Essar Energy planning to convert two gas-fired plants into coal-based units

The acute scarcity of natural gas and high cost of imported LNG have taken a toll on Essar Energy’s power business, forcing the company to take the decision to convert two gas-fired plants at Hazira and Bhander in Gujarat into coal-based units. However, the company’s oil and gas business has done well and posted an earnings before interest, taxes, depreciation and amortisation (EBITDA) of $1.33 billion in 2012-13, crossing the $1-billion mark for the first time. “Operational EBITDA for the power business for FY2013 is $224 million, down from $266 million in FY2012, and slightly below analysts’ consensus of $268 million… impacting the results was lack of availability of (domestic) gas and high imported LNG prices,” the company said in a statement on Monday. “These plants were commissioned on APM gas, but as there is no availability of either APM gas or allocation from KG-D6, we have been using costly LNG at an average rate of $12-18 for the past 2-3 years, which is becoming uneconomical. So, we will be switching to coal. The full conversion will take three years,” the company’s CEO Naresh Nayyar said at a conference call from London. He said the company was evaluating the cost of modifying the plants to run on coal. “We will be sourcing about 1.5-1.7 mtpa coal from Indonesia. This will result in a cost reduction of 50% as it costs around 9 cents to produce 1 kwh of power with LNG and 4 cents through coal,” said KVB Reddy, executive director, Essar Power.

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