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The Rs.4,200 crore sale of Avantha Power and Infrastructure Ltd’s Korba West Power Co. Ltd (KWPCL) unit to Adani Power Ltd, controlled by billionaire entrepreneur Gautam Adani, may come unstuck.
It follows another plan of the Adani Group in the energy sector hitting a roadblock. Adani Enterprises Ltd’s plans to set up a $4 billion solar photovoltaic manufacturing facility, in partnership with US-based SunEdison Inc., is coming undone, Mint reported on Tuesday.
Adani Group was in talks with Japan’s SoftBank Corp. and Foxconn Technology Co. Ltd to secure investment in a $3 billion project to make solar cells and panels in the country, Reuters reported on 20 August. It added, citing an unnamed person, that Adani and SunEdison had ended their proposed partnership in June.
The agreement signed with SunEdison is still subsisting, Adani told BSE Ltd on 27 August. “The Avantha-Adani deal may not happen,” a person aware of the development said. Another person said the impasse is over possible valuation issues. Both requested anonymity. Macquarie Capital was advising the transaction announced in November.
KWPCL has commissioned a 600 megawatts (MW) thermal power plant. Avantha Power and Infrastructure Ltd, or APIL, is promoted by Avantha Holdings Ltd, Crompton Greaves Ltd and Ballarpur Industries Ltd. It has a 1,260MW power plant in Jhabua, Madhya Pradesh, and a 26.19MW captive plant in Malanpur, also in Madhya Pradesh.
Billionaire Gautam Thapar-led Avantha Group is restructuring its business portfolio by selling power assets and bringing in investors into non-core businesses such as consumer products. While spokespersons for Macquarie and the Adani Group declined comment, queries emailed to spokespersons for the Avantha Group remained unanswered till the time to going to press.
“APIL confirms the signing of a binding share purchase agreement with Adani Power for 100% acquisition of APIL’s Korba West Power Co. Ltd, a special purpose vehicle of APIL, which has a commissioned thermal power plant of 600MW. KWPCL is valued in excess of Rs.4,200 crore,” the Avantha Group said in a 4 March statement.
Adani Power has been acquiring power generation assets. It bought Lanco Infratech Ltd’s 1,200MW Udupi (Karnataka) power plant in a Rs.6,000 crore deal in August 2014. There are others, too, who have dropped acquisition plans. NTPC Ltd, India’s biggest power producer, may scrap plans to buy stressed private sector power projects, Mint reported on 3 August.
Slowing growth, high borrowing costs and delays in securing regulatory approvals have hit many infrastructure projects, including power plants, in India, hurting the ability of promoters to repay creditors and vendors. Cash-strapped state electricity boards have been unwilling to procure electricity because of the low tariffs they get, the slow progress in reducing losses and high purchase costs.
On 31 March, 607 projects with investments worth more than Rs.4.85 trillion were classified as stalled, according to data collated by the Centre for Monitoring Indian Economy Pvt. Ltd. Of this, 33 projects, representing over Rs.1 trillion in investment, belonged to the electricity segment. A large part of these investments are in the form of bank loans. Analysts say there are significant cost overruns in setting up thermal power projects by the private sector.
“The average cost overrun in the thermal IPP (independent power project) segment is significantly high (average at 35% as seen for a sample size of 35,000MW capacity)... This in turn implies the revised average per-MW cost for this sample set is now at Rs.7 crore per MW as against the appraised average project cost of about Rs.5 crore per MW,” rating agency Icra Ltd said in a 7 July report.
This comes at a time when there is a growing appetite for electricity in India. The country’s per-capita electricity consumption has reached 1,010 kilowatt-hour (kWh) in 2014-15, compared with 957 kWh in 2013-14 and 914.41 kWh in 2012-13, according to the Central Electricity Authority, India’s apex power sector planning body. This is only expected to grow as India’s per-capita power consumption is among the lowest in the world.
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