Mumbai: Reliance Power Ltd (R-Power), a part of the Reliance-Anil Dhirubhai Ambani Group (R-Adag), has won three contracts in a row to build 4,000MW projects in Tilaiya (Jharkhand), Krishnapatnam (Andhra Pradesh) and Sasan (Madhya Pradesh). For their size, they are known as ultra-mega power projects, or UMPPs.
More importantly, the company has tied up finances for two projects, including Rs14,550 crore for Sasan, which achieved financial closure in April, overcoming a global credit crunch.
Last week, R-Power said it had tied up funds for its coal-fired Rosa power plant, after raising at least Rs2,400 crore from a consortium of domestic financiers for the second phase of the 1,200MW project in Shahjahanpur (Uttar Pradesh).
Optimistically speaking: CEO Chalasani says the company may be able to close the Dadri project financially once the legal hurdle is sorted out. Abhijit Bhatlekar / Mint
Even so, R-Power is still most remembered for the country’s largest initial public offering, or IPO, which raised Rs11,560 crore in February 2008 before global markets plunged into unprecedented turmoil.
R-Power chief executive officer J.P. Chalasani, 51, tells in an interview why R-Power will be remembered for more than the IPO. Edited excerpts:
R-Power has clinched three out of four ultra mega power projects that the country has awarded so far. But you have no track record of setting up power plants. Have you bitten off more than you can chew?
What is the basis to say that we have bitten off more than we can chew? One needs financial resources and people to execute the plans, (I) don’t think you need anything else. For all these three UMPPs, we have the equity money coming in. We will also have internal accruals with Rosa starting end of this year. In fact, compared to any power company in the country, we are far ahead in terms of equity money. The moment you have equity contribution in place, you have to raise debt and that is based on the strength of the project. (Projects are on 80:20 debt-equity.)
You can’t tell a new company that it doesn’t have a track record. How many private power companies in the country have a track record in (the) power sector? Look at the telecom sector. Which of these companies had a track record? They came in and now they are the best. I don’t believe in the issue of (a) track record. My board has asked us to go, bid and win these projects. They have the confidence that we can do it.
(Also) the Yamunanagar plant (in Haryana) is operational. We don’t own it but we executed it. People had doubts about the Chinese equipment but the plant is operating at 95% peak load factor now. Then, we have the Dahanu (thermal power) plant (in Maharashtra) within our group, which has been voted among the top 10 power plants (in the world) year after year and No. 1 in the country. Dahanu uses imported and blended coal, without a long-term linkage plan and still, it is the top plant which has maintained over 100% plant load factor consistently.
Of course, I don’t have the scale today. It’s like asking someone to prove he will be a good CEO at the start of his career. I will just say wait and watch.
How did the company achieve financial closure for two crucial power projects in as many months despite a tight liquidity scenario?
One of the important factors is that the money is available for equity contribution in our projects and that’s where some of the others may be struggling, even those handling big projects. In our case, the money is right there in the bank. Lenders don’t need to bother if equity will come in. The second is the Adag brand, which is a crucial factor. The third thing that lenders see is how strong are the project fundamentals.
The doubt that people had as to how we will finance such a big portfolio of projects will get dissipated slowly. Sasan funds were tied in April, now Rosa II (second phase of two 300MW units) has happened. Next in line are Butibori (Maharashtra) and Krishnapatnam UMPP. They are in the market (to raise money).
R-Power manages to procure more projects and then financially close them quicker too...how?
We have an innovative way of thinking commercially. If someone peels through the layers of some of our bids and tariff profiles, they will find that we bid in a different way each time. We bid in such a way that we make high returns and still get advantage in evaluation.
How many more UMPPs does Reliance Power have an appetite for?
No comments at this stage. Today, our basket is full.
Almost all the recent analyst recommendations by ‘Bloomberg’ on R-Power are either “sell” or “reduce”. Why is the analyst community so negative on the company?
We were and are working with the same zeal as before. They (analysts) may be looking for visible milestones and that has begun coming now. I can’t say why they are saying what they are. As we move forward, these analysts will keep changing their opinion.
What about the Dadri power plant (in Uttar Pradesh)? Are you planning any changes in that project with a pending court verdict?
I don’t think availability of gas is an issue for the project, the price is. Gas being available is not a question mark. The price, however, can be $2.34 (Rs110) or $4.2 (per million British thermal unit). That is the range. Let us leave the rest up to the (Bombay high) court.
The best-case scenario is $2.34, which we believe is the right one; the other extreme scenario is $4.2 People are buying it at $4.2 also and using it in their operating plants.
(R-Adag is involved in a dispute with Anil Ambani’s estranged brother Mukesh Ambani-controlled Reliance Industries Ltd over gas supplies for the project. The matter is under litigation.)
Also, gas availability will not be a problem in this country going forward. In my opinion, there is no uncertainty on Dadri. It is a matter of timing. Dadri will definitely happen, it is just a question of commercials. We should be able to close the project financially six months after the legal hurdle is sorted out.
How was the experience of R-Power IPO and its aftermath for the company? Any lessons for the group as a whole from it?
My view is that what happened after the IPO had nothing to do with the IPO. It was done at the right time and got an overwhelming response. Incidentally, markets world over changed at that point of time. Under the circumstances, what the promoters did (issuing bonus shares to compensate investors) was the best thing to do and no one else has done it.