Reliance Power Limited

Strong performance despite setbacks

Reliance Power Limited (RPower) has been one of the long-standing players in the power industry, with a diversified and large operational portfolio of nearly 6,000 MW. The company has posted a robust operational and financial performance in recent years. RPower also has one of the largest coal resources in the private sector, with nearly 575 million tonnes (mt) of coal reserves in India and 2 billion tonnes in Indonesia. It has incurred a capex of Rs 500 billion and has one of the lowest debt-equity ratios (1:5:1) in the power sector. However, the company’s projects have faced some regulatory and execution setbacks in the past year. Owing to these issues, the company has had to pull out of two of the three ultra mega power projects (UMPPs) it won in the first round of UMPP awards by the power ministry. Although analysts are of the opinion that this was a positive move for the company, legal battles for procurers over issues related to the project need to be dealt with.

These developments  notwithstanding, RPower has a strong project pipeline of 13,060 MW, including hydro- and gas-based projects. In May 2016, the Government of Bangladesh granted in-principle approval for the first phase (750 MW) of RPower’s maiden project in the country. The plant, which is expected to be commissioned in 2018-19, will be one of the largest foreign direct investment projects in Bangladesh with a potential investment of over $1.3 billion.

Current operations

RPower operates 5,945 MW of generation capacity, of which the majority (5,760 MW) is coal based, while the remaining is based on renewable sources. Among its coal-based power plants, the 3,960 MW Sasan UMPP in Madhya Pradesh accounts for the largest share. Its other coal-based projects are the 1,200 MW Rosa project in Uttar Pradesh and the 600 MW Butibori power project in Maharashtra.

RPower’s coal mines in the country are linked with the Sasan UMPP. These are the Moher and Moher Amlohri Extension coal blocks, with reserves of about 575 mt and a production capacity of about 20 million tonnes (mt) per annum (mtpa). During 2015-16, production from the Sasan coal mines stood at 17.02 mt. In Indonesia, the company, through its subsidiary Reliance Coal Resources Private Limited, has acquired 100 per cent economic interest in two coal companies with  three coal mines in Indonesia. The mines together have coal resources of about 2 billion tonnes with an expected output of 30 mtpa.

The Sasan UMPP was fully commissioned by RPower in March 2015. It was awarded to RPower in 2007 in an international tender, quoting the lowest levellised tariff of Rs 1.196 per unit for 25 years. The project operated at a plant load factor of 90 per cent during 2015-16 which increased to almost 100 per cent in May 2016. The coal-based project was allocated three captive coal blocks in Madhya Pradesh to meet its fuel requirements – Moher, Moher-Amlohri Extension and Chhatrasal. However, in May 2015, the Chhatrasal coal block was deallocated because the other two blocks were sufficient for meeting the fuel requirements.

The Central Electricity Regulatory Commission (CERC) passed an order in January 2016 allowing a tariff hike for the Sasan project, which amounts to about 9 paise per unit. The order follows a petition filed by RPower in 2013, seeking increased compensation for the project due to a change in law during the construction period. The CERC has approved a one-time compensation of Rs 2.71 billion for the period until July 31, 2015. It has also approved a mechanism for future payments towards a change in electricity duty and energy development cess, which provides a compensation of over Rs 3 billion per annum at full capacity for 25 years.

In July 2016, the Supreme Court refused to grant a stay on the Appellate Tribunal for Electricity’s (APTEL) order dated March 31, 2016, as requested by the procurers of the Sasan UMPP. The order has helped the company recover the unpaid amount of nearly Rs 8.5 billion from the procurers and a late payment surcharge of about Rs 2 billion.

RPower has a presence in both the photovoltaic (PV) as well as the concentrating solar power (CSP) segments. In March 2012, the company commissioned its first solar project, the 40 MW Dhursar solar PV project in Rajasthan. The project was constructed in a record time of 129 days. In November 2014, RPower also commissioned a 100 MW compact linear fresnel reflector (CLFR)-based CSP project at the Dhirubhai Ambani Solar Park at Pokhran.  The project is not only the world’s largest CLFR-based CSP project but is also the biggest private sector investment undertaken in CSP technology. In June 2013, the company commissioned a 45 MW wind project at Vashpet in Maharashtra.

UMPP exits

Besides the Sasan UMPP, RPower had also won two other UMPPs – the imported coal-based UMPP at Krishnapatnam in Andhra Pradesh in 2007, and the domestic coal-based UMPP at Tilaiya in Jharkhand in 2009.

The Tilaiya project was to be developed in Jharkhand at a cost of Rs 360 billion by Jharkhand Ispat Private Limited. However, after years of review meetings and continuous follow-ups with the state government on various issues, RPower finally decided to withdraw from the project in April 2015 and terminated the power purchase agreement (PPA) with its procurers. The primary reason cited for the excessive delay and withdrawal was the unavailability of land.

In another setback recently, in June 2016, a show cause notice was issued by the Ministry of Coal (MoC) to invoke the bank guarantee due to the delay in the development of the Kerandari B and C blocks associated with the UMPP.  After terminating the PPA, RPower had written to the MoC for the release of the bank guarantee given for the two concerned blocks.

Meanwhile, for the Krishnapatnam UMPP, as per the PPA, RPower was to supply 1,600 MW of power to Andhra Pradesh and 800 MW of power each to Karnataka, Maharashtra and Tamil Nadu. However, Coastal Andhra Power Limited (CAPL), the company’s special purpose vehicle for executing the UMPP, stalled work in 2011-12 due to escalation in the cost of imported coal. Subsequently, in March 2012, the procurers served a penalty notice for defaulting on timely project completion. In response, the company secured a stay from the Delhi High Court, to avoid any coercive steps against the company.

In July 2012, RPower moved the Indian Council of Arbitration for an amicable resolution. Reportedly, it has also written to the Andhra Pradesh government requesting the procurers to purchase CAPL and return the bank performance guarantees furnished by the company. RPower is now looking to exit this project on similar lines as the Tilaiya UMPP.

Financial performance

Over the past five years, the company’s total income grew at a compound annual growth rate (CAGR) of about 54 per cent from Rs 27.67 billion in 2011-12 to Rs 110.38 billion in 2015-16. Its net profit registered a CAGR of about 12 per cent, increasing to Rs 13.62 billion in 2015-16 from Rs 8.67 billion in 2011-12.

Year on year, RPower’s total income in 2015-16 marked an increase of 53.26 per cent over the Rs 72.02 billion recorded in the previous year. Similarly, the net profit of the company increased to Rs 13.62 billion in 2015-16 from Rs 10.28 billion in 2014-15, registering a growth rate of 32.49  per cent.

The way forward

RPower’s project pipeline aggregates about 13,060 MW, which includes 7,800 MW of coal-based capacity, 2,400 MW of gas-based capacity and 2,860 MW of hydro capacity.

The coal-based projects are the 2,000 MW Sasan expansion project, the 1,200 MW Rosa expansion project, the 600 MW Butibori expansion project and the 3,960 MW Chitrangi project. The proposed gas-based capacity addition would be through the 2,400 MW Samalkot power project, which is being constructed in Andhra Pradesh. Meanwhile, the company’s proposed hydro projects are the 700 MW Tato II project and the 1,200 MW Kalai project in Arunachal Pradesh, and the 960 MW Jangi-Thopan project in Himachal Pradesh. Apart from the Samalkot power project, which is under construction, the remaining projects are in the development phase.

According to analysts, RPower has a well-diversified project pipeline and a well-capitalised balance sheet to support its growth plans. Its strong operational performance is also a positive indicator for the company’s upcoming projects. That said, RPower’s long-term outlook will depend on how the company is able to get its upcoming power plants onstream while overcoming policy-related problems.

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