Green Signal

Adani-OPGC acquisition update

Adani Power Limited is rapidly expanding its generation footprint with high-value acquisitions. Recently, the company received the green signal from the Competition Commission of India (CCI) for acquiring a 49 per cent stake in Odisha Power Generation Corporation Limited (OPGC). It may be recalled that Adani Power had signed a definitive agreement in June 2020 for acquiring 49 per cent stake (amounting to 8.9 million equity shares) from affiliates of the AES Corporation, a US-based energy major, for $135 billion (about Rs 10 billion). The Odisha government holds the balance 51 per cent stake in OPGC. (The state government had divested 49 per cent equity in OPGC to AES in 1998-99 as a part of power sector reforms in Odisha.) OPGC operates a 1,740 MW thermal power plant at Jharsuguda in Odisha, including the recently commissioned supercritical capacity of 1,320 MW.

Deal rationale

The stake acquisition in OPGC fits well with Adani Power’s inorganic expansion strategy. Over the past one year, the company has been on a merger and acquisition (M&A) spree, and has acquired GMR Chhattisgarh Energy Limited (GCEL) as well as Korba West Power Company Limited (KWPCL) with a combined operational capacity of nearly 1.9 GW. The latest acquisition will mark the company’s foray into Odisha. In a conference call with investors on August 6, 2020, Anil Sardana, managing director, Adani Power, said, “As we transition to a green future, it is our conviction that coal-based power will have to play its role in the energy mix of India. In fact, a substantial portion of the base demand will continue to be served by coal-based power, which will also help in optimising power costs and stabilising the grid.”

The stake sale by AES is in line with its goal to reduce its generation from coal to below 30 per cent by the end of 2020 and to less than 10 per cent by the end of 2030. Through this sale, AES’s power generation in MWh from coal will be reduced to 35 per cent of the total generation from the current 45 per cent. In an official release, Andrés Gluski, president and chief executive officer, AES, said, “By continuing to sell and decommission coal plants, while building 2-3 GW of renewable energy capacity per year and creating and implementing new technologies, we are fulfilling AES’s mission to accelerate the transformation to a greener and more sustainable world. We are excited for the opportunity to partner with the Adani Group, to facilitate the delivery of renewables and energy storage in India.”

Asset overview

OPGC operates a 1,740 MW coal-based power generation plant in Jharsuguda district, which is a crucial source of baseload power supply in Odisha. This includes two old 210 MW units of the Ib Valley thermal power station (TPS) (commissioned in 1994 and 1996) and two new supercritical units of 660 MW each of the Ib Valley Expansion TPS, commissioned in March 2019 with an investment of Rs 110 billion. Meanwhile, Adani Power has an operational capacity of 12.45 GW and the successful completion of the stake acquisition in OPGC will take it to over 14 GW.

The projects have firm power offtake and fuel supply arrangements. The entire quantum of power from the Ib Valley TPS and 50 per cent of the contracted capacity from the Ib Valley Expansion TPS are tied up with state utility Gridco under long-term power purchase agreements (PPAs) till June 2026 and March 2048 respectively. The generation assets have a geographical advantage as they are located in the coal bearing state of Odisha and are able to generate power at a low cost. OPGC, in association with the state-run OHPC, has been allocated the Manoharpur and Manoharpur dip-side captive coal blocks with 531 million tonnes (mt) of coal reserves for the Ib Valley Expansion TPS. It plans to invest Rs 15 billion in developing the blocks, which have an estimated annual mining capacity of 8 mt.

As per Gridco’s latest tariff proposal, the power procurement cost from the Ib Valley TPS is estimated at Rs 2.60 per unit and that from the Ib Valley Expansion TPS is Rs 3.09 per unit for 2020-21. The variable cost of power generation at the Ib Valley TPS is among the lowest in the country at about Rs 1.54 per unit.

In terms of financial performance, OPGC has recorded impressive earnings in recent years. Its total income stood at Rs 8.87 billion during 2018-19, an increase of nearly 45 per cent from the Rs 6.13 billion during 2017-18.

Next steps

While the approval from the CCI is in place, the one from the Reserve Bank of India is awaited. The deal is expected to be completed within six months of the signing of the share sale and purchase agreement, and the cash consideration has to be paid in two tranches as per Adani Power’s disclosure to the BSE. The company’s financing arrangements to fund the deal have not been disclosed yet.

To conclude, the deal is a significant stride for Adani Power and reinforces its position as a premier power generator in the country with a pan-Indian presence.

Neha Bhatnagar


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