India's JSW Energy Plans $427 Million Investment in Coal Mine Development

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Special-purpose vehicle (SPV) JSW Energy (Bengal) Limited is planning to invest nearly $427 million to develop coal mines. The investment is likely to be channeled primarily into the Bengal power and steel project that is being planned as a joint venture by power and energy firm JSW Energy Limited (BSE:533148) (Bangalore, Karnataka) and leading Indian steel manufacturer JSW Steel Limited (BSE:500228) (Mumbai), both of which are arms of the Indian conglomerate JSW Group.

JSW Bengal Steel Limited (Kolkata, West Bengal), an arm of JSW Steel, is building a 10 million-ton-per-year integrated steel mill at Salboni ,in the West Medinipur district of West Bengal, on behalf of JSW Steel, as part of the latter's power project in the state. JSW Bengal Steel and JSW Energy Limited hold 26% and 74% stake, respectively, in the SPV, which was incorporated in February this year.

Apart from spending $427 million on the captive thermal coal mine development, JSW Energy Bengal will channel an estimated equivalent of $1.6 billion in establishing a 1,600-megawatt (MW) power plant. The entire investment of more than $2 billion will be funded by a mix of debt and equity in a 1:3 ratio.

Operating as an independent power producer (IPP) in the country, JSW Energy Limited has various power plants in different stages of commissioning. Of these, its 260-MW and 600-MW power plants in the southern state of Karnataka already are operational. Construction is continuing at its 1,200-MW and 1,080-MW power plants in the western states of Maharashtra and Rajasthan, respectively. Its 270-MW thermal power plant in Rajasthan and 240-MW hydroelectric power plant in the northern state of Himachal Pradesh are undergoing implementation. Lastly, its 3,200-MW, coal-fired power plant in Maharashtra; a 1,320-MW, coal-based plant in the central state of Chhattisgarh; the abovementioned 1,600-MW plant in West Bengal; and a 1,620-MW, coal-based plant in the eastern state of Jharkhand are at the planning and development stage.

In January this year, JSW Energy Limited Managing Director Sajjan Jindal told local media that the company would be investing $8.6 billion on the development of projects, amounting to nearly 8,000 MW. Although he did not specify the time limit for such an investment, it is believed that JSW Energy Limited is increasing its borrowing limit by a little more than $2 billion to meet the funding requirements of its expansion plans.

When the necessary government approvals for the plans come through, JSW Energy Bengal will set up the planned 1,600-MW power plant at Icchapur in West Bengal, using thermal coal from the nearby Icchapur coal mines. JSW Energy Bengal, which will operate the steel plant and thereby require electricity for captive consumption, will have access to 51% of the power generated by JSW Energy Bengal. This is in accordance with India's Electricity Act of 2003. The remaining power will be owned by JSW Energy Bengal for sale purposes and will be sold to the state grid.

According to a January 21, 2010, JSW Energy Limited press release, the entire project is due for completion and commissioning by March 2015.

According to media reports, JSW Energy Bengal signed an agreement with the West Bengal Mineral Development Corporation Limited (WBMDTC) (Kolkata, West Bengal) this March for an exclusive long-term supply of thermal coal from the coal blocks in the Kulti and Sitarampur districts of the state.

Meanwhile, work has already begun on the boundary wall for the steel mill. Seshagiri Rao, the joint managing director and chief financial officer of JSW Steel, told reporters that "steps would be taken this year for the Bengal project."

In the first phase of the project, a 4 million-ton-per-year capacity mill will be brought online in an estimated investment of $3.2 billion. All environmental clearances for the project have been received, and nearly 1,821 hectares of land have been acquired. As per the memorandum of understanding signed between JSW Energy Bengal and the government of West Bengal in 2007, the state government will be facilitating the project by supplying the coal and the clearances, and allocating the water required for the upcoming steel mill.

JSW Steel is fundamentally involved in the production and distribution of semi-finished and finished steel products. It operates integrated steel mills at Vijayanagar in Karnataka and Salem in Tamil Nadu, and downstream operations at Vasind and Tarapur in Maharashtra. As of March 31, 2010, its installed crude steel capacity stood at nearly 8 million tons per year.

Meanwhile, in an April stock exchange filing, JSW Energy Limited announced that it had purchased 49.8% shares in investment firm Royal Bafokeng Capital (Johannesburg, South Africa), which is a majority shareholder in South African coal mining and holding company South African Coal Mining Holdings Limited (JSE:SAH) (Johannesburg, South Africa).

In April last year, it was reported that JSW Energy Limited was close to making a deal to purchase a thermal coal mine in the sub-Sahara region in Africa at an investment of between $70 million and $100 million. The mine has estimated cumulative reserves of about 200 million tons. At the time, sources close to the company told the Indian media that the deal was being considered to enable JSW to become less dependent on overseas providers of coal. JSW Energy Limited has access to coal mines in India, but is largely dependent on imports for power production.

JSW Energy Limited is also close to finalizing a "coal supply linkage pact" amounting to 50 million tons, with Indonesian sources, and is scouting for more coal reserves in Australia.

View Project Report - 89001119 89001120 89001137 89001175 300007660

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.