Adani Power will acquire Lanco Infratech's 1,200 MW Udupi thermal plant in a deal worth over Rs 6,000 crore.The big ticket deal comes less than three weeks after Reliance Power agreed to acquire three hydel projects of Jaypee Group. Adani Power, which is part of diversified Adani Group, was also in the race for those hydro plants.Adani Power would acquire Lanco Infratech's 1,200 MW imported coal-fired Udupi thermal power plant in Karnataka.Making the announcement, Lanco Infratech said the deal is "is valued at more than Rs 6,000 crore". It includes Rs 4,000 crore debt component.Read Also: How R-Power Outbid Adani "This transaction will support the company in reducing its debt and will enable Lanco to receive about Rs 2,000 crore as cash and additionally, Adani Power will take Udupi plant's long-time debt of around Rs. 4,000 crore," it said in a statement.While 90 per cent of the electricity generated from the plant is supplied to Karnataka, the remaining is given to Punjab.According to Lanco Infratech, the Udupi plant is the "first independent power project in the country based on 100 per cent import coal with a captive jetty of four million tons per annum and an external coal handling system in the new Mangalore Port Trust."The capacity can be, if required, expanded to handle another four million ton capacity, it added.Lanco Infratech already has signed a pact with Karnataka government for expanding the plant's generation capacity to 1,320 MW.Lanco, which produces power, builds roads and constructs residential and commercial buildings, in July last year started a process to restructure its $1.3 billion debt after economic weakness hurt some of its core businesses.It had a net debt of about Rs 36,000 crore ($5.9 billion) at the end of March this year, according to the company website.The coal-based power plant in Udupi has two units of 600 MW each and imports about 4 million tonnes of coal per year from Indonesia, according to Lanco's website.Currently, Adani Power has an installed generation capacity of about 8,580 MW. The proposed acquisition would help in expanding its portfolio.On July 27, Reliance Power had announced it would acquire three hydel plants of Jaypee group. the Anil Dhirubhai Ambani controlled R-power managed to outbid other big conglomerates like Adani, Tata and JSW to enter in an exclusive deal with Jaypee Power Venture to acquire three of its operational hydro power plants with 1,791 mw generation capacity at a valuation of Rs 12,000 crore.According to industry sources, Adani group wanted to buy the same project for about Rs 11,000 crore. At the price of quoted by R-Power, it would not have been financially viable for Adanis to repay the debt and make returns on the project.As on March 2014, Adani Power had a debt of Rs 22,317.20 crore on its balance sheet. Its cash and bank balance were pegged at just Rs 412 crore at the end of FY14.
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The government on Wednesday (13 Augus) said it will come out with a new natural gas pricing formula by September30 keeping in mind the interest of investors and public.Replying to questions in Rajya Sabha, Oil Minister Dharmendra Pradhan said the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.The Minister did not share details, but said the decision will be taken keeping in mind interest of investors and public and the formula will be announced by September 30.The previous UPA government had in December last year decided to price all domestic gas from April 1, 2014 according to a formula suggested by the Rangarajan Committee.The formula was notified on January 10 but before a new rate could be announced, General Elections were declared and the issue was left for the new government to decide.The new government on June 25 decided to defer the implementation till September-end to hold wider consultations.The existing gas pricing under New Exploration Licensing Policy (NELP) was approved in 2007 and was to remain valid up to March 2014.For reviewing the formula, the government constituted a committee under C Rangarajan in May 2012 and based on the panel's recommendation, Domestic Natural Gas Pricing Guidelines, 2014 was notified in January this year.The Rangarajan formula would lead to doubling of natural gas prices to $8.4 per million British thermal unit, an increase that would jack up urea production cost, electricity tariff and CNG rates.(Agencies)
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Shares of state-run oil companies gained on hopes of better-than-expected results by sector leader Oil and Natural Gas Corp later in the day.Hopes of lower subsidy losses as crude oil falls help oil retailers.Brent near 13-month trough below $103 on brisk supplies.ONGC was up 1.8 per cent, while Oil India was up 1.2 per cent.Among retailers, Hindustan Petroleum Corp gained 3.3 per cent, Bharat Petroleum Corp advanced 3.1 per cent while Indian Oil Corp was higher by 2.9 per cent.(Reuters)
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R S Butola Former CMD Indian Oil Corporation, in conversation with Neeraj Thakur of BW|Businessworld. Butola defends the pricing mechanism of oil marketing companies after the Controller and Auditor General of India indicted Oil Marketing Companies of over-pricing their products.
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With the change of the government at the center, there is new hope among power plant developers. BW| Businessworld spoke with the CEO of Essar Energy, Sushil Maroo at the 15th Regulators and policymakers Retreat 2014 organised by the Independent Power Producers Association Of India (IPPAI). Excerpts from the interview.What is the biggest problem for the power sector today?Today there are stranded power plants with a generation capacity of 35,000 MW in the power sector. For these plants, fuel availability was the biggest issue. Some could not sign the Fuel supply agreement (FSA). Some who signed FSA did not get fuel even after that. Some got stuck because of environmental issues. Companies had made large investments in these plants but because of all these issues they could not pay back the debt to the lenders. This led to stress on banks. The situation for the gas-based power plants is worst. Most of the gas-based power plants were set up keeping in mind gas supply from the government. However, the gas never came and even those plants which were getting gas earlier saw they supply decline after a few years. This has resulted in bad financial condition for power developers.Do you think the government will be able to increase the gas production by increasing price of gas?See, higher price for gas does not mean higher production as well. The government needs to ensure that companies make investment in the gas fields. The gas business is a high risk business and the companies should get good investing environment to put in money in the sector.You have gas-based power plants as well. Do you think you would be able to sell power if its fuel costs above $5 per unit?Gas-based power plants are used for peaking power time. At that time industrial users are ready to pay higher price for power. So even if the cost of power goes up due to expensive gas, the customers will be able to buy it.Industry has shown apprehension over the new ‘standard bidding document’ for the ultra mega power projects (UMPPs). What are the problems with the new bidding document?In the old document, developers used to take all the risk and run the plant. The new document has converted developers into small contractors like you have in the infrastructure sector where they have to build the power plant and transfer it to the distribution company. There are many issues with that model. The land belongs to the distribution company for which you set up the power plant. Besides, after a few years, the plant goes back to the buyer of power. This may compromise the wellbeing of the plants as the seller will tend to overlook maintenance after some years, thus shortening the life of the plants.As a power developer, I feel developers will have problem raising debt for the project, because the plant would not belong to them. Same problem would be faced in getting equity from the market because after some years when the plant starts making money, it goes back to the buyer. And of course there will be a lot of interference from the buyer.Do you think the UMPPS will face problem ?My point is that there are already so many power plants which need coal. Instead of giving coal to those stranded power plants, why is the government keeping coal for power which will come up in 6-7 years.Do you think that in the Indian power sector the sanctity of contracts has been lost as you any agreement can be changed later?In the past, neither the Indian government nor the bidders knew about the impact of long-term power contracts. But over a period of time, everyone has became wiser. It is very difficult to figure out what would be the price of fuel in the next 25 years. If there is uncertainty in the bid, people will either go for higher tariff or will not bid at all. The government had to allow the developers to pass on any increase in the fuel cost to consumers. Because wiothout it, the plant would have become unviable.There are a lot of companies willing to sell their power plants in distress sale. Are you looking forward to acquire some of them to increase your portfolio?We suffered in the past due to fuel shortage and environmental issues, So, at the moment, our priorities are to complete under construction power plants and make running plants profitable. Once our existing portfolio gets streamlined, we can think of buying other distressed plants. But at the moment we are thinking of managing the existing portfolio.
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India refines more oil than the domestic requirement and the government seeks to develop the country as a refinery hub, Lok Sabha was informed on Monday (04 August).Petroleum Minister Dharmendra Pradhan said domestic requirement is 160 MMT, while India refines 215 MMT.He said it helps the country earn foreign exchange.Pradhan said the country also seeks to fulfil the need of SAARC countries and other developing economies.He said while some Gulf countries produce crude, they lack refining capacity. This, he said, has led to a situation where curde is cheaper while refined product is costly in those countries.The Minister was responding to a supplementary on country reaching a saturation point in refined oil production.He said while several companies have appilied for refinery in the private sector, Essar and Reliance have been contributing to the country's refinery production.The refinery sector was delicenced in June, 1998 and a refinery can be set up anywhere in India by a private or public sector company depending on its techno-commercial viability."The present capacity is more than the demand of petroleum products in the country. Hence, the country is now a net exporter of petroleum products. India has been exporting surplus petroleum products since 2001-02," he said.India has exported petroleum products to the tune of Rs 3,68,279 crore during 2013-14.(PTI)
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India has an installed power generation capacity of 2,43,000 MW as of March 2014. But only 1,30,000 MW is available to meet peak demand. So, the immense capacity is merely on paper. Again, peak power deficit is touted to have dipped to 5.4 per cent in 2014 from 16.6 per cent in 2008. Yet, large parts of the country continue to reel under power cuts, ranging between four and six hours daily.So what is the reason for this paradox in the Indian power sector? Put simply, it is the inability of power generation companies such as National Thermal Power Corporation (NTPC) to sell power to distribution companies or discoms, which prefer to resort to load-shedding than purchase power from power generation companies. NTPC, on its part, failed to sell 30 billion units of power in FY14, suffering a loss of Rs 90 crore. A Crisis ExplainedDiscoms have their own reasons for preferring to cut power supply to lakhs of homes than purchase adequate power from generation companies. Here are some of them:Costly power: A shortage in the supply of domestic coal and gas has led power producers to use 15-20 per cent imported fuel to run plants, adding to expenses. When this cost is passed on to discoms, the latter find it difficult to charge higher tariffs from consumers. Experts believe the average consumer in India is not used to paying more than Rs 5 per unit of power. However, in the past two years, the final cost of power, including generation and transmission costs, has touched Rs 6 a unit. At this level, either the state governments subsidise transmission companies or discoms resort to power cuts.Poor financial health: As on 31 March 2012, eight state discoms had liabilities of Rs 2.46 lakh crore. Discoms enjoy a 3-4 month credit cycle with power generation companies. But such high debts restrict their capacity to purchase power as they are unable to make payments even after the grace period. According to a report by the Indian Brand Equity Foundation, eight state electricity boards had stopped making payments to NTPC in 2011, despite being offered discounts of up to 2 per cent on immediate payment, and 1 per cent on payments made within a month’s time.Lack of transmission infrastructure: According to the Planning Commission, in the 11th Plan (2007-2012), power generation capacity grew by 50 per cent, whereas transmission capacity increased by only 30 per cent. In 2012-13, plants supplying electricity to state electricity boards under long-term power purchase agreements lost 1.93 billion units to transmission capacity bottlenecks. In the same year, domestic power exchanges — Indian Energy Exchange (IEX) and Power Exchange of India (PXI) — failed to complete sales-purchase deals worth Rs 1,350 crore, amounting to 15 per cent of the total traded volume of power, due to transmission constraints.The congestion was in evidence as recently as May 2014, when IEX failed to sell 210 million units of power due to the unavailability of an inter-state transmission corridor. “Several participants in the southern states refrained from bidding on the exchange due to the unavailability of the transmission corridor. The southern states of Tamil Nadu and Kerala were the worst affected as power could be supplied for only 10 days in the entire month and that too an insignificant quantum, resulting in an increased area clearing price (ACP) of Rs 11.01 per unit,” says Rajesh Mediratta, director of business development, IEX. “States like Madhya Pradesh, Chhattisgarh and Himachal Pradesh have surplus power but they are not in a position to sell this excess power to states that need it,” adds Mediratta.In a recent report, the Central Electricity Authority (CEA) said the country is expected to see a power shortage of 5.1 per cent this fiscal. While the all India power deficit figure may look minuscule, its break-up tells a different story. The shortfall in the north-eastern region comprising Assam, Arunachal Pradesh, Nagaland, Mizoram, Manipur, Meghalaya and Tripura will be the highest, at 17.4 per cent. Next is the southern region which includes Andhra Pradesh (Seemandhra and Telangana), Tamil Nadu, Karnataka and Kerala, with a power shortage of 12.7 per cent. At 3.4 per cent, the eastern states of Orissa, Jharkhand, Bihar, Sikkim and West Bengal are better off. Punjab, Haryana, Rajasthan, Delhi, Uttar Pradesh, Uttarakhand, Himachal Pradesh and Jammu & Kashmir constitute the northern region which, at 3.1 per cent, has the lowest power shortage. break-page-breakAccording to CEA, only the western region comprising Chhattisgarh, Maharashtra and Gujarat will have a surplus, of 0.3 per cent. But lack of adequate transmission infrastructure will come in the way of electricity being drawn from the western region. Selling power at exchanges: State discoms prefer to sell to power exchanges — even at a loss — to get payment upfront, rather than to retail consumers, who often default on payment. Even power-deficit states like Uttar Pradesh, Punjab, Haryana and Rajasthan are selling to power exchanges (see tables). Haryana sold 100 MUs to power exchanges in March 2014 at Rs 2.60 per unit, though it buys electricity at between Rs 5 and Rs 6 a unit. Harry Dhaul, chairman of the Independent Power Producers Association of India, attributes the phenomena to India’s bail-out culture. “Discoms know that they will be bailed out by the central or the state government every 10 years or so. So they prefer getting upfront money from the exchanges instead of realising actual tariff from customers.”“Ten years ago, Montek Singh Ahluwalia had drawn up a bailout package for state power utilities. When that scheme was nearing its end, the government came out with another. Why should discoms think of becoming profitable,” asks Dhaul.In 2001, based on the roadmap drawn by the Ahluwalia committee, the government offered a bailout package for cash-strapped state power utilities. The package was meant to ensure that dues owed to central public sector enterprises such as NTPC, National Hydroelectric Power Corporation and Coal India, amounting to over Rs 41,000 crore, were repaid.The central government waived almost 50 per cent of the interest amount due. The remaining 50 per cent plus the principal — amounting to around Rs 33,000 crore — was to be securitised through the issue of tax-free bonds by state governments.In 2012, the government came out with a similar carrot for state discoms that provided for conversion of 50 per cent of the accumulated debt of discoms till March 2012 to bonds.The bonds are issued by distribution companies to participating lenders, backed by the state government. The balance 50 per cent of debt is restructured by providing a moratorium on the principal and best possible terms for repayment.Light At The End of The TunnelWhat is the way out of this tricky situation? Debasish Mishra, senior director, Consulting, Deloitte, says it is essential that state discoms have the financial ability to procure adequate power to avoid load shedding. However, he says, this is possible only with annual tariff increases. “In the past, owing to political considerations, some states have postponed tariff increases for years together, pushing the distribution utilities into bankruptcy,” he observes.Mishra adds that given a choice, consumers would prefer to pay and enjoy regular power supply. Consider this: diesel-based power (such as that from generators) costs Rs 17 a unit, whereas power from the grid costs a mere Rs 3 per unit for coal-based power and Rs 6 per unit for gas-based power. “If people are given a choice, they would rather pay more for power from the grid.”Power exchanges can also play a role when there is surplus power available. According to Mediratta of IEX, currently, power generation companies cannot sell more than 15 per cent of their capacity at exchanges. This means, even if they have surplus power, like in the case of power plants in Chhattisgarh, they cannot sell it to power exchanges. “The government needs to not only improve transmission infrastructure but also relax the cap on short-term power contracts for power generation companies. The competition will only bring down the cost of power for customers,” he says. break-page-breakFormer power secretary R.V. Shahi emphasises the need for open access — where people can buy power from any source in the country. Right now, many states do not allow open access.The Electricity Act 2003 mandates that all states allow open access to industrial consumers (those with more than 1 MW demand) from January 2009, to the transmission lines of any utility across the country, subject to the payment of a wheeling fee by the user. Consumers opting for open access have to shell out a cross-subsidy surcharge, or a monetary penalty, to the state distribution company for each unit of power contracted from outside the state.However, states like Gujarat, Haryana and Karnataka have disallowed electricity transactions under open access for industrial consumers. On May 14, the Haryana government used Section 37 of the Electricity Act 2003, denying consumers in the state the discretion to buy power from outside the state.Earlier, the Karnataka and Gujarat governments had disallowed the sale of electricity through open access ahead of the general elections. Industrial consumers in Gujarat were forced to buy power from within the state at Rs 6-7 per unit as against Rs 4-4.5 per unit quoted on power exchanges. The government of Karnataka, on its part, restricted power sales to the state, curbing the freedom of power generators to sell power to consumers outside state limits.Shahi also calls for a change in mindset as well as the law. “For 24x7 power supply to become a reality, it is essential that state discoms purchase additional power through the bidding process. The present mindset of not purchasing power and resorting to load shedding has to go.” He adds, “State load dispatch centres must be out of the state transmission company’s control. Then alone can power reform initiatives, including non-discriminatory open access and competition in retail supply, succeed.”Union power minister Piyush Goel wants states to segregate electric feeder lines for domestic and agricultural use. The model is currently operational in Gujarat, and is often quoted by the minister in conferences. Having separate feeder lines for agriculture and retail consumers controls wastage of electricity which, according to a report by the Planning Commission, is a norm in all states where farmers get free or subsidised electricity.Mishra is optimistic about the future of the power sector as he believes that even politicians are recognising the fact that they need to provide uninterrupted electricity to people.In the past, discoms did not file tariff applications before state electricity regulatory commissions (SERC) because of political pressure. However, a judgment by the Appellate Tribunal for Electricity in 2011 said an SERC could suo moto consider a revision in tariffs without any prompting by a state distribution company if it believed there was a revenue gap.According to a report by Deloitte, in 2012, 23 states and five Union territories raised their power tariffs while, till May 2013, as many as eight states and one Union territory had increased power tariffs in the range of 3.6 per cent to 24 per cent. The hike in electricity tariffs is likely to continue in the current year, improving the health of discoms. With the financial health of discoms improving, there will, hopefully, be more power for the people. neeraj@businessworld.in twitter@neerajthakur2(This story was published in BW | Businessworld Issue Dated 25-08-2014)
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Piramal Enterprises and the the Dutch pension fund asset manager APG Asset Management on Wednesday (30 July) announced a strategic alliance for investing in rupee denominated mezzanine instruments issued by infrastructure companies in India with a target investment of US$ one billion over the next three years. PEL and APG have each initially committed US$375 million for investments under this strategic alliance.This will be one of the single largest commitments to date by a foreign investor to the infrastructure sector in India. The partners will focus on operational and near completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects. The access to this source of capital will enable infrastructure players in India to retain their equity interest in the assets, while raising long term capital to help them complete their on-going infrastructure projects and enhance shareholder value, said a press release. APG Asset Management manages pension assets of €375 billion as at the end of June 2014. It represents over 30 per cent of all collective pension schemes in the Netherlands.Piramal Enterprises, which sold its pharmaceutical formulation business for about Rs.18,500 crore to multinational drug firm Abbott in 2010, is now looking at big investments in high growth sectors like infrastructure, knowledge management and financial services. It has done two structured investments last year, Rs 425 crore in Navyuga Road projects and Rs 500 crore in Green Infra. Piramal Enterprises also had started another joint venture reaI estate fund in February, with Canada Pension Plan Investment Board (CPPIB). The $500 million fund, with equal investment from both the parties, plans to offer project-level debt to local developers for residential projects in Mumbai, Delhi NCR, Bangalore, Pune and Chennai. Indiareit, a private real estate fund run by Ajay Piramal, was acquired by Piramal Enterprises in 2011. Currently it has Rs 5,000 crore under management and has exited a few projects fetching over Rs1060 crore.“This is an opportune time to be creating an aligned pool of capital to target what we believe to be very compelling funding opportunities in the infrastructure sector in India", said Ajay Piramal, Chairman of PEL. Dick Sluimers, CEO of APG said "In PEL, we found an aligned partner with the requisite expertise and industry knowledge to add value through active ownership, which is why we have teamed up with PEL for this strategic alliance in India. The strategy of the alliance to focus on mezzanine investments in infrastructure projects in India ticks the right boxes for our pension fund clients in terms of risk-return profile and high cash flow visibility.”Over $150 billion of equity and mezzanine funding is required to meet government target investment of $1 trillion until 2017, and this is the gap which our strategic alliance seeks to bridge, says Jayesh Desai, co-Head of Structured Investment Group (SIG), PEL. Macquarie Capital acted as the sole financial advisor for the transaction.
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