In a key development, leading private power transmission developer and solutions provider Sterlite Power Transmission Limited recently formed a joint venture (JV) with Singapore-based sovereign wealth fund GIC Private Limited to set up a $1 billion JV platform for the development and operation of power transmission projects in India.
Deal details
GIC will invest $500 million in scheduled phases for a 49 per cent stake in Sterlite Power’s infrastructure business. It will make an initial investment of $100 million, and the remaining $400 million will be paid over the next two to three years on a need-to-draw basis. The payment is subject to Sterlite Power receiving transmission project tenders and fulfilling its capital expenditure obligations. Sterlite Power will transfer four of its assets valued at $722.6 million to the JV, along with an investment of around $300 million over a comparable two to three-year period in order to retain its remaining 51 per cent share. Of the four assets that are being transferred, two are in Rajasthan and one each is in Assam and Kashmir. As a whole, these resources span 700 km, consist of three substations, and can transmit 800-2,000 MW of power.
With 32 projects in its portfolio (including completed, sold and under-construction projects), Sterlite Power has over 15,350 ckt. km of transmission lines spread between Brazil and India. The manufacturing division has either completed or is currently executing over 34,000 km of optical phase ground wire-based communication projects under live line conditions, covering 108 crucial corridors across 15 states.
Sterlite Power is in the process of demerging into two separate entities. One entity will oversee the management of the infrastructure division in the transmission sector. It will specialise in operational aspects and the development of transmission assets in India and Brazil under the build-operate-transfer model, which involves 30-year concessionaire agreements. The power transmission infrastructure business encompasses transmission assets in both these countries, which will now be transferred to Sterlite Grid 5 Limited (SGL5). Both Sterlite Power and SGL5 will have independent boards and focused management teams.
The other entity will be responsible for the domestic production of cables, conductors and optical phase ground wires. According to a company statement, the demerged Sterlite Power entity will retain its global products, specialised engineering, procurement and construction services, as well as the Convergence-Fiberco business. The approval process, which involves obtaining permissions from various sources, such as creditors, shareholders and other regulatory bodies, is anticipated to be concluded in the next six to eight months.
Deal rationale and future plans
The aim of this collaboration is to tap the soaring market demand for power evacuation network in India, aligning with the country’s ambitious target of achieving 500 GW of sustainable energy by 2030. According to Central Transmission Utility of India Limited’s Rolling Plan 2027-28 for the country’s interstate transmission system, released in March 2023, approximately 41,000 ckt. km of transmission lines and a cumulative transformation capacity of 390,000 MVA are expected to be added to the grid by 2027-28 at an estimated cost of Rs 2.23 trillion.
Over the past decade, the power transmission market has witnessed annual cumulative projects worth Rs 100 billion-Rs 120 billion. Large-scale power evacuation projects are anticipated in Rajasthan and Gujarat. In addition, India plans to invest Rs 2.8 trillion in the interstate transmission sector for evacuating power from renewable energy sources by 2030.
GIC plans to capture a larger share of the Indian transmission market by partnering with Sterlite Power. It has previously engaged in multiple investments in the Indian power sector. In July 2023, GIC, with Genus Power, announced a $2 billion smart metering project.
Sterlite Power recently won key projects through the tariff-based competitive bidding process. In November 2023, it secured an 8 GW transmission project, namely, Rajasthan Renewable Energy Zone (REZ) Phase IV (Part 1-Bikaner Complex): Part B transmission project, for the evacuation of renewable power from the Bikaner REZ in Rajasthan. It has also been awarded the transmission project for the evacuation of power from REZs in Fatehgarh (9.1 GW), Bhadla (8 GW) and Ramgarh (2.9 GW) in Rajasthan. In March 2023, Sterlite Power won its first green energy corridor (GEC) project in Rajasthan – Fatehgarh III Beawar Transmission Limited (Phase III, Part G). In addition, it recently commissioned India’s largest GEC project – the Lakadia-Vadodara Transmission Project Limited in Gujarat.
The proposed JV with GIC aims to obtain three to four times the debt based on the $1 billion equity transaction. It seeks to secure projects valued at Rs 100 billion annually, which requires an annual equity investment of approximately Rs 30 billion ($361 million).
Net, net, the strategic JV agreement is expected to drive the growth of Sterlite Power and expansion of the power transmission industry over the next few years.
