IndiaCore logo IndiaCore
India Core AD


Featured Reports & Publications
 Upcoming Titles

Overview of New & Renewable Energy Sectors in India

Energy Efficiency Scenario in India

India Core Reports

IndiaCore Site





  • OIL AND GAS: Capex cycle ended with completion of Vadinar refinery expansion and optimisation projects
  • POWER: 1,580MW of new capacity commissioned; 2,800MW now operational
  • Group Current Price (CP) EBITDA2: US$737.1 million including sales tax benefit but before its subsequent reversal and before foreign exchange impact (2010: US$697.0 million)

OIL AND GAS: Capex cycle ended with completion of Vadinar refinery expansion and optimisation projects

  • Vadinar refinery expansion completed in March 2012, raising complexity to 11.8 and capacity to 18 million tonnes per year/375,000 barrels per day
  • Vadinar refinery optimisation project to 20mmtpa/405,000bpdcompleted in June 2012,four months ahead of schedule
  • Current price gross refinery margins at Vadinar refinery improved in 15 month period to US$4.45 per barrel (excluding sales tax incentive) compared with US$3.98 per barrel in 2010
  • 17.1mmt/125m barrels throughput at Vadinar in 15 month period(2010:14.7mmt/107.2mbarrels)
  • 6.8mmt/51.3m barrels throughput at Stanlow refinery for 8 months of ownership, in line with expectations. Significant margin improvement initiatives continuing

POWER: 1,580MW of new capacity commissioned; 2,800MW now operational

  • Two projects commissioned: Vadinar P1, 380MW, and Salaya I, 1,200MW (post period end)
  • Group of Ministers provisionally approves forest clearance for Mahan coal block
  • Final forest approval obtained for Aries coal mine – infrastructure under construction
  • 93%-99% power plant availability


  • US$300m 3 year debt facility completed to refinance Stanlow acquisition bridge loan
  • US$250m 3.5 year loan facility agreed with Essar Global
  • Gujarat High Court to give direction on deferred sales tax repayment schedule and interest payments
  • Advanced discussions with banks regarding c.US$1 billion loan facility to meet sales tax liability
  • Reversal of sales tax benefit revenue previously recognised of US$1,053.7million (US$645.3million net impact after tax)

RESULTS FOR 15 MONTHS TO MARCH 31 2012 EXCLUDING EXCEPTIONAL ITEMS 1(reflecting switch to March year end):

  • Strong group revenue growth  up to US$22.0bn  (2010 12 months: US$10.0bn), primarily due to higher refining and marketing revenues in India from higher selling prices and the Stanlow refinery acquisition
  • 14% depreciation of Rupee during 15 month period resulted in an overall forex impact of US$317 million1 on EBITDA2, including revaluation impact and other forex losses of US$243.2million
  • Group Current Price (CP) EBITDA2 of US$737.1 million including sales tax benefit but before its subsequent reversal and before foreign exchange impact (2010: US$697.0 million)
  • Profit before tax and profit after tax before exceptional items of US$129.0 million (2010:  US$365.5 million) and US$98.2 million (2010: US$248.3 million),respectively
  • Impact of exceptional items on profit before tax and profit after tax of US$1,276.7 million and US$862.5 million respectively
  • Loss before tax and loss after tax after impact of exceptional items of US$1,147.7 million  and US$764.3 million, respectively

Naresh Nayyar, Essar Energy Chief Executive Officer, said: “We are now very much an operational energy business, with many construction projects completed and our capex investment programme having peaked. The expansion of our Vadinar refinery has been very successful, putting the plant into a league with the best in the world where it can produce high value fuels from lower cost, ultra heavy crudes. Coupled with our low cost base, this will permit a step change in margins. We are also making good headway at our Stanlow refinery with a number of initiatives to improve margins by at least US$2 per barrel over the next 18 months.”

“In our power business we have commissioned 1,580MW of capacity since January 2011 and expect to commission a further 3,900MWin the next 24 months. We have been encouraged by the provisional forest clearance on the Mahan coal block which moves us further forward in developing the low cost generation assets which India badly needs. However, significant further progress is still required in a number of areas and we will be continuing our dialogue with both state and central Government to try and ensure this momentum is not lost.”


15 months ended 31 March 2012

12 months ended 31 December 2010


(US$ million)


Adjusted EBITDA1




CP EBITDA1 (including sales tax benefit but before its subsequent reversal and before foreign exchange impact page 18)




Profit before tax (before exceptional items page 19-20)




Exceptional items (pages19-20)



(Loss)/profit before tax




Profit after tax (before exceptional items page 19-20)




(Loss)/profit after tax




Capex spent (excluding intangibles)





Balance Sheet
(US$ million)

As at  31 March 2012

As at 31 December 2010


Net debt (underlying)2




Total equity3




Gearing (net debt(underlying)/(net debt(underlying) + total equity))




1 See pages 16 to 18 for a definition of adjusted EBITDA and CP EBITDA. Note CP EBITDA presented above is on a Group wide basis. Adjusted EBITDA is before other foreign exchange impact (see page 19) and the deferred sales tax benefit recognised in the period before its subsequent reversal.

2 See page 22for a definition of Net debt (underlying).

3 Reduction in equity after providing exceptional items of US$ 862.5 million in 2012

Commentary on Group Results


Essar Energy completed a number of major capital projects over the last year, removing construction risks and moving the focus to operations and asset optimisation. The company continues to deliver its strategy to create a world-class, low cost integrated energy business, positioned to capitalise on India’s rapidly growing energy demand.

In particular, during March 2012 we commissioned the phase 1 expansion of our flagship Vadinar refinery in Gujarat enhancing capacity to 375,000 barrels a day, from 300,000 previously, with a sharp uplift in complexity from 6.1 to 11.8, giving the capability to produce high value fuels from some of the world’s toughest, heaviest crude oils with a corresponding increase in margins. A further optimisation project, taking capacity to 405,000bpd, was commissioned in June 2012, four months ahead of schedule. Essar Energy is now well positioned to take advantage of rising demand for high value refined fuels in India and internationally (see detailed section below). In the UK, work is well under way on various projects aimed at increasing margins at our Stanlow refinery following its acquisition at the end of July2011. Stanlow is operating in a tough European refining market, but we continue to see signs that uneconomic refining capacity is being removed from the market which we expect to have a positive impact on margins.

In the Power business, during the 15 month period commercial operations commenced at the Vadinar P1 gas fired power station, 380MW. Following the period end, commercial operations also commenced at Salaya I (unit I) 600MW,in April 2012 and at Salaya I (unit 2) 600MW,in June 2012.Overall, therefore, we have added 1,580MW of installed capacity since the start of 2011.This takes Essar Energy’s total operational capacity to 2,800MW. However, regulatory issues continued to cause delays, notably with regard to Government clearances to begin mining operations at the coal blocks previously allocated to Essar Energy’s Mahan and Tori power projects. Nevertheless, the company has processes in place to purchase coal from other sources, both international and domestic, in the short to medium term until these issues are resolved. Longer term, the logic of investing in the Indian energy sector remains, given ongoing large deficits of generation relative to demand.

Power sector regulatory climate

Regulatory and coal supply issues have impacted the entire power industry in India. In January, the Indian Association of Power Producers and senior executives from several member power companies, including Essar Power, held a meeting with the Indian Prime Minister and his ministerial colleagues to discuss options for resolving a number of the issues. These included the need for much improved supplies from Coal India, the state-owned producer, and long delays in decision making on approvals to allow mining to begin at captive coal blocks previously allocated by the Government to power projects. These delays have particularly involved environment and forest clearances.

The Prime Minister committed to delivering improvements and formed a committee under his principal secretary, Pulok Chatterjee, involving secretaries from the key ministries, to resolve these issues. So far, some improvements have been seen, including reports that our own Mahan coal block received provisional stage 1 forest clearance last month from the Empowered Group of Ministers on coal. However we have as yet received no formal confirmation from the Indian Government and our understanding is that this decision requires final approval from the Indian Cabinet. In general, more rapid progress is still required on the regulatory front

Essar Energy is committed to continuing this dialogue with the Government – we believe changes are necessary if the Government is to deliver on its objectives for the wider Indian economy.

Against this backdrop, Essar Energy believes that its decision in February this year to progress construction of three of its later stage coal-fired power projects only against the achievement of certain milestones was the right decision allowing us to manage risk and focus on completion of its other under construction projects(see power section below for more detail).

Foreign Exchange Impact

There was a significant financial impact during the 15 month period from the significant weakening of the rupee against the US dollar. During the 15 month period, the rupee fell by 14%from Rs.44.81a dollar in January 2011 to Rs.51.16 at the end of March 2012. This impacted profits by US$304million with the main impacts in Essar Oil (US$260 million) and Essar Power (US$44 million). The rupee has further weakened since the end of March and now stands at Rs 55.5 to the US dollar. However, theimpact on the business is largely due to revaluation losses which are offset in the period that the underlying transaction is settled.  In the 15 months to March, the revaluation and other exchange lossesin the Indian refining business was US$177 million and the foreign exchange offset impact (see page 19), which is offset in the pricing of products, was US$83 million. The impact on the power business is primarily through the revaluation of project liabilities in foreign currencies from buyer’s credit, creditors and acceptances used to purchase overseas equipment.

Sales Tax update

Essar Oil, the 87% owned subsidiary of Essar Energy which owns the Vadinar refinery, has been working to mitigate the impact of a decision on 17 January 2012 by the Honourable Supreme Court of India to set aside a previous order in 2008 of the Honourable High Court of Gujarat in relation to benefits received by Essar Oil under a sales tax deferment scheme operated by the Gujarat Government. Under this High Court ruling, Essar Oil had been permitted to take part in the scheme, which allowed it to defer paying sales tax on revenues from the sales of products in Gujarat from the company’s Vadinar refinery from 2008 until 2021 or until a certain limit was reached.

A review petition filed by Essar Oil against the 17 January decision was disallowed by the Supreme Court on 4 April. Essar Oil commenced talks with the Government of Gujarat towards agreeing terms of repayment of the sales tax liability. However, the parties were unable to reach agreement and as a result, in May, Essar Oil filed a writ petition with the High Court of Gujarat seeking direction on the repayment instalments and interest payments demanded by the Government of Gujarat. This petition has been accepted by the court and will be heard in due course. As a contingency measure, talks are also continuing with Indian lenders regarding a new debt facility of approximately US$1 billion (Rs 50 billion) to meet the sales tax liability.

As Essar Energy announced in February with its results for the 12 months to the end of December 2011, given the Supreme Court’s decision, it is considered that it is no longer appropriate to recognise the income from the deferred sales tax that has been recognised to date in the financial statements. Further details of the reversal are provided in note 6a, with a net effect of US$645.3 million impact on profit after tax.

Debt facility update

As Essar Oil has previously announced, it has been continuing discussions with its group of Indian lenders towards exiting the current Master Restructuring Loan Agreement (MRA), which encompasses the corporate debt restructuring (CDR) scheme entered into in 2004to finance the construction of its Vadinar oil refinery in Gujarat. The debt within this facility totals US$1.7 billion.

Essar Oil has made significant progress with its lenders to exit the CDR and expects to enter into a new facility on revised terms shortly.  Essar Oil has received confirmation from its lenders that there is no breach of covenant until the new loan facility is executed, which will be on revised terms. 

As a result of the advanced stage of the CDR exit proposals the prepayment of a facility that was part of the MRA expired in April 2012. As a consequence there has been a revised estimate of the future cash flows based on the terms of the MRA that existed at 31 March 2012, without taking into account the effect of the proposed CDR exit. This has resulted in an exceptional finance cost, net of deferred tax, of US$217 million (see note 6b). The completion of the CDR exit, under the new terms, will see a partial reversal of this amount in the period in which the CDR exit is signed.

Essar Energy has also amended the terms of its Foreign Currency Convertible Bonds (FCCB) holding in Essar Oil of Rs 13.41billion (c.US$262 million) to compulsorily convertible bonds.

Post year end, Essar Energy, at Group level, refinanced a US$450 million bridge loan which was due December 2012 with a new US$300 million 3 year secured loan facility and US$150 million of internal cash resources. Separately, Essar Energy has also signed a US$250 million 3.5 year subordinated unsecured loan facility with Essar Global Limited for general corporate purposes to ensure adequate liquidity within Essar Energy

Oil and Gas:

The oil and gas business comprises three segments; Refining and Marketing India, Refining and Marketing UK and Exploration and Production.

Refining and Marketing India

In the Refining and Marketing India business, operational and project progress was excellent during the 15 month period. The Vadinar refinery phase 1 expansion project was completed towards the end of March 2012, increasing capacity to 18 million metric tonnes a year, or 375,000 barrels per day, and complexity to 11.8 from 6.1 previously. This significantly improves gross refinery margins by allowing the percentage of lower cost heavy and ultra heavy crudes processed to rise to around 80% of the total throughput, while at the same time permitting production of a greater proportion of high value middle and light distillate products, with middle distillates, diesel and jet fuel, becoming the principal products.

It is expected that throughput from Vadinar will be approximately 19 million tonnes/c.135 million barrels of crude oil in the current financial year from April 2012 to March 2013.

The further optimisation project at Vadinar, to lift capacity to 20 million metric tonnes a year, or 405,000 barrels per day, was completed in June 2012, four months ahead of schedule. This project included the conversion of one original refinery unit, a Visbreaker, into a crude distillation unit specifically designed to process ultra heavy crude, from the Mangala field in Rajasthan. Completion of this project brings to an end the current capital expenditure programme in the R&M business.

During the 15 month period, Vadinar continued to operate at well above its previous nameplate capacity of 10.5 mmtpa (million metric tonnes per annum). Despite a 35 day shutdown to allow the new phase 1 expansion units to be tied in during September/October 2011, the refinery achieved a throughput during the 15 months of 17.1 million metric tonnes/125 million barrels, compared to 14.7mmt/107.2 million barrels, in the 12 months of 2010.

During the 15 months, current price gross refinery margins (CP GRM) improved to US$4.45 per barrel (excluding sales tax incentive) compared with a CP GRM of US$3.98 in 2010.  

The Vadinar refinery processed 27 varieties of crude during the period, including ultra-heavy and tough crudes. Around 11.7 % of the crude slate comprised Mangala crude from Cairn’s Barmer oilfield in Rajasthan.

Essar Oil continues to focus on the domestic market for the sale of its products because of the superior price realisation. However, export quantities from the Vadinar refinery in the 15 months to March 2012 were 39% of the total sales quantity as compared to 31% in 2010. The majority of exports in 2011-12 were fuel oil, but in 2012 post the upgrade in complexity, exports will consist primarily of higher value middle and light distillates, such as diesel and gasoline.

In its fuel retail business, Essar Oil retails gasoline and gasoil/diesel in India under the Essar brand. At 31 March 2012, Essar Oil had approximately 1,400 operational retail outlets with approximately 200 more under construction. The operational sites include 17 Auto LNG and CNG stations.

Refining and Marketing UK:

Essar Energy completed the acquisition of the Stanlow refinery, UK, on 31 July 2011. The company then began a 100 day evaluation, resulting in a clear plan to integrate the refinery into Essar Energy and to identify opportunities to improve margins. These opportunities include a significant broadening of the number of crude oils processed, including lower cost options, together with improvements to the product mix, energy efficiencies and some operational cost savings.

During the first eight months of ownership, to March 2012, Stanlow processed eight “opportunity” injection crudes and completed a project to further improve its crude blending capability. The aim is to further expand the crude basket and, by being more flexible in terms of the crude diet, to provide significant economic advantages through the reduction of crude purchasing costs and enhanced utilisation of the refinery’s capacity.

During the first eight months of ownership to March 2012, Stanlow had a throughput of 6.8 million metric tonnes/51.3 million barrels of crude oil. Current price gross refinery margins were US$3.06 per barrel, representing a significant premium to the International Energy Agency North West European benchmark margin of US$1.19 per barrel.

On the product side, gasoline continues to be over supplied in the Atlantic basin and as a result, Stanlow is seeking to diversify its customers and markets and to produce alternative products such as petrochemicals. Diesel and gasoil continue to be in high demand in Europe and the UK and the aim is to enhance the production of these products and place them in our domestic market.

Work continues to install a natural gas supply into Stanlow to fuel the six boilers on site, which are currently run on fuel oil. This initiative is expected to be completed by the end of 2012, to deliver significant environmental benefits and improve margins. The task of installing a 3km, 12 inch diameter pipeline to transport the gas is now well advanced.

It is expected that these, and other initiatives, will deliver approximately US$1 per barrel of margin benefits in 2012-13 and a further US$1 in 2013-14, with the potential of a further US$1 thereafter. These 100 day plan improvements are to ensure that Stanlow will be net cash positive even when market conditions are at the bottom of the cycle and will provide attractive returns through the market cycle.

The Stanlow refinery, which is the second largest refinery in the UK, is currently processing around 220,000bpd, which is approximately 70% of its 296,000bpd nameplate capacity.

The consideration for the refinery was US$350 million. The consideration is payable in cash and in two stages, with US$175 million, less adjustments reflecting certain costs associated with the Stanlow refinery, paid on completion of the acquisition and US$175 million plus interest at the rate of LIBOR plus 4% payable on the date of the first anniversary of completion.

A separate payment of US$878 million was made for the crude and refined product stock at the Stanlow refinery site, based on market prices at the time of completion. On 1 July 2011, Essar Oil UK Limited entered into a US$1.5 billion three year secured revolving credit working capital facility. This facility was used to purchase the crude and refined product stock at the Stanlow refinery site at completion and may also be used to meet operational working capital requirements.

Exploration and Production:

In the exploration and production business, Essar Energy continues to evaluate ways of managing risk across the portfolio of oil and gas blocks it currently owns, with a view to maintaining a stronger focus on India.

Essar Energy’s exploration and production business currently has approximately 2.1 billion barrels of oil equivalent of reserves and resources, spread across a portfolio of 15 offshore and onshore oil and gas blocks.  Within this, during the 15 month period there was a sharp uplift in the total of 2P and 2C resources to 209 mmboe from 150 mmboe previously following a fresh independent evaluation of the Raniganj coal bed methane (CBM) block in West Bengal, by international consultants Netherland, Sewell & Associates, Inc. (NSAI).

Within the overall portfolio, there are also 929 mmboe of best estimate prospective resources and just under 1,000 mmboe of unrisked, in place resources.

At Raniganj, Essar Energy’s first CBM project to be brought into development, total proven and probable reserves (2P), evaluated as in September 2011 by NSAI, are 113 billion cubic feet (bcf) gross, or 18.8 million barrels of oil equivalent (mmboe), while best estimate contingent resources (2C) are 445 bcf gross, or 74.1mmboe. This compares with the previous evaluation in December 2009, also by NSAI, which showed only 201bcf gross, or 34mmboe, of 2C resources. The latest evaluation also shows that there also remains 297bcf gross, or 49mmboe, of best estimate prospective resources of gas at Raniganj. In addition, NSAI upgraded the calorific value of the gas from 8500 kcal/scm to 9660 kcal/scm.

Current production at Raniganj is around 25,000 standard cubic metres of gas per day, reduced to minimise flaring, while test sales through a pipeline to the Durgapur industrial estate are continuing. Once all clearances have been received peak production is expected to be around 3 million scm/day. A provisional gas price for test sales of US$5.25/mmbtu plus US$1.00/mmbtu for transportation charges has been approved by the Government of India for incidental gas produced during phase II. The Government is now in the process of making a decision on the full commercial sales price for Raniganj and other CBM developers in India. As part of this process, Essar Energy completed a gas price discovery exercise in accordance with Government policy.

To date, Essar Energy has consents for 73 wells, which have been drilled, and is in the process of getting environmental approval to extend this to 500 wells, which will be required to achieve full production.  The full field development plan has already been approved by the Director General of Hydrocarbons (DGH).

Overall, Essar Energy has the largest acreage of coal bed methane blocks in India, with approximately 10 trillion cubic feet of gas resources across five CBM blocks.

Oil and Gas – Health and Safety:

There is a strong focus on health and safety in the oil and gas business. At 31 March 2012, the Vadinar refinery had recorded over 1,460 days of operations without a Lost Time Injury and the Stanlow refinery had recorded 794 days without a Lost Time Injury. Refinery personnel have consistently delivered a high production rates without compromising safety standards.


Essar Energy’s power generation portfolio is segmented, with the captive plants in one grouping and the other non-captive plants grouped according to their fuel source being international coal or domestic coal. In the 15 month period to March 2012, the operating plants, totalling 1,600MW of capacity, were primarily captive plant.

After the period end, the 600MW unit 1 at the coal fired Salaya I project was commissioned in early April 2012, with unit 2, also 600MW commissioned in June 2012.

Essar Energy also commissioned its first renewable energy project in early 2012, a solar photovoltaic plant at Bhuj in Gujarat state. Power from the 1 megawatt project is being sold to the Gujarat state electricity utility, GUVNL, under a long term power purchase agreement. The plant was built at a cost of approximately US$2.2 million. This will give Essar Energy valuable experience of running renewable generation, given that there will be an increasing longer term need for clean, renewable energy in India.

Captive power projects

Essar Energy has five captive power projects operational, with a further three in construction.

Operational, total 1,600MW: Hazira (515MW) and Bhander (500MW) are primarily captive to the Essar Steel plant at Hazira, while Vadinar (120MW) and Vadinar P1 (380MW) are captive to the Essar Oil refinery at Vadinar. The other, Algoma (85MW), is captive to the Essar Steel plant at Algoma, Canada.

Under construction, total 900MW: Vadinar P2 (510MW), is captive to the Essar Oil refinery at Vadinar; Hazira II (270MW), captive to Essar Steel at Hazira; Paradip (120MW), captive to Essar Steel’s facility at Paradip, Orissa state.

All the operational captive plants performed well in the 15 month period, with the key measure of plant availability between 93% and 99%. Generation in the 15 month period from Essar’s portfolio was 7,907million units (MU)/7.91gigawatt hours (GWh), compared with 6,624 MU/6.62GWh, in the 12 months for 2010.  The pro-rata reduction in generationwas primarily due to lower demand for power from the Bhander and Hazira I gas-fired stations in Gujarat due to higher gas prices and import through Unscheduled Interchange (UI), against export in the previous period.

The smaller 85MW gas-fired plant at Algoma, Canada, providing power for Essar Steel’s plant, again performed well with generation for the 15 months at 671MWh, a similar level to 2010.

Of the power and steam to be produced from the Vadinar P2 plant, the fuel cost can be passed through to customers in respect of 391MW, comprising Essar Steel (90MW) and Essar Oil (301MW). Essar Oil will benefit from power generated from the Vadinar P2 power plant as it provides the lowest cost power for the Vadinar refinery, thereby contributing positively to the refinery’s GRMs. The balance of the power (119MW) will be sold as merchant power.

These captive projects deliver secure revenues with payments based on availability, rather than on power generated, and the fuel price and delivery risk lies with the power purchaser.

Imported coal projects:

Salaya I -1,200MW

Unit 1 of 600MW was fully commissioned in early April 2012. Unit 2, also of 600MW, was commissioned in June 2012.As disclosed in the 31 December 2011 interim financial statements, costs at Salaya I increased by US$84 million, or 8%, over the previously announced figure due to increases in interest during construction and pre-operative expenses, including the acquisition of commissioning coal (which was not included in the original budget).

Coal for Salaya I is due to come from the Aries coal mine in Indonesia, which was acquired in April 2010. The company received “in principle” Pinjam Pakai (forest) approval for the Aries mine during October 2011 and received final approval on 8 June 2012, with first coal now expected within 9-12 months. Construction of supporting road and port infrastructure in Indonesia is continuing. Until coal can be supplied from the Aries mine, Salaya I will be supplied with fuel under a contract with Essar Shipping and Logistics Limited, Cyprus.

Essar Energy continues to await certain regulatory approvals from the Indian Government for the dedicated Salaya coal import jetty, near to the power project. Alternative temporary arrangements have been made to import coal from other nearby ports and for onward delivery by road to the Salaya site. The delay in obtaining the regulatory approvals has also impacted construction of the sea water pipeline to meet the plant’s water requirements and temporary arrangements have been made to source water from the nearby Narmada River instead. To mitigate these issues, and also to mitigate the adverse impact of the new Indonesian coal pricing law on its power purchase agreement with the Gujarat state electricity utility, GUVNL, Essar Power is planning to operate Salaya I at a lower load factor of around 65%. (also see note above on power sector regulatory climate).

Domestic coal projects:

Mahan 1 – 1,200MW

Unit 1 of 600MW is expected to begin commercial operations in July. As disclosed in the December 2011 interim financial statements, the commissioning of Unit 2, also 600MW, will be linked to the availability of coal (see below). Also as disclosed in the December 2011 interim financial statements, costs at Mahan I have increased by US$153 million, or 14.7%, over the previously announced capital costs. This was due to increases in interest costs during construction and pre-operative expenses, acquisition of commissioning coal and development of logistics and road infrastructure and the transmission line of around45km which were not envisaged in the original budget.

According to reports, Essar Energy was given provisional approval at the end of May 2012 for stage 1 forest clearance for its Mahan coal block, which was previously assigned to the power project by the Government to provide captive fuel for the Mahan I power station. However, no official notification has yet been received from the Government of India, and our understanding is that the final decision will be taken by the Indian Cabinet. Delays in granting such clearances have delayed the development of a number of coal blocks and power projects in India.

Once we receive confirmation of stage 1 forest clearance, it will still take 15-18 months to produce first coal from the Mahan block. In the meantime, fuel for the Mahan I plant will be supplied from alternative sources. We currently have 186,000 tonnes of domestic e-auction coal at the site and we are also in the process of ordering imported coal.

In addition to e-auction and imported coal, Essar Energy has also applied for medium term allocations of coal under Coal India’s tapering coal linkage system to provide us with sufficient coal to cover the period until our own mining activities are operational. We are continuing to pursue this application.

To ensure that we can transport sufficient coal to the Mahan site until the captive coal mine is fully operational, we continue with work on infrastructure investments, primarily road strengthening, to facilitate movement of coal to Mahan from the railway terminal delivery points at Singrauli and Mahdeiya, a distance of around 50-60km. This work will allow the plant to operate on an economic basis until the Mahan coal block can be brought into production.

For the first year post-commissioning, it is expected that approximately 2.25million tonnes of imported and domestic coal will be delivered to Mahan I. Given these coal constraints, Unit 1 of the plant will be run at a high plant load factor to optimise operating efficiencies and Unit 2 will be commissioned and operated after the monsoon has finished, by which time we expect the logistics constraints to ease.  As the infrastructure constraints are removed, coal volumes and load factors will be increased.

Tori I, 1,200MW, and Tori II, 600MW

The Tori I and Tori II projects in Jharkhand state are due to be completed by March 2014. As at the end of May 2012, Tori I was 38.8% complete and Tori II 15.7% complete. Coal for these projects will be supplied from the nearby captive coal blocks at Chakla and Ashok Karkata. Essar Energy is currently awaiting forest clearance and environmental consents from the Indian Government in order that mining operations can begin. These delays in securing approvals will require alternative sources of coal to be obtained in the first year. As required, e-auction coal will be purchased to provide fuel for this project and an application has also been made for coal under the tapering coal linkage system.

Later stage power projects:

As announced in February 2012, due to regulatory delays in the Indian power sector, and to ensure efficient deployment of capital, Essar Energy has decided to progress the construction of three of its later stage power projects at Salaya II, Salaya III and Navabharat I, totalling 2,970MW, which were due to be commissioned in 2014, only against certain milestones. There have been continued delays in securing regulatory approvals, particularly relating to the environment and coal sourcing, and also delays in land acquisition approvals at Navabharat I. The total investment cost of the three projects is c.US$3.1 billion.

Power – Health and Safety:

At 31 March 2012, the Power business operations had recorded 3,583 days of operations without a Lost Time Injury. Power operations personnel have consistently delivered a high production rates without compromising safety standards.


Economic Outlook

Despite a recent slowdown in gross domestic product (GDP) growth rates, India is nevertheless expected to deliver high growth rates in the future.

The Reserve Bank of India’s quarterly survey of professional forecasters in March 2012 showed a downwards revision of expectations for real GDP growth for the current fiscal year 2012-13 to 7.2% from 7.3% in their previous survey. Forecasts for agriculture and services remained unchanged at 3.0% and 8.8%, respectively, whereas industry growth is expected to be in the range of 5.5% to 5.8%.

Over the fiscal year to March 2012, Indian GDP growth slowed to 6.5%, including 5.3% in the final quarter, compared with 8.4% in the previous year 2010-11. Most of this fall was due to the industrial sector, with the index of industrial production growing by just 2.8% at the end of the fiscal year to March, against 8.2% the previous year while mining fell to a negative -1.9% against 5.2% growth the previous year.

Inflation and the Rupee/US$ exchange rate are among the factors constraining growth rates. At the end of the fiscal year to March 2012, wholesale price inflation stood at 6.9%, relative to a year earlier. Consumer price inflation was still higher at 9.5%, driven to a significant degree by food prices.

The crude oil and petroleum product price index jumped by 44% during the fiscal year, against 11.8% in the previous year. This inflationary trend has continued over the past three months, with wholesale price inflation in April running at 7.2% and in May 7.55%.  Over the 15 month period to March 2012, the exchange rate weakened from Rs.45.39 to Rs.51.16 against the US dollar and has recently been around Rs.55.5, representing a 22 per cent depreciation over the last 18 months.

Meanwhile, India’s large trade deficit continues to increase, with an excess of imports over exports of about US$185 billion during 2011-12. Foreign investment into Indian equities totalled only US$9.2billion compared with US$21 billion a year earlier, according to the Securities and Exchange Board of India, helping to keep the rupee under constant pressure.

The fiscal deficit has also increased. In the fiscal year to March 2012, the difference between government revenue and total expenditure was over US$100 billion, or an expected 5.9 per cent of GDP, higher than the government’s target of 4.6 per cent. One major reason for this was the continued high level of fuel subsidies.

However, the government has set a target of cutting the fiscal deficit to 5.1 per cent in 2012-13, and subsequently, despite the high inflation rate, the RBI decided in April to cut its repo interest rate by 0.5% to 8.0%. This was a welcome move for industry given that the cost of borrowing in India is one of the highest globally.

Business Outlook

There remains a major shortage of power generation in India relative to demand, with peak deficits in 2011 still running at around 10.6% of demand, according to India’s Economic Survey, published in March 2012. Around one third of the Indian population still has no access to electricity, according to the 2011 national census. India has laid out ambitious objectives for its 12th Economic Plan running from 2012-17, with a target of US$1 trillion of investment in infrastructure, including 75-100 gigawatts of new power generation. This is designed to deliver GDP growth rates of around 9% per annum over the plan period.

The Indian Government is forecasting that the  total  energy  requirement  (in  terms  of  million  tonnes  of  oil  equivalent) is projected to grow at 6.5%  per year between 2010-11 and 2016-17.  Hence the rationale for investment in the energy sector in India remains strong.

However, it is clear that if the Government is to facilitate delivery of the targeted investment in infrastructure and energy, the regulatory issues described earlier will need to be tackled rapidly. In the 11th Economic Plan, 2007-12, only 50GW of new generation was built, against a target of 78.7GW.

There remain distortions in the energy sector in India, not least due to the continued heavy Government subsidy of energy and fuel prices for consumers. This is an issue across all sectors, particularly electricity where the rising cost of generating power from imported coal and gas is not reflected in the prices set by state regulators for the customers of state electricity utilities.

If the Indian economy is to grow in a world of high energy prices it is clear that in the medium to long term, the Government will need to remove these distortions, replacing them with far more targeted subsidies for the poor. This would require not just reforms of tariffs but also reductions in transmission and distribution losses and the opening up of domestic coal resources. These changes would be positive for Essar Energy.

In the fuel retail sector, the Government acknowledges that it needs to remove the general subsidies on petroleum products, given the cost to the Indian exchequer and the distortions to the economy and, as in electricity, instead focus specific subsidies on those who have a real need. However, there is strong political and popular pressure to resist fuel price increases. Although petrol prices are deregulated, state-owned refiners and fuel retailers nonetheless kept petrol prices on hold for around six months, through to May 2012, despite sharp increases in crude prices. This meant that private sector retailers such as Essar could not compete on price without incurring losses, with the result that a number of Essar’s franchised retail outlets were forced to temporarily close for a period. The state-owned retailers finally increased petrol prices by around 11% in May 2012, allowing some outlets to reopen.

Very heavy subsidies remain in diesel, where there has so far been no deregulation and indeed, there have been no increases in diesel prices since July 2011. Once the Government tackles this issue, it will benefit Essar Energy’s strategy to further roll out its retail business. In the refining sector, demand for crude oil in India is forecast to rise from 164 million tonnes in 2010-11 to 205 million tonnes in 2016-17, according to the Planning Commission’s Approach to the 12th Plan document, with the proportion of crude oil coming from imports rising from 76% to 80% over that period.  Vehicle ownership is forecast to rise from 15 per 1000 of population currently, compared with China’s 55, according to the International Energy Agency. The rate of growth in vehicle sales in India is increasing sharply each year.

Although India will remain the principal market for Essar Energy’s expanded refinery capacity, there is expected to be an increase in exports from Vadinar in the short term to around 45% of sales due to new capacity being built by public sector refiners. Essar Energy expects demand to outstrip this new capacity within the next five years, and potentially earlier for products such as gasoil. Essar Energy welcomes the move to increase the quality of fuels in major urban areas to BS IV standard as this should increase domestic demand for higher quality products from the Vadinar refinery.

Increased global demand, the earthquake in Japan and events in the middle-east and North Africa pushed up refining margins in the first half of 2011. The fourth quarter of 2011 saw weakening refining margins driven by a number of factors including weakening demand for gasoline and naphtha, lower light/heavy crude spreads and the re-introduction of Libyan crude to the market.  Following on from this, a recovery in margins during January and February 2012 was followed by weakness in March. It is likely that margins will remain volatile throughout 2012, with ongoing weak growth in the Western world but robust demand in Asia.

In our upstream exploration and production business, we continue to see slow progress in receiving approvals for our oil and gas blocks, including our Raniganj coal bed methane block in West Bengal, where we are still awaiting final environmental approval and gas sales price approval from the Indian Government. This is despite the high level of imports of oil and gas needed to meet demand in India which in turn is putting upward pressure on prices. This situation is expected to continue despite significant discoveries of both oil and gas in India in recent years. Essar Energy has 10 of its 15 oil and gas blocks located in India and given the forecast increases in domestic demand, commercialisation of these assets continues to represent a significant opportunity for Essar Energy. 

Growth Projects

During the 15 month period to March 2012 we commissioned the Vadinar refinery phase 1 expansion and in power, the 380MW Vadinar P1 power project in Gujarat.

Since 1 April 2012, we have commissioned the Vadinar refinery optimisation projects bringing the current capital expenditure cycle in our refining and marketing business to an end. In power, the 1,200MW Salaya 1 project was commissioned.

There are currently 11 growth projects under construction as follow:

Business Segment





Mahan Transmission

Madhya Pradesh

415 km length1

Mahan I

Madhya Pradesh

1,200 MW domestic coal

Vadinar P2


510 MW imported coal



120 MW domestic /imported coal

Hazira II


270 MW captive fuel

Tori I


1,200 MW domestic coal

Tori II


600 MW domestic coal

Salaya III3


600 MW pet coke/imported coal

Salaya II3


1,320 MW imported coal

Navabharat I3


1,050 MW domestic coal

Exploration and Production


West Bengal

3.0 mmscm/d2 CBM

1 Line-In Line-Out (‘LILO’) line was completed in Q1 2011 to ensure power evacuation from Mahan
2 Peak production based on 2P, 2C and best estimate prospective resources
3 To progress only against achievement of certain milestones.

Financial Review

The following section provides an overview of our financial performance for the 15 month period ending March 2012, highlighting the key financial drivers and performance indicators for Essar Energy plc and its subsidiaries (together referred to as the ‘Group’).

The Income Statement (excluding exceptional items (see pages 19-20))


15 months ended 31 March 2012

12 months ended 31 December 2010


(US$ million)






Operational EBITDA1,2




Adjusted EBITDA2




Profit before tax (before exceptional items)




Profit after tax (before exceptional items)




Exceptional items3



(Loss)/profit after taxafter  exceptional items




1 Including sales tax benefit but before its subsequent reversal
2 See pages16-18for analysis
3 See pages 19 and 20

Segmental revenue and Operational EBITDA



Operational EBITDA2


(US$ millions)

15 months ended 31 March 2012

12 months ended 31 December 2010


15 months ended 31 March 2012

12 months ended 31 December 2010









Exploration and Production







Refining and Marketing-India excluding exceptional items (see page 20)







Refining and Marketing-UK





















1 Before adjustment for sales tax benefit.Revenue stated after deducting inter-segmental consolidation adjustments of US$60.4 million (2010: US$27.8 million).
2Including sales tax benefit but before its subsequent reversal. See pages16-18 for analysis.

Revenues (including sales tax benefit but before its subsequent reversal) - Group

Essar Energy increased revenue (before reversal of sales tax benefit) by US$11.9 billion in the fifteen month period 2011-12, compared to the 12 month period to December 2010. Of this amount, US$6.4 billion reflected the acquisition of the Stanlow refinery and US$5.5 billion was the increase in revenue attributable to the Indian refinery (before the reversal of the sales tax benefit).

Revenues - Power

Power revenues increased in 2011-12 by US$34.7 million to US$356.5 million from US$321.8 million in 2010 (after eliminating inter-segmental revenues for the current period of US$60.4 million (2010: US$27.8 million)). On a 12 month pro-rata basis revenue has decreased, due to lower unscheduled interchange (UI) in Bhander Power (US$23.5 million) compared to 2010 and adverse foreign exchange differences (US$12.9 million).

Production and availability from the Company’s main operating power plants compared to prior period was as follows:



Generation MU

Availability %

Plant Load Factor %

ended 31 March 2012

months ended 31 December 2010

ended 31 March 2012

months ended 31 December 2010

ended 31 March 2012

months ended 31 December 2010

Hazira I (515 MW)







Bhander (500 MW)







Vadinar1,4 (120 MW)







Vadinar P11,2,3,4 (380 MW)







Algoma (85 MW)







Salaya I5 (1200 MW)














1 Vadinar and Vadinar P1 results include steam supply converted into equivalent units of power generation

2 2011 includes trial generation of 100 MU (including steam generation)

3 VPCL Ph1 was under trial run in Q4 2010. PLF & Availability not considered, as plant under trail run

4 In VPCL Base Plant and Ph1, method of computing Equivalent units of Power and PLF have been revised. Previous period figures (CY2010) have been revised accordingly.

5 Salaya I generation under trial run.

Operationally, all plants performed well in 2011-12, with the key measure of plant availability between 93% and 99%. Given the issues of high gas prices and low gas availability from India’s KG-D6 field, overall generation from Essar’s portfolio in the 15 month period was 7,907 MU. This compares with 6,624MU generated in the 12 months of 2010. The pro-rata reduction in generation was primarily due to lower demand for power from the Bhander and Hazira I gas-fired stations in Gujarat due to higher gas prices and import through Unscheduled Interchange (UI), against export in previous period. The smaller 85MW gas-fired plant at Algoma, Canada, providing power for Essar Steel’s plant, again performed well with generation for the 15 month period at 671MWh.

Revenues – Exploration and Production Revenues were primarily impacted by lower production from the CB-ON/3 field in Gujarat which led to decreased sales of 8,696 barrels in the 15 months of 2011-12 from 9,616 barrels in 2010, due to delays in receiving replacement sub-surface pumps. Revenues (including sales tax benefit but before its subsequent reversal) – Refining and Marketing - India

R&M India revenues (including sales tax benefit but before its subsequent reversal) increased by US$5,564 million from US$9,681 million in 2010 to US$15,245million in the 15 months to March 2012. This was primarily as a result of an increase in the quantity of the products sold and higher product prices partly offset by decreased sales of traded products. In more detail:

  • US$3,936 million increase due to increases in the selling price of refinery products. The average selling price of refinery products was US$891/MT during the 15 month to March 2012 as against US$647/MT in 2010.
  • US$1,483 million increase in sales quantity of refinery products. During 15 months ended March 12, (including the 35 day scheduled shutdown), 16,113 KT of petroleum product was sold during the 15 months, against 13,819 KT in 2010.
  • US$46 million increase in sales tax benefit mainly due to an increase in selling prices and the higher quantity of products sold as compared to the comparative period.
  • Increase of US$143 million in traded crude oil sales.
  • US$151 million decrease in traded products sales.
  • Increase in Duty Draw Back Income of US$8 million.
  • Decrease in Hedging Loss by US$13 million.

Revenues – Refining and Marketing – UK  Stanlow refinery has contributed sales of US$ 6.4 billion in the eight months ended March 2012. Refining and Marketing operational information

Throughput and production from the Company’s refining assets compared to the prior period is as follows:


Operational Assets

Throughput (MMT)

Production (MMT)

ended 31 March 2012

months ended 31 December 2010

ended 31 March 2012

months ended 31 December 2010






















The significant change in the period was the acquisition of the Stanlow refinery in August and the planned 35 day shut down at the Vadinar refinery.

The statements or opinions or product features are those of the company and are not necessarily agreed or authorised or endorsed by

For Fee Based detailed analysis & value added information on the Indian Core Sectors, please contact us at

Upcoming IndiaCore Organised/ Partnered Events

Renewable Energy for Indonesia 2017, November 28- 29, 2017 || Jakarta.INDONESIA


Global Geothermal Energy Summit 2017, November 29 - 30, 2017 || Amsterdam


Electricx 2017, December 3- 5, 2017 || EGYPT

Solar-Tec 2017, December 3- 5, 2017 || EGYPT

Critical Control Rooms, December 4- 6, 2017 || TBC


22nd World Cardiology Conference, December 11- 12, 2017 || Rome. ITALY


EXCON 2017, December 12- 16, 2017 || Bangluru. INDIA


World of Asphalt Show & Conference 2018, March 6- 8, 2018 || HOUSTON. TX


China International Vending Machine & Self-Service Facilities Fair (China VMF 2018), March 4- 6, 2018 || CHINA


Middle East Electricity 2018, March 6- 8, 2018 || UAE

The 18th China International Petroleum & Petrochemical Technology and Equipment Exhibition, March 27- 29, 2018 || China. BEIJING


Asia Warehousing Show 2018, May 2- 4, 2018 || Bangkok. THAILAND


11th World Bioenergy Congress and Expo 2018, July 2– 4, 2018 || Frankfurt. Germany


“25th Euro Congress on Pediatric Heart Disease and Health” 2018, August 13- 14, 2018 || Dublin, Ireland


24th World Cardiology Conference, September 17- 18, 2018 || Hong Kong


“26th Annual Cardiology and Cardiovascular Nursing Congress” (Cardiac Nursing 2018), November 21 - 22, 2018 || Singapore


Asia Cold Chain Show 2018, November 28– 30, 2018 || Bangkok. THAILAND


Road Infrastructure- Safety, Operation & Management, TBA || Mumbai. INDIA

Mining & Mineral Exploration Conclave- ‘Need for Modernisation & Capacity Enhancement in the Indian Mining Industry’, TBA || New Delhi. INDIA

The Madhya Pradesh Agri Summit & Mela, (TBA) || Bhopal. Madhya Pradesh

'Thermal Power India’, TBA || New Delhi. INDIA


Indian Solar Thermal Energy & PV Conference, TBA || New Delhi. INDIA

Energy Efficiency Forum, TBA || New Delhi. INDIA

Smart Energy & Smart Metering India- 'Convergence of IT, Automation, Control & Communication', TBA || New Delhi. INDIA

Pharma CIO Conclave & Awards 2017, August 9, 2017 || Mumbai
Conference Proceedings

Join our Mailing List to receive Information Updates on Events, Happenings, Book Release, Developments in the Core Sector

IndiaCore listing

IndiaCore Banner

Copyright © IndiaCore. All Rights Reserved. Terms of Use & Privacy Policy
Site Designed & Maintained by India Core - The Online Resource for Information on the Indian Infrastructure & Core Sectors