Nod for Hindalco & Essar’s Mahan coal block soon

The much-touted and highly prolific Mahan coal block, on which two major projects of two big conglomerates are hinged, is expected to see light of the day very soon.

According to sources in the know, the government is keen to clear the clouds of uncertainty hovering over the Mahan coal block located in Singrauli fields in Madhya Pradesh very soon.

The block is estimated to have 150 million tonne of thermal coal reserves and will feed upcoming power plants of Essar Power and Hindalco Industries, the flagship subsidiary of the Aditya Birla Group.

The coal block is currently held by Mahan Coal Ltd, a joint venture company equally held by Essar Power and Hindalco Industries.

While Essar has an offtake agreement of 60% or 5.4 million tonne per annum (mtpa) of coal from the block to feed its upcoming 1,000 mw power plant in the state, Hindalco will take the remaining to fuel its 750 mw power plant. Hindalco has an off-take agreement of 3.6 million tonne per annum of coal from the coal block.

Hindalco’s power plant will in turn supply captive power to its upcoming 359 kilo tonne per annum (ktpa) aluminium smelter called as the Mahan Aluminium project, which is likely to be commissioned by the last quarter of calendar 2011.

Analysts are of the opinion that in case the Mahan block is not removed from the purview of ‘no-go’, it could be a big negative for Hindalco.

“It is not economical to produce aluminium without a captive source. Once the block is cleared, Hindalco can see a huge cost reduction in alumina production as they will get access to coal at virtually e-auction rates,” said an analyst with an international brokerage.

In fact, during the announcement of company’s results in May, Debnarayan Bhattarcharya, managing director, Hindalco Industries had aid that increasing power costs is soon becoming a major concern for the company, which has massive expansion plans in the next few years.

The company is planning to raise its aluminium smelting capacity to 917 ktpa by the next fiscal and 1.28 mtpa by fiscal 2014.