VITAL INDUSTRY UPDATES – 20/07/2015

July 20, 2015 2:42 pm Published by

Iran can serve as main transit route for Central Asian countries, says PM

In response to a recent statement by Iran that countries in Central Asia are planning to use its rail-road network as transit route for bulk cargoes, the Prime Minister, Mr Narendra Modi, said that the Persian Gulf country could serve as the main transit route for Central Asian nations.

Speaking at a joint press conference with the Turkmenistan President, Mr Gurbanguly Berdimuhamedov, Mr Modi said, “I proposed that we should explore multiple options, including the additional possibility of land-sea route through Iran.”

“Connectivity is an area of priority for both countries. If we use the Iran route, Ashgabat is the first capital we would reach in Central Asia. We are grateful for Turkmenistan’s support to India in joining the Ashgabat agreement on trade and transit,” he added.

 At present, Iran is a major link along the International North South Transport Corridor, which connects the countries of Central Asia to the free waters of the Indian Ocean through its southern ports.

 A senior official of Iran Railways said the Central Asian countries have plans to carry various kinds of bulk and container cargoes from the Inchehboroun border crossing Iran’s northern Golestan Province to the southern Iranian port city of Bandar Abbas.

 “They are also willing to transit their needed commodities from Bandar Abbas to Central Asia, using Iran’s rail-road network,” the official added.

 Mr Modi also suggested that Turkmenistan should become a member of the International North South Transport Corridor.

 “Together with the Kazakhstan-Turkmenistan-Iran rail link, and India’s proposed investment in Chabahar port in Iran, these initiatives will strengthen connectivity between our countries,” he pointed out.

Months after coal auctions, little action on the ground

Most coal mines auctioned earlier this year remain shut and thousands of workers jobless, said a prominent coal workers’ union.

The process of restarting work on the mines may take many more months, company executives added.

India auctioned 28 coal mines to companies in the power, steel and cement sectors and allotted 27 mines to government-run power firms between January and March. Most of the mines auctioned are so-called “producing” or “ready-to-produce” mines, out of more than 200 that were cancelled by the Supreme Court last year in a case challenging the way the blocks were allocated to private companies.

Analysts said these auctions, the first of a kind, will test the new coal policy that has so far seen companies bidding too high and issues on the ground where new owners are seeking to take over mines by the transfer of clearances and ownership.

There has been some criticism of the policy on the ground that while it makes the process less discretionary—the root cause of the coal scam that is currently being probed by investigating agencies—it lays too much emphasis on maximising the government’s revenues from the allocation of natural resources, not the best way to build a competitive industry.

“A large number of mines are not operating and workers have not been paid from April to June… they are caught between the old and the new owners,” said S.Q. Zama, secretary general of the Indian National Mineworkers’ Federation, one of the prominent unions representing workers of Coal India Ltd.

“This is in violation of the Coal Mines Special Provisions Act, 2015, and not in the spirit of the Supreme Court order that said there must be continuity in coal-mining operations,” Zama added.

There are up to 16,000 jobless workers and this issue is on top of demands the federation has made to the coal ministry among others, Zama said. In a meeting last week with R.P. Gupta, joint secretary in the coal ministry, Zama asked for a solution within a month.

Land and lease issues

The major procedural hurdles for the new coal mine owners include transfer of land ownership, transfer of mining leases, environment clearances and the right to use explosives in which state governments have a role to play. “The blocks are ready to produce, but we have to still do some work on them,” said Sushil Maroo, managing director and chief executive officer at Essar Energy Plc, which won the Tokisud North block in Jharkhand.

Maroo did not say which clearances are pending from the previous owner GVK Power Ltd, but said the mine would be able to produce in another three months’ time.

Adani Power Ltd could get its Jitpur coal block in Jharkhand linked to its Mundra plant operational in 24 months’ time as clearances and approvals would take that long, said an executive who asked not to be identified.

The company is awaiting an environment clearance and the transfer of land in its name from the earlier owner, Jindal Steel and Power Ltd, the executive added. A spokesperson for Adani Group did not confirm the details and declined comment.

Meanwhile, the central government has been supporting the companies in their quest to get the mines operational and has also written to the state governments to speed up the various processes that are needed.

“The new user agency shall abide by all the user conditions on which the forest land was leased…,” reads a letter to the Jharkhand government’s principal secretary of forests from the ministry of environment and forests dated 25 June, asking for transfer of lease for diversion of forest land in Jitpur. This letter was reviewed by Mint.

“The new user agency shall abide by any other condition that may be stipulated by the central government, regional offices, state government in future in the interest of conservation, protection and development of forests and wildlife,” the letter, in support of Adani, added.

The next hurdle could be issues in the transfer of assets on the ground. These belong to old owners of the mines who had their allotments cancelled and need to be transferred to the new owners.

“Valuation-related issues have still not been resolved,” said Amitabh Mudgal, president, marketing and corporate affairs, Monnet Group, whose Monnet Ispat and Energy Ltd won the Gare Palma IV/7 block in Chhattisgarh. “These and commercial negotiations among companies could be the major issues.”

In Chhattisgarh’s Raigarh district, home to the Gare Palma coal field that is split between multiple owners, Ganpat Chauhan, secretary general of South Eastern Koila Mazdoor Congress, said he is witnessing friction between the erstwhile and the new owners.

Some of the new owners quoted above said that the issues will be resolved soon. They said that Union government officials have been doggedly following up to ensure that happens.

“There has been some confusion, but with active follow-up by nominated authorities with the states and various ministries, a lot of change has happened,” said Mudgal. He expects the Monnet group’s mine to start producing next month.

ACC results echo rising cost pressures in cement sector

ACC Ltd, a pan-India cement maker, disappointed the street with its June quarter performance. In spite of its revenue matching expectations, rising costs dragged down net profit substantially.

In spite of selling more cement, ACC’s net realization fell 3% when compared to the March quarter and was a tad lower than even a year back. The reason was low cement prices in the June quarter, which is normally robust considering fast-paced pre-monsoon activity.

Add to this a significant rise in operating cost per tonne, and you have the perfect recipe for a nearly 395 basis-point plunge in operating margin to 9.4%. This is way below the Bloomberg consensus margin of 12.3%. One basis point is one-hundredth of a percentage point.

A Nomura Research preview report on cement had forecast that recent increases in coal and cement freight, along with the hike in retail diesel and polypropylene prices, would lead to cost pressures.

ACC’s pan-India operations entail significant dependence on railways, where there was considerable rise in freight rates during the quarter under consideration.

Furthermore, employee costs rose too. Consequently, operating profit for the quarter fell by 30% from the year-ago period to Rs.279 crore. Higher depreciation and interest costs weighed down net profit, which fell by 45.5% to Rs.131.4 crore, in turn missing the consensus estimate of 24 analysts in a Bloomberg poll of Rs.205 crore.

Further, an Emkay Global Financial Services report highlights that the delay in commissioning of ACC’s new plant will stymie volume expansion until the second half of calendar year 2016.

Categorised in:

This post was written by Atlantic Admin