Mumbai: India’s largest engineering and construction firm Larsen and Toubro Ltd (L&T) plans to generate 5,000MW of electricity by 2015 by investing around Rs30,000 crore, a top company official said.
In December, the firm won a contract to build and operate a 1,320MW coal-fired plant in Rajpura, Punjab, its first successful bid for power generation. The plant is scheduled for commissioning in January 2014.
“We have also signed an MoU (memorandum of understanding) with the Karnataka government for a 1,600MW coal-based project to be based in Chhattisgarh and are also planning another 1,600MW somewhere in Orissa,” A.K. Chhatwani, senior executive vice-president and a member of the corporate management committee, said on Monday.
Half of the power from the Chhattisgarh project—a Rs10,000 crore venture of L&T and Karnataka Power Corp. Ltd—will be sold in Karnataka at a regulated rate. The venture is hoping to sell up to 45% of the power at higher, unregulated rates in that state. The rest will be mandatorily sold to the Chhattisgarh government.
L&T’s stock on Monday rose 1.14% on the Bombay Stock Exchange to close at Rs1,602. The benchmark Sensex index rose 0.64% to 17,102.60 points.
In January 2008, L&T floated a subsidiary, L&T Power Development Co. Ltd, but failed to win bids for 4,000MW power projects at Sasan (Madhya Pradesh), Mundra (Gujarat) and Krishnapatnam (Andhra Pradesh).
Chhatwani said the company would continue to try and win contracts to build similar large power plants.
R. Shankar Raman, executive vice-president, finance, said L&T is trying to reach financial closure for another 5,000MW by 2015. At least 20% of this will be raised through equity, he said.
“Accessing equity markets will be an option and we remain optimistic that in the next five years participation from pension funds will improve,” he said, adding that the firm is “not keen on getting this debt on our books”.
The firm has $1 billion (around Rs4,500 crore) of long-term funding through global depository receipts issued in 2007 and by selling securities to institutional investors in November, Raman said.
An analyst, however, said that the firm would have to deal with issues related to land, water and fuel.
Power is going to become a high-risk and low-return business, cautioned Madan Gopal, equity analyst with Centrum Broking Pvt. Ltd.
“There are too many utilities in the power business today, and as generation improves in the next five years, returns will come down,” Gopal said, adding that an MoU with a state is not a guarantee because governments have been known to cancel contracts if they get cheap power elsewhere.