In a significant development, Reliance Industries Limited recently acquired a 26 per cent stake in Adani Power Limited’s Mahan thermal power project in Madhya Pradesh. This move is part of a strategic pact between the two conglomerates, aimed at securing electricity for Reliance Industries’ captive use. The collaboration between two of the country’s leading power companies marks a milestone in India’s energy landscape.
Deal insights
Reliance Industries and Adani Power have signed a 20-year power purchase agreement (PPA) for 500 MW of capacity. Reliance Industries will invest Rs 500 million for a 26 per cent stake in a 600 MW unit of Mahan Energen Limited’s (a wholly owned subsidiary of Adani Power) thermal power plant (TPP).
Mahan Energen has agreed to allot 50 million equity shares of Rs 10 face value each to Reliance Industries at par. The proposed investment is in compliance with the provisions of the Electricity Rules, 2005. A 600 MW unit of the Mahan TPP, out of its aggregate operating and upcoming capacity of 2,800 MW, will be designated as the captive unit for this purpose.
A generating plant declared as a captive unit is required to abide by rules that state that the captive user(s) consuming the power generated from the captive plant for self-use must necessarily hold not less than 26 per cent ownership in the captive generating company. In order to avail of the benefits of this policy, Reliance Industries has to hold a 26 per cent ownership stake in the captive unit in proportion to the total capacity of the power plant. It will accordingly invest in 50,000,000 equity shares of Mahan Energen, aggregating Rs 500 million for a proportionate ownership stake.
Background
Mahan Energen, which was incorporated in 2005, is involved in power generation and supply, and has a total capacity of 1,200 MW currently. Situated in the Singrauli district of Madhya Pradesh, Mahan Energen was formerly owned by Essar Power, before Adani Power acquired it for Rs 42.5 billion in March 2022 after emerging as a successful bidder in June 2021. The acquisition marked a strategic move by Adani Power to expand its footprint in the power generation domain. Mahan’s turnover, according to the audited standalone financial statements for 2022-23, 2021-22 and 2020-21, was Rs 27.31 billion, Rs 13.94 billion and Rs 6.92 billion respectively.
The Adani Group has made a substantial investment of approximately Rs 300 billion towards scaling up Mahan Energen’s power generation capacity to 4,400 MW. This reflects its long-term commitment to bolstering India’s energy infrastructure. The planned expansion from the near-term target of 2,800 MW to 4,400 MW over the next decade underscores the Adani Group’s vision to play a pivotal role in meeting India’s growing energy demand.
Conclusion
The investment by Reliance Industries signifies its commitment to leveraging diverse energy sources to meet its operational requirements. This could have broader implications for the country’s economic development as reliable and efficient energy supply is crucial for industrial growth.
Overall, Reliance Industries’ acquisition of a stake in Adani Power’s Mahan thermal power project marks a significant milestone in India’s energy landscape. The 20-year PPA for 500 MW has strengthened this partnership, paving the way for long-term mutual benefits.
Moreover, this move underscores the importance of regulatory compliance, as Reliance Industries investment aligns with the provisions of the Electricity Rules, 2005. The Adani Group continues to invest substantially in scaling up Mahan Energen’s power generation capacity, reflecting a shared vision to enhance India’s energy infrastructure and meet the country’s growing energy demand.
Going forward, this development will set a precedent for future collaborations and investments in the energy sector, promising a more resilient future for the country.