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Finally, Reliance wins Sasan project

Finally, Reliance wins Sasan project
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First Published: Tue, Jul 31 2007. 12 31 AM IST
Updated: Tue, Jul 31 2007. 12 31 AM IST
Scoring a major victory in its ambitious power generation plans, Reliance Power Ltd landed the Rs20,000 crore, 4,000MW Sasan power project after it got a second chance to match the winning bid.
The company, which is a subsidiary of Reliance Energy Ltd, is part of Anil Ambani’s growing industrial empire. It secured the rights to build the power plant in Madhya Pradesh after the original winning consortium of Lanco Infratech Ltd and Globeleq Singapore Pte’s was disqualified by a government committee on 25 July for violating the original terms of the deal.
Lanco had valued the project at Rs16,000 crore after putting in a winning bid of Rs1.19 per unit of power. Reliance had come in second at that time with a bid of Rs1.29 followed by a host of others.
As first reported by Mint on Monday, Reliance became the new lowest bidder this weekend when it matched Lanco’s bid after being invited by Sasan Power Ltd to rebid for the project along with two other previous bidders.
On Monday, an empowered group of ministers (EGoM), charged with sorting out what has been a murky situation in recent weeks marked by concerted lobbying campaigns by multiple companies, all jockeying for the mega project, recommended that Reliance Power’s revised bid of Rs1.19 per unit be accepted.
“The EGoM has advised that the procurer should consi-der taking immediate action to issue the letter of intent to the lowest bidder (REL),” said power minister Sushil Kumar Shinde. The group that awarded the deal to Reliance Power included fina-nce minister P. Chidambaram, deputy chairman of Planning Commission Montek Singh Ahluwalia, law minister H.R. Bhardwaj and minister for science and technology and oc-ean development Kapil Sibal.
“We are delighted to have won India’s largest ultra mega power project through an international competitive bidding process,” said a statement from Ambani, who is chairman of Reliance Energy.
Reliance Power’s victory was assured when the two other bidders who were invited to re-bid, NTPC Ltd and Jaiprakash Associates, did not revise their original bids of Rs2.12 per unit and Rs1.65 per unit, respectively. It is still unclear why neither company tried to compete with Reliance the second time around, especially NTPC, which has been quite vocal in the run-up to the new bids.
Meanwhile, Lanco Infratech, which had mounted a public relations campaign Monday morning with advertisements in several newspapers questioning its disqualification, appears set to get back the bulk of a Rs120 crore bond it had posted as part of the first bid, despite the government finding it had submitted flawed documents.
“For what they (Lanco) have done, something has to be done,” said Shinde. “We will deduct some money from the bond and return the rest of it to Lanco. We have decided to do so to avoid any future litigations on the project that would have delayed it further.” Shinde declined to elaborate and it was unclear how the government will arrive at its pound of flesh.
Lanco’s woes started when the parent of its partner Globeleq sold its stake in the consortium back to Lanco and another losing bidder, Jindal Steel. Led by Reliance, several losing bidders quickly mounted an aggressive campaign to try and disqualify Lanco.
Despite its problems with Sasan, Lanco Infratech is keen to to go after other such mega projects that are still up for grabs.
Said L. Madhusudhan Rao, chairman of Lanco Group: “We have not been barred from bidding for the rest of the ultra mega power projects. We will be interested in the future projects but our priority will be the projects located near coal pit-heads.”
The next round of such projects, which are seen as vital to solving India’s vexing power shortages, are located in the coastal area at Krishnapattnam in Andhra Pradesh, and the coal pit-head at Tilaiya in Jharkhand.
Indeed, Lanco Infratech shares gained 9.18% to close at Rs230.20 per share on the Bombay Stock Exchange while Reliance Energy shares rose 2.20% to close at Rs780.25 per share. Winning Sasan will mean that Reliance Energy will increase its generation capacity five-fold.
Still, “we do not see much upside for REL as they have reduced the tariff from their earlier bid,” said Abhishek Puri, an analyst with ASK Securities. “It would have been beneficial for the company if they would have got the project at the earlier tariff of Rs1.29 per unit. However, they will have a psychological adavantage as the Sasan project is a prestige issue for them.”
Sasan is part of an ambitious plan that includes seven ultra mega projects, which will help generate some 65,000MW of power in the next five years in India.
As a result of the Sasan bidding fiasco, the government has also constituted a committee, headed by the power secretary A.K. Razdan and with representation from the ministries of law and corporate affairs, to try and improve the bidding process.
“If there are some flaws in the bid documents, they will be changed,” said Shinde.
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First Published: Tue, Jul 31 2007. 12 31 AM IST