Essar Energy Plc 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% 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.

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.

Source - Hindu

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