“Selling the electricity business will help JSPL meet its emissions targets”

Jindal Steel and Power Ltd (JSPL) plans to reduce its debt and meet its carbon emissions targets by selling its entire stake in its thermal power generation unit to Worldone Pvt. Ltd, a promoter group company. JSPL Managing Director VR Sharma said the sale of his 96.42% stake in Jindal Power Ltd for 7,401 crore would strengthen the company’s balance sheet as it will help retire 3,000 crore debt. Edited excerpts from an interview:

Do you see the current boom in the steel industry continuing?

The industry is experiencing momentum in terms of profitability and demand. And the demand will be there worldwide. However, prices may fall or remain stable. Different governments around the world have declared stimulus packages of around $17 trillion to be spent on infrastructure projects in three years. From these infrastructure projects, each year we receive about $5-6 trillion in expenditures and of that the steel industry would see about $1-1.5 trillion coming in, as 70% of the demand for steel is still supported by government projects, stimulating the economy in terms of growth. So the boom in demand, we see it continuing.

And how does JSPL plan to take advantage of this increase in demand?

Steel is a business in which we cannot increase capacity overnight. Over the past two years, we have gone from 5.5 million tonnes per annum (mtpa) to 7.5 mtpa. And we intend to grow to 8.5 million tonnes per year this fiscal year. We want to set up a factory and derive capex from 18,000 crores to increase the capacity to around 14 mtpa by 2023. The country is expected to grow from the existing 110 mtpa to 300 mtpa. The difference would therefore be 190 million tonnes. Who will fill this gap? There are only five major players in India today that produce around 55 mtpy of steel. These 55 mtpa represent 50% of the total steel we produce in the country. So we are planning our expansion. In almost a decade, we would increase our capacity to 50 mtpa.

Will your expansion plans add to your debt?

In 2016, we had a debt of 45,000 crores. Today we have a debt of 13,000 crore and in the next few months this will decrease further by 3,000 to 4,000 crores. We will have an opening debt of 9,000 crore in FY22. Our goal is to get it lower. We do not believe that we are threatened by debt at any time.

Why is JSPL leaving the electricity business?

When we have the thermal power stations and we look at our consolidated balance sheet, the total consumption of coal becomes very high. Then our CO2 emissions per tonne of steelmaking increase to over 2.8 tonnes of CO2 per tonne of steelmaking. That’s too big a number. We want to bring it up to par with the best mills in the world which are at a level of around 1.85 to 1.9 per ton of steel. That’s why we started looking for someone who could buy our energy assets. But despite our best efforts, we could not find a suitor. Our promotion company, Worldone Pvt. agreed to buy this. When this company becomes an independent entity, JSPL’s balance sheet will be healthy according to our ESG standards regarding CO2 emissions. The proceeds of the sale would be used to pay off the debts of 3,000 crore.

You are also creating a container business. Why?

The world is facing a shortage of containers, and so is India. So we decided to manufacture containers in our factory in Odisha. The technology is almost finalized and we will be in production by the end of this fiscal year. To start, we would produce 15,000 containers per year. Although this will not solve the problem of container shortage, it will certainly give a respite to the Indian industry.

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