Power Companies Looking At Greener Pastures Abroad

As the business environment in the domestic power sector is getting tough by the day, power companies are diversifying their business operations. An O P Jindal Group company, JSPL has envisaged the setting up a 1500 MW power generation capacity in five different African countries. Despite the government's recent reforms in the sector, JSPL has announced this overseas project which is a surprising move.

The diversification seems must for the Indian power companies as the domestic fuel and tariff issues keep on surfacing frequently and a firm solution is yet to be found. A few Indian companies have recently expressed their desire to set up overseas power projects.

The private power companies have been setting up projects assuming that the imported coal supply especially that from Indonesia will be sustainable. However, with Indonesia capping the coal exports as well as banning the lower quality coal exports, the scenario in the Indian power sector is set to change once again. The picture had first changed in the second half of 2011 after Indonesia increased the coal prices. The Indian power companies have been posting losses ever since and are yet to recover from those lows.

In view of the pessimism on the power business, the Kolkata-based CESC last year diversified in the IT business by acquiring 49.5% stake in the first source for Rs 280 crore. The company has said that the returns in the power sector have become less lucrative, which promoted it to diversify in the IT business. In 2012, Adani Power was shortlisted to develop power projects of 3792 MW in South Africa and Nigeria, and further progress in these projects is awaited. Tata Power is also working on setting up a few power plants in seven countries. It has already started work on a 600 MW power plant in Nepal.

The pessimism among power producers is clearly understood as the government’s announcements in this respect are quite ambiguous. The coal price pooling which was expected to resolve the fuel issues has been deferred to the next year, and is thus a very negative development.

The good thing for JSPL in going to Africa is that that the company will be setting up plants in a coal rich region. The concern is however regarding the duration in which this capacity addition will be achieved, with too many projects in the pipeline. The company currently has an installed capacity of 2167 MW of which 1167 MW is for captive generation. The remaining 1000 MW capacity (Tamnar I) is with its subsidiary, Jindal Power which has a total portfolio of 15660 MW of power projects.

A few companies have recently sold their overseas coal and power assets due to political conditions as well as poor cash flows from domestic power businesses. We believe that JSPL is being too ambitious in setting up overseas power projects.