The Union coal ministry’s decision to reserve Mahan coal block in Madhya Pradesh specifically for power sector has come as a huge setback for Hindalco Industries, which was banking on captive coal for its new aluminium smelter plant in the state.
At present, the company is using other suppliers and also importing coal to fire up its 3,60,000 tpa (tonnes per annum) capacity smelter plant.
Mahan Coal Ltd, a joint venture between Hindalco and Essar Power Ltd, was to supply coal at low prices to Essar’s 1,200 MW power project, besides Hindalco’s smelter plant.
The targeted capacity of the coal production from Mahan coal block was 8.5 MTPA (million tonnes per annum) out of which 5.1 MTPA coal was to be supplied to Essar and 3.4 MTPA was to be supplied to the Hindalco.
Mahan Coal cleared a key hurdle in February this year, when it got environmental approval from the Union government. However, the coal block allocation was cancelled by the Supreme Court in September before the company could sign a lease agreement with the state government.
The Mahan coal block is listed under ‘power’ in a list issued by the coal ministry, naming 65 coal blocks that will come up for allocation or auction before March 31, 2015, in line with the Supreme Court’s order earlier this year.
While Essar Power has the option to bid for the Mahan coal block, Hindalco has lost the chance to take part in the auction process.
“The company will now have to bid for mines falling under the ‘non-regulated sector’ near its plant in Bargawan. However, the freight costs will go up if it gets a mine far away from its end-use plant. Also, the base price for auction of these mines would be higher than that reserved for the power sector,” a state industry department official said.
The smelter plant’s coal costs are expected to go up by Rs 600 a tonne or more, based on the difference between its captive coal and Coal India Ltd’s linkage price for non-power users. Mahan Coal Ltd officials did not respond in the matter.
Hindalco expects to achieve full output at its new smelter plant in Madhya Pradesh by March 2015.
The company has already invested about Rs 12,500 crore in the plant that uses globally proven technology with enhanced efficiency and improved productivity.