Mumbai: Essar Power Ltd, a subsidiary of London Stock Exchange (LSE)-listed Essar Energy Holdings Ltd, said on Tuesday it has entered into binding agreements to purchase 100% stake in Navabharat Power Pvt. Ltd, which is building a 2,250MW coal-fired power plant in Dhenkanal district, Orissa.
Essar Power did not disclose the amount it will pay for Navabharat, only saying it would initially acquire 76% stake and the rest after completing certain project milestones.
The purchase is part of Essar Power’s commitment to foreign investors to raise its power generation capacity to 11,470MW by 2014, a group spokesperson said.
The acquisition will save the company about two years it would have otherwise spent looking for coal mines, buying land, signing power purchase agreements with state governments and getting environmental clearances.
The Navabharat power plant has secured coal mines from Rampia coal block with an estimated annual output of 112 million tonnes and from Coal India Ltd that will give it 4.7 million tonnes, annually. It had been planning an investment of $2 billion (Rs9,380 crore) to build the plant.
Essar Power will develop the plant in two phases of 1,050MW and 1,200MW, and expects to tie up funds for the first phase by December 2010, a company statement said. The group needs to raise nearly Rs10,025 crore to complete the two phases.
“The acquisition of Navabharat Power is in line with the plans announced at the time of our initial public offer (IPO) and will keep us on track to develop over 11,000MW of power capacity by the end of 2014, thereby maintaining our leading position in the private sector power generation market in India.” Essar Energy’s chief operating officer, Naresh Nayyar, said in the statement.
In April, the Essar Group raised $2.5 billion by selling shares of Essar Energy, the group’s holding company for the energy business, and listed on LSE.
Essar, a late entrant in the power sector, will have to pay a premium to build its portfolio in time to fulfil its commitment to overseas investors, said a Mumbai-based consultant for such transactions.
“Many power companies, who are unable to tap the stock market, will choose to sell their business rather than waiting indefinitely for public offers to raise money,” the consultant added. He declined to be named as his firm does business with Essar Power.
Groups such as Aditya Birla, Reliance Industries Ltd (RIL) and the Hinduja Group, late entrants to the business like Essar, are also looking to buy power plants that have coal linkages, environmental clearance, land and power purchase agreements.
According to a study released in November 2009 by the Confederation of Indian Industry and AT Kearney, around $250 billion needs to be invested in India’s power sector over eight to nine years.
India’s Planning Commission has targeted additional power generation of around 78,577MW to provide electricity to all non-electrified villages, and to all rural households through the Rajiv Gandhi Grameen Vidyutikaran Yojana.