New Delhi/Mumbai: The judgement on the Ambani gas dispute delivered by the Supreme Court (SC) on Friday has forced the Reliance-Anil Dhirubhai Ambani Group (R-Adag) to reveal a Plan B for its power generation business.
R-Adag on Monday told analysts from select brokerage houses that it would scale down the capacity of its proposed gas-based power projects by around 3,280MW and add a further 2,000MW of power generation capacity at a coal-fuelled project in Madhya Pradesh, confirmed four analysts who attended, but who did not want themselves or their organizations to be identified since the meeting was confidential.
The group is pursuing its power ambitions through Reliance Power Ltd (RPL).
The country’s apex court had on Friday decided that Reliance Natural Resources Ltd, an R-Adag firm, would not get access to gas from fields being developed by Mukesh Ambani group company Reliance Industries Ltd (RIL) at a discount. Investors had hammered down share prices of R-Adag firms in an early reaction to the judgement.
The company had earlier stated at various occasions that it was planning to develop gas-based power generation capacity of 10,280MW, including 7,480MW project at Dadri in Uttar Pradesh and 2,800MW gas-fired capacity at Shahapur in Maharashtra.
While RPL has projects with a total capacity of 35,000MW in its portfolio, only projects totalling 941MW have been commissioned so far.
RPL told the analysts it was looking to add another 2,000MW of capacity at its 4,000MW coal-based power project at Chitrangi in Madhya Pradesh.
“The view was that since coal was cheaper, it should dominate,” said another analyst who attended the meeting, but did not want to be identified.
The invited brokerages included Credit Suisse Securities (India) Pvt. Ltd, a Citibank NA securities unit, Kotak Securities Ltd, Deutsche Securities India Pvt. Ltd, Bank of America Merrill Lynch, HSBC Securities and Capital Markets (India) Pvt. Ltd, India Infoline Ltd, Edelweiss Capital Ltd and JM Financial Consultants Pvt. Ltd, said one analyst who was part of the group.
While an R-Adag spokesperson declined to comment on questions emailed by Mint, an analyst who attended the presentation, but did not want to be identified said: “The implications of the Supreme Court verdict was explained in the presentation and the company admitted minimal impact. They keep on holding these kind of meetings. This was not a one-off meeting.”
Analysts believe that the court judgement has an adverse impact on R-Adag’s plans for gas-based power, as the government now has the final say in the allocation and pricing of gas.
The court has asked RIL and RNRL to renegotiate their agreement over the supply of gas within 14 weeks, with the base price for this transaction being the government-mandated one.
“They are being more realistic. This is a balanced reaction. There are a lot of uncertainties about the gas allocation in the first place,” said a New Delhi-based power sector expert who did not want to be identified due to commercial considerations.
While RNRL wants 28 million standard cu. m of gas a day (mscmd) for 17 years, RIL is currently producing 62 mscmd of gas in its D6 block in the Krishna-Godavari basin, off India’s east coast.
“It’s too early to take a call on how this would impact the company,” said an analyst, who didn’t attend the meeting, when briefed about this development.
He, too, declined to be identified since he isn’t authorized to speak to the media.
On Tuesday, RPL stock shed 3.19% to close at Rs144.15 in a weaker market.
The stock has dropped 6.3% since Friday’s adverse court ruling.
Eleven of the 16 analysts covering RPL, and whose recommendations are available on Bloomberg, have a sell rating on its stock.