It is often said that bad news comes in threes. But it probably doesn’t hold true for Essar Energy anymore after the company, a subsidiary of Indian family business Essar Group, was hit by yet another setback this week.
Shares in Essar Energy, which is listed in London but majority owned by the Ruia family-controlled group, fell by around 15% on 27 February. This followed an announcement by the energy division that profits before tax for the year ending 31 December 2011 dropped by 76% to $89.2 million (€66.36 million), from $365.5 million the year before.
The fall was largely due to a recent ruling by the Indian Supreme Court, which ended a tax break for the subsidiary.
Naresh Nayyar, non-family chief executive of Essar Energy, said the division was “disappointed” with the court’s decision, but was “seeking a review”. He added that Essar Energy was also in talks with the Gujarat state government to try to extend the deadline for paying the sales tax, should the appeal fail.
The case deals with a scheme introduced by the government of Gujarat – a state in western India famous for its oil reserves – that allowed companies that invested in Gujarat to postpone paying sales tax. But the top Indian court recently ruled against Essar Energy, making them liable to pay more than $1 billion in unpaid tax.
“We are taking steps to ensure that the group has sufficient access to sources of funding and liquidity,” Nayyar added.
Although profits at family-controlled Essar Energy took a huge hit, revenues rose significantly to $16 billion, up by 60% on the previous year, thanks to the acquisition of a new refinery in the UK.
The energy subsidiary, which is 77% owned by Essar Group, has also experienced delays in securing government approval to mine cheap coal from its own resources.
Mumbai-based Essar Group, founded by brothers Ravi and Shashi Ruia, hit headlines in December last year too for Ravi’s alleged involvement in India’s multi-billion-dollar telecoms case. It led to Ravi stepping down temporarily from his chairmanship position – he was replaced by his nephew Prashant as the interim chairman.
Essar Group is one of India’s largest conglomerates with operations in steel, shipping and construction.