you must have enough space for the arbitration clauses if you are going for signing an international contract so that your rights are not affected if there is any sudden change in the circumstances.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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