New Delhi/Ahmedabad: The Gujarat government has leveraged its access to a scarce fuel resource—coal—to negotiate an interesting commercial deal with two private companies for another scarce resource—power—in a domestic version of what countries, such as China, are doing these days around the world.
As part of the deal struck by government-owned Gujarat Mineral Development Corp., or GMDC, with Torrent Power Ltd and KSK Energy Ventures Pvt. Ltd, the state-owned venture will get Gujarat exclusive rights to two-thirds of the 2,750MW to be generated in the proposed $2.78 billion (around Rs11,000 crore) projects in Chhattisgarh.
In return, the two companies will get guaranteed coal from the mines owned by GMDC.
Gujarat has a current peak power demand of 11,000MW, while supply is around 8,500MW.
“While we will be setting up a 1,000MW power project with Torrent Power, our project with KEVPL will be for 1,750MW,” said a senior GMDC executive who didn’t want to be named.
While GMDC would have 26% equity in each project, Torrent and KSK would hold the balance equity. The debt to equity ratio for both the projects would be 4:1.
One-third of the generated po-wer would go to Chhattisgarh with the rest sent to Gujarat and sold to Gujarat Urja Vikas Nigam Ltd, which oversees power generation, transmission and distribution in the state.
Gujarat will buy the power at between Rs2.24 and Rs2.32 per unit, depending on the origin, including all supply-related expenses and commission.
Both the projects have received GMDC board’s approval and would now be sent to the state government for its approval.
“We’ll witness more of such tie-ups, which is very positive for the power generation and mining industry,” says Abhishek Puri, associate analyst at JM Financial Ask Securities Pvt. Ltd.
GMDC has one block, Morga-2, in Chhattisgarh that has approximate reserves of 350 million tonnes of coal—sufficient to meet the fuel requirements of both projects, which are scheduled to be ready by 2013.
“GMDC would invest around Rs225 crore for equity in its project with Torrent and another Rs375-400 crore for its 26% share of equity in KSK power project. Torrent Power would invest around Rs700 crore for equity, while KSK would shell out Rs1,400 crore for its share of equity in the 1,750MW power project,” the GMDC executive added.
Executives of Torrent decli-ned to comment and executives at KSK couldn’t be reached and did not respond to an email.