UPDATE 3-Essar Energy gets provisional OK to clear forest for mine

Mon Jun 25, 2012 9:23pm IST

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* Regulatory hurdles continue to delay Indian power projects

* Company in advanced talks for new $1 bln debt facility

* Reports EBITDA of $737.1 mln for 15-month period through March 31

* Shares fall 7.7 pct (Adds comment on court appeal)

By Brenton Cordeiro

June 25 (Reuters) - Essar Energy said it received provisional approval to clear forests at its Mahan coal block in India's Madhya Pradesh state, but its shares fell as the news highlighted regulatory hurdles delaying its power projects in the country.

The company is facing twin setbacks in its key market for oil products and electricity due to delays in government approvals to mine coal to supply its power projects, and a ruling that ended a major tax break for an oil subsidiary.

Essar Energy, 77 percent-owned by privately held Indian conglomerate Essar Group said on Monday it was still awaiting final approval from the Indian Cabinet to clear forests at the Mahan site, where the company is building a power plant.

If Essar Energy is not in a position to supply coal from its own mines, it will have to buy more expensive coal from overseas or from domestic producers.

Deutsche Bank analyst Lucas Herrmann said sourcing fuel at market rates could also lead to "challenging economics" for Essar's Tori power plants in the state of Jharkhand, where the company is also awaiting approvals to start mining to supply power plants due to come on stream in 2014.

Essar shares fell as much as 7.7 percent.

The company will continue its dialogue with state and central governments to ensure the approval process does not lose momentum, Chief Executive Naresh Nayyar said in a statement.

Arden Partners analyst Adam Forsyth said the provisional approval for Mahan boded well for other projects.

Essar Energy also said it was negotiating with Indian lenders to arrange for a new debt facility of about $1 billion to meet a sales tax liability at Essar Oil Ltd, through which it operates its oil and gas business in India.

An Indian court recently ruled that Essar Oil could not defer payment of about $1.24 billion in sales tax. Essar said on Monday it planned to take appropriate legal action against a ruling that it could not pay the sum in instalments, including appealing the decision to the Supreme Court of India.

The company had deferred paying the tax under a tax benefit programme offered by the western state of Gujarat, where its Vadinar refinery is located.

Essar Energy, which recently changed its accounting period, recorded $737.1 million in core earnings for the 15 months through March. The company said this compared with analysts' average forecast of $713 million for earnings before interest, tax, depreciation and amortisation.

Thomson Reuters I/B/E/S did not compile forecasts for the company's earnings for the 15-month period.

The company's shares, which have lost nearly a third of their value since the beginning of the year, fell to a low of 116.1 pence. (Reporting by Brenton Cordeiro in Bangalore; Editing by Joyjeet Das)

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