Essar puts power station plans on back burner Shares in Essar Energy, the FTSE 100 Indian oil and power group which is majority-owned by its founder Ravi Ruia and brother Shashi Ruia, fell by nearly 15 per cent on Monday after it said it was delaying construction of planned coal-fired power stations following the loss of a tax dispute with government. The company, which last year bought Royal Dutch Shell's Stanlow refinery in Cheshire for $350m, saw its shares fall by 18.4p to 107.6p. At its current market capitalisation of £1.4bn Essar Energy, which is three-quarters owned by Mr Ruia's Essar Group, faces demotion from the FTSE 100 at its next quarterly reshuffle. Essar Energy, which raised £1.2bn when it floated in May 2010 at 420p a share, said it welcomed signals made by the Indian government last month aimed at "clearing the logjam" in the country's power industry which had led to severe domestic coal shortages. These could include the acceleration of forest and environment clearances required for more coal mines to be developed. But Naresh Nayyar, chief executive, said: "Despite this, given the delays we have experienced in securing consents required for our power project delivery, including clearances to source the domestic coal required to fuel the plants, we are refocusing our portfolio." Three coal-fired projects would now only proceed "against regulatory and coal mine milestones," he said. The completion of current power project investments, including the expansion of its Vadinar refinery in Gujarat, would result in "a significant reduction in our capital expenditure." Essar Energy added that it continued to challenge January's ruling by the Indian Supreme Court in a tax case leaving it liable for $1.2bn in taxes. That ruling prompted Essar Energy's shares to fall by 27 per cent to 125p on the day. "We are seeking a review of this decision," said Mr Nayyar. We are also in discussions with the government of Gujarat with regard to a suitable repayment schedule. Simultaneously we are taking steps to ensure that the group has sufficient access to sources of funding and liquidity. The tax case centres on an incentive introduced by the state of Gujarat which allowed companies that invested in the state to defer payment of sales tax. Essar had sought to take advantage of the scheme when it started building its Vadinar refinery but the plant only began operating in 2008 when the scheme was no longer in effect. The loss of that case came soon after Mr Ruia agreed to step down temporarily from his post as chairman of Essar Energy over an Indian telecoms licence scandal. A legal ruling in New Delhi in December stated that Mr Ruia was to face charges in front of a special court established to look into the scandal, which is estimated to have cost India as much as $39bn in lost revenue. In spite of the poor stock market performance of Essar Energy since its 2010 flotation, last year its majority owner Essar Group also signalled its interest in raising about $750m from an initial public offering of its infrastructure assets on the London Stock Exchange during 2012. Turnover at Essar Energy rose from $10bn to $16bn in the year to December 31 while the company moved from a pre-tax profit of $366m to loss of $881m as it reversed $1bn of sales tax benefit revenue which it had previously recognised. Net debt, denominated in both Indian rupees and US dollars, rose from $3.6bn to $5.7bn.