MUMBAI: As the Ruias bid farewell to their 58-million-tonnes Vadinar oil terminal by end of 2017, Essar Ports has chalked out a two-year plan to make up for the earnings loss from this asset.
In October, Essar Group signed a deal with Russia’s Rosneft and partner consortium to sell their 98 per cent stake in Essar Oil.
The $12.9 billion deal included the Vadinar refinery along with its port facility in Gujarat. The Vadinar Port terminal has been contributing 50 per cent to Essar Port's consolidated topline and forms about one-third of the EBITDA of its port operations.
Upon sale of the Vadinar terminal, Essar Ports will have operational terminals at Hazira and Salaya on the West Coast and Paradip and Vizag iron ore on the East. This will bring the total cargo handling capacity of Essar Ports to 82 million tonnes from 140 million tonnes earlier.
“The plan is to take the capacity back to 140 million tonnes by FY19 and for this, expansion at all terminals is currently ongoing with most capex in its final leg,” Chief Executive Officer and Managing Director Mr. Rajiv Agarwal said recently.
Alongside, in a bid to diversify its customer base, Essar Ports will be increasing the share of third-party cargo in coming quarters from about 10 percent at present to 30 percent over the next couple of years.
“We are working towards building our revenue stream for a third party cargo. We are in touch with neighbouring customers and also getting into MoUs (memorandum of understanding). Prospects of iron ore at Vizag are good so 50 per cent is being planned for FY18 and 70 percent in FY19. Likewise Salayah, Hazria and Paradip first it would be 20 per cent third-party cargo for this year and the following year it would be increased to 50 per cent,” Agarwal said.
The deal with Roseneft is not just offering Essar Ports with an opportunity to expand its existing asset to make for the lost one but is also helping the company slash debt of about Rs 6,000 crore to half. “Our funding for capex is all done and so the balance sheet is going to look strong,” explained Agarwal. The company is aiming to garner a revenue of about Rs 2,500 crore and EBITDA of about Rs 1,700 crore by FY19 which will make up for the lost earnings from Vadinar terminal.
Though Essar Ports is geared to increase its third-party cargo in coming years, industry experts are of the view that the company may not be able to make much head-way in that segment.
Since inception, Essar Ports has invested $2 billion into the ports business and aims to diversify into other cargos such as liquified natural gas handling. Essar is currently to develop LNG terminal and distribution facilities in Haldia which will tap the requirements of primary and secondary hinterland.
“It will be a separate company and may not consolidate in Essar Ports. Along with Essar Shipping and third company, it is going to be a consortium. We have got the license to set up a one million-tonne capacity terminal terms of which are getting finalised. It is an investment of Rs 400 crore with 75 percent debt and balance equity. Essar Shipping could charter the gas but we still looking at various routes for gas. Terms will finalise by end of 2017,” Agarwal said.