Adani Power to hive off Mundra power plant to improve profitability

The board of Adani Power Ltd. is hiving off its flagship Mundra power station to a new subsidiary and is exploring all options for financial revival, including a potential sale of substantial stake in the new subsidiary in which a Gujarat government entity may take a majority stake.

As a result of the transaction, the company will infuse capital investment which will ultimately help increase working capital and also reduce the losses suffered in the latest quarter. The separate entity will be majorly owned by Gujarat Urja Vikas Nigam Ltd. (GUVNL), which will utilize its maximum capacity, resulting in revenue growth in the near future. This tie-up will enhance the profitability of the business and will help in reducing the cost drivers. The company’s D/E stands at 7.2x on FY17. A meeting of the board of directors of the company was held on June 6, 2017 to consider and evaluate the slump sale of its Mundra power generating business to its subsidiary Adani Power (Mundra) Ltd.

Industry sources said Gujarat Urja Vikas Nigam Ltd. (GUVNL) - the Gujarat government entity - which buys majority of the 4,260 MW electricity generated at Mundra - may take 51 per cent stake in the new subsidiary.
Now, as a part of the restructuring exercise, Adani Power wants to separate its investment activity from the generating asset. It has, therefore, proposed to transfer the Mundra plant to a separate subsidiary by way of slump sale and retain the investments in subsidiaries with itself.

The transaction will put Mundra undertaking at par with the other operating subsidiaries of the company, with specific strategic focus as well as specific financial arrangements. The transfer does not envisage a cash consideration and the company does not plan to list the resultant separate entity.

Due to the recent the Supreme Court judgement, the company is engaged with the stakeholders, including GUVNL, for possible remedial measures for long term sustainability of the Mundra plant and various options are being explored presently. Last month, Adani Power had discontinued 1,250 MW power supply to GUVNL in a phased manner, mainly due to the non-viability of running its Mundra power plant on imported coal. Of the 2,000 MW power provided by Adani Power to GUVN under different power purchase agreements (PPAs), 1,250 MW supply was discontinued.

The company had told the state government that operating Mundra power plant at the tariff specified in the PPA using imported coal (from Indonesia) was not viable after the Supreme Court disallowed raising power tariffs to compensate for rise in the price of coal from Indonesia.

Adani Power had entered into a long-term PPA with GUVNL in 2007 for supply of 1,000 MW of electricity at a levelised tariff of Rs 2.35 per unit for a period of 25 years. More supplies were contracted under PPAs signed at different times. It also contracted to sell 1,424 MW of power to Haryana.

Adani Power has total thermal power generation capacity of 10,440 MW. It directly owns and operates the 4,620 MW power plant at Mundra, and holds investment in three wholly-owned subsidiaries that own and operate 3,300 MW at Tiroda, 1,320 MW at Kawai and 1,200 MW at Udupi, respectively.

Mundra plant has a capacity of 4,620 MW, comprising of four units of 330 MW each and 5 units of 660 MW each. The 330 MW units are based on sub-critical technology and the 660 MW units are based on super-critical technology. The power from the plant is evacuated by two transmission lines - one is the 433 km, 400 KV transmission line to transmit 1,000 MW from Mundra to Dehegam in Gujarat, and the other one is the 989 km, 500 KV high voltage direct current (HVDC) bipole line with the capacity to transmit 2,500 MW from Mundra to Mohindergarh in Haryana.