BackNo shock from Reliance Power Tilaiya exit
Reliance Power's exit from the Tilaiya project has no financial implications for the company in the short-term
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Reliance Power Ltd’s exit from the Tilaiya project has no financial implications for the company in the short-term. The company has so far invested only ₹ 300 crore in the project, which it says is recoverable. The project was stuck owing to various regulatory and procedural hurdles, the bane of the power sector in recent years.
In an earnings call last year, the firm’s management had indicated it was unlikely to start construction till the Central Electricity Regulatory Commission (CERC) passed an order to increase tariffs owing to changes in law during construction, cost escalations and so on, according to a note from Nomura Research. In a statement, the company said based on current scenario, it didn’t expect to complete the project by 2023-24.
There is no new implication of this move on the Chitrangi project as well. After all, the Supreme Court last year disallowed diversion of surplus coal from Ultra Mega Power Projects (UMPP).
With such slow progress, not many analysts had included the Tilaiya project when valuing the Reliance Power stock. In the long run, the exit from one particular project is also not going to hurt the firm in a power-starved country. The company has a project pipeline of at least 15,000 megawatts even after scrapping Tilaiya. The long-term outlook for the stock will depend on how it is able to get these power plants on stream while battling policy problems.
That said, Tilaiya could still haunt the company in the coming months. Leave aside the chance of electricity buyers or state governments challenging the termination of power purchase agreements related to this project. The Press Trust of India reported the public accounts committee of Parliament has asked for a probe into the awards of three UMPPs to Reliance Power.
One of the other UMPPs is the Sasan project which the company has commissioned last week. This project will boost revenue numbers when financial results of the June quarter are published. But with the company having filed tariff petition revisions on different counts, orders on some of which are awaited, there is an element of unpredictability over Sasan’s profitability. That could be a bigger overhang on the stock in the short-term.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay High court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
The writer doesn’t own shares in the above-mentioned companies.
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