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Monday, 6 October 2008

Indian cos may encash c-credits

MUMBAI: Indian companies, which are sitting on issued certified emission reductions (CERs) or carbon credits, are likely to unlock the value of their green certificates to release funds in the prevailing liquidity crunch.

What may prompt them to sell CERs is a concern that prices of CERs may mimic crude oil prices, leading to a downward price trend in the global market. CER prices have already declined from E22, over a month ago when crude oil prices had peaked at $147 per barrel, to around E19.

Recently, Mysore Cements sold over one lakh CERs issued to the company by the clean development mechanism (CDM) executive board of the United Nations Framework Convention on Climate Change (UNFCCC).

If CER prices are taken at E20 (around Rs 1,300), Mysore Cements is estimated to have received around Rs 13 cr for the sale of over one lakh CERs. Another company that is sitting on a bulk of CERs, is JSW Steel. ‘‘We are in the market to sell (CERs). But, we can get a better price. The price is currently ruling at E18-19, after the decline in oil prices. In the next few months oil could rise to a varying range of $90-120 per barrel. However, we do not expect it to go to the $147 levels,'' said JSW Steel finance director Seshagiri Rao.

JSW Steel was issued 7.4 lakh CERs by the CDM executive board for generating electricity through combustion of waste gases from a blast furnace and corex units at its Torangallu unit in Karnataka. This is seven times the amount issued to Mysore Cements. If one were to assume that JSW Steel finds a buyer willing to purchase the entire lot at the prevailing prices, the company could rake in close to Rs 100 crore.

In times of credit crunch, industry experts feel, selling carbon credits seems to be a good option of generating cash to meet working capital requirements. CERs are carbon offsets of international emission trading schemes implemented to mitigate global warming. Crude oil prices are currently trading at below $100 per barrel level.

According to CantorCO2e India, MD, Ram Babu, ‘‘CER prices are likely to prevail at current levels because of supply constraints. The slow process of project clearance and review at the CDM executive board level has resulted in a supply constraint. There is estimated to be a 50% reduction as compared to last year.''

Timelines for registration of Indian CDM projects have indeed lengthened. The average total time taken for Indian CDM projects to get registered at the UNFCCC takes over a year.

Source : TOI

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