Inorganic Expansion

IPCL buys majority stake in Meenakshi Energy

The power sector has witnessed a number of mergers and acquisitions during the past year. Among these is India Power Corporation Limited’s (IPCL) acquisition of a majority stake in Meenakshi Energy Private Limited from French company ENGIE. IPCL, formerly known as DPSC Limited, announced the deal in February 2016 and concluded it in November by taking control of Meenakshi Energy’s 1,000 MW Thamminapatnam thermal power plant at Nellore, Andhra Pradesh. The plant’s two units with a total capacity of 300 MW are already operational and supply power to the Andhra Pradesh government under a power purchase agreement (PPA). Meanwhile, the remaining two units aggregating 700 MW are under construction and are scheduled for commissioning during 2017-18.

IPCL is a Srei group company, which has a significant presence in the infrastructure finance business. The Srei Group acquired the erstwhile DPSC Limited from state-owned Andrew Yule and Company Limited and renamed it IPCL. IPCL also has a presence in the distribution and trading segments and is in the process of expanding its power business both organically and inorganically.

According to Hemant Kanoria, chairman, IPCL, “The company has been able to grow its business profitably despite the downward trajectory in the energy space over the past few years. With a low level of debt and a large enterprise value, the company has been able to create value for its shareholders.”

In its latest deal, IPCL bought the entire 89 per cent equity stake in Meenakshi Energy held by the French company. IPCL transferred Meenakshi Energy’s debt of Rs 28 billion to its own accounts and bought ENGIE’s equity share at $1. According to IPCL, Rs 16 billion of Meenakshi Energy’s total debt is in its treasury and will be used for commissioning the remaining 700 MW of capacity and meeting the working capital needs of the project.

While ENGIE sold its stake in the project as part of its global strategy to move out of thermal projects to meet its commitment to reduce its carbon footprint, the project was also facing significant cost overruns and time delays. At the time of financial closure, achieved in October 2010 with the Rural Electrification Corporation (REC)-led consortium extending debt finance, the project cost was estimated at Rs 31 billion. The cost has almost doubled now. In addition, the original commercial operation dates of both the units under construction (350 MW each) have been postponed from 2012-13 to 2017-18. The time delays can be attributed to the slow progress of civil works as well as the stalling of work at the site due to financial issues. Cethar Vessels and China’s Harbin are the contracted suppliers of boilers and turbine generators respectively for the project. Meenakshi Energy has signed a PPA with PTC for 600 MW of capacity. The plant, which has mega status, will operate on fuel supplied by Coal India Limited and imported from Indonesia. The evacuation system for the plant has been completed and charged. With the change in ownership, the project is expected to progress at a fast pace.

Meanwhile, IPCL is developing its own 450 MW coal-based project at Haldia in West Bengal. The first 150 MW unit of the project is expected to be commissioned by January 2017 while the second and third units will be commissioned subsequently in 2017-18. The project’s fuel requirement will be met by around 1.5 million tonne per annum (mtpa) of imported coal from Indonesia and domestic coal of up to 0.7 mtpa. Another Srei group company, Swayambhu Natural Resources, is responsible for arranging coal supply for this plant. REC is the lender to this Rs 35 billion project while the main plant order has been placed with Bharat Heavy Electricals Limited.

For the management and operations of the Meenakshi and Haldia power plants, IPCL, in September 2016, formed a 50:50 joint venture (JV) with German company Uniper Kraftwerk GmbH, erstwhile E.oN. The JV will offer a wide range of flexible and customised services, including operations and maintenance, asset monitoring software and analytical tools and life cycle extension to external clients.

IPCL’s operational project portfolio also includes 95 MW of wind capacity spread across Rajasthan, Gujarat and Karnataka, as well as the 12 MW Dishergarh thermal plant and a small 2 MW solar project in West Bengal. IPCL holds the distribution licence to supply 250 MVA of power in Asansol-Durgapur, West Bengal, and is a distribution franchisee in Gaya, Bihar, for 200 MVA. To expand its distribution business, IPCL had applied for parallel distribution licences for East Midnapore in West Bengal and Gurgaon in Haryana. The decision on the former is pending while the application for the Gurgaon area has been rejected.

Once the recently acquired Thamminapatnam and Haldia plants become operational next year, the company’s total generation capacity will increase to over 1,550 MW. IPCL is currently looking to acquire stressed assets in the generation segment as the company considers it an easier way to expand than to set up greenfield projects, which entails land acquisition issues. As one of the less leveraged power companies, this is certainly an opportune time for acquisitions for IPCL, given that the power generation segment has a fair share of stressed assets to offer.

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