JSW Ispat to cut costs with merchant power

Steelmaker JSW Ispat, which is reeling under high input costs for the last many quarters, may see annual savings of Rs300 crore in energy costs as a group company is likely to sell power to it from January.

JSW Energy, the JSW Group’s power arm, which currently runs a 3X300 mw (1,200 mw) power plant at Ratnagiri in Maharashtra, is likely to get a go-ahead from the Maharashtra Electricity Regulatory Commission (MERC) to sell power to JSW Ispat by the year end.

“We are waiting for an approval from the state and once we get it we will start selling power to the company,” said a JSW Energy official, adding the plant is running for the last five months and can start supplying power from the day it gets the nod.

A source said discussion in MERC is underway and the committee is likely to give its approval by December-end.

JSW Ispat, which currently buys power from the state grid, pays over Rs6 per unit. However, after it starts buying power from the Ratnagiri plant, it will be at merchant tariff.

“Merchant tariff currently is between Rs3 and Rs4 per unit and the rate is likely to remain the same. Considering the current power cost, the company will be saving close to Rs2.50 per unit,” said an analyst with a domestic brokerage.

He said the company consumes close to 250 mw power, which currently accounts for 8-10% of the total cost to produce steel.

Once it starts purchasing power at Rs4 per unit, the company could see savings of close to Rs300 crore annually.

JSW Ispat currently has two plants, both in Maharashtra: one is a 3 million tonne per annum plant at Dolvi and another is a 0.4 mtpa plant at Kalmeshwar.

While buying the Ispat plant from lenders last December, JSW had said it will invest Rs3,100 crore in JSW Ispat, mainly for backward integration.

This included setting up a 1 million tonne per annum (mtpa) coke-oven plant, a pellet plant, a 200 mw power plant and developing Ispat’s captive mines.

Also, the capacity was to be increased to 4.2 mt from 3.4 mt currently.

However, due to increasing inputs costs and the group’s own flagship plant getting into trouble due to a mining ban in Karnataka, the company pushed the plans for JSW Ispat to the backburner.

But with some cost savings in terms of merchant purchase from Ratnagiri, JSW Ispat can breathe easy for some time.