Mumbai: AES India, the wholly-owned Indian subsidiary of the American energy major AES Corp., will invest around $1.2 billion each in two 1,200MW capacity coal-based power plants in Orissa and Chhattisgarh over the next two to three years. Collectively, the $2.4 billion (about Rs9,840 crore) will be the largest investment by any multinational company in the Indian power sector.
According to power ministry estimates, the required investment in the power sector is around $150 billion over the next five years to meet a projected demand for 100,000MW. Right now, the unmet demand for power is around 18,000MW with total demand pegged at 150,000MW and power generation at 132,000MW.
The ministry’s best-case scenario projects a shortfall of 25%, with only around 75,000MW coming up by 2012. This is being viewed by many foreign players as a window of opportunity to enter India’s underserved power sector.
AES and China Light and Power Holdings Ltd, which owns a 650MW power plant in Gujarat, are the only multinationals currently operating in the Indian power sector. AES operates and owns a minority stake in the Orissa Power Generation Corp. Ltd’s Ib Valley power plant, the first and only privatized power generation firm in the country. The 420MW coal-fired power plant caters to approximately 12% of Orissa’s generation capacity.
AES issued global engineering, procurement and construction (EPC) tenders for the Chhattisgarh project on 13 June and the modalities of the Orissa project are being worked out. “We are in discussions with the Orissa government for finalizing the modalities of this plant,” said Sanjeev Aggarwal, director, business development, AES India. “We expect to finalize the details over the next few weeks.”
Of the $1.2 billion to be invested in the Chhattisgarh plant, the company has projected a debt of $850 million, while the remaining $350 million will come in the form of equity. AES India’s equity base is now Rs515 crore. It will float two special purpose vehicles for the Chhattisgarh and Orissa plants. Both the plants, according to Aggarwal, will have an identical debt-equity ratio.
The company has also made a bid for coal blocks in Chhattisgarh that are likely to be allotted later this month.
AES, which entered India in 1993 in power generation and distribution, has had a chequered history with both businesses running into controversies. The Orissa state electricity regulator took over the distribution business in 2002 while AES’s dispute with the state-owned transmission company Gridco over the power it supplies to Gridco has gone into arbitration.
Speculation that AES will pull out entirely from India surfaced when the company pulled out of bidding for the ultra mega power plant in Sasan in Madhya Pradesh in 2006. “We are very much here and these two investments are proof of our commitment to India,” Aggarwal said.
As part of its India strategy, AES is also looking at a slew of alternative energy sources such as hydro and wind power. It may also consider re-entering the power distribution business as and when it opens up, Aggarwal said.
The tariff of the Chhattisgarh project will be fixed on a competitive bidding process. This essentially means that the AES’s special purpose vehicle that runs the power plant will supply power to distribution companies based on competitive bidding. It will not have any long-term power purchase agreements with any entity. Chhattisgarh will have the first right of purchase of power to be generated from the plant, even though the state will not be entitled to buy power at a concessional tariff.
China Light and Power has invested approximately $550 million in its gas-based plant at Paguthan near Surat. It bought the Paguthan plant from Gujarat Power Corp. Ltd in 2002-03 in two tranches.
Last December, the 4,000MW coal-based Sasan power project was awarded to a consortium led by Globeleq of the UK (in collaboration with the Hyderabad-based Lanco Infratech Ltd).
However, Globeleq exited the Sasan project in February this year, joining a long line of foreign players who have quit the Indian power sector, led by Cogentrix, Unocal and Enron Corp.