Hyderabad: Lanco Infratech Ltd is looking for a strategic investor to sell a minority stake in the thermal power plant and coal block project it won from Mahatamil Collieries Ltd, or MTCL.

The infrastructure developer in August 2011 won a contract to develop and operate MTCL’s Gare Pelma-II coal block and a 2,000 megawatt thermal power plant in Chhattisgarh’s Raigarh district at an estimated investment of 12,000-13,000 crore.

The Gare Pelma-II coal block has estimated reserves of 768 million tonnes and is spread over 24.95 sq.km.

“We want to bring in a strategic investor so our equity contribution will be less," said T. Adi Babu, chief operating officer-finance.

Lanco has to contribute 3,500-4,000 crore as equity towards the project.

Lanco is struggling with huge debts and needs a strategic investor to help it drive the project.

The company informed the stock exchanges on 27 July that it had approached the corporate debt restructuring (CDR) cell for a debt recast of 7,500 crore. As on 30 June, it had a net debt of 34,770 crore.

Lanco said a CDR would help it ensure timely completion of all its ongoing power projects, amounting to 4,636 MW of capacity.

The divestment of stake in the Raigarh project will be “as per the bid contract", Babu said. According to the terms, Lanco cannot reduce its stake below 51% for the period of five years after commencing coal supply to the power plant. Lanco expects to start coal production by end-2015 or early-2016.

“The potential sites for power plant have been identified and technical assessment is in progress," said L. Madhusudhan Rao, chairman of Lanco.

As per the memorandum of understanding with MTCL, 23% of the coal produced from the Gare Pelma-II block will be supplied to Maharashtra, and the balance 77% will be used to fire the power plant. Chhattisgarh will get 37.5% of the power generated, and the remaining electricity will be shared between Tamil Nadu and Lanco equally.

Lanco bid aggressively for the contract, offering coal mining fees of 112 per tonne mined, with an intention to secure fuel security and sell power through merchant basis at the prevalent tariffs.

Analysts say the challenge before Lanco is to begin the mine operations as per the schedule.

“There is lot of unpredictability involved in getting approvals and clearances," said Dipesh Dipu, partner at Jenissi Management Consultants, a Hyderabad-based resources-focused consultancy.

A company typically needs 3-5 years to get clearances for a mine, or 5-7 years if it’s on forest land, and another 1-2 years to develop the mine, Dipu said.

“Mahatamil project has one advantage—it has domestic fuel linkage, which is what investors look for. But again execution and getting clearances would be the key," said another analyst who tracks metals and mining at a Mumbai-based brokerage, but who did not want to be named.

India’s slowing economic growth and high borrowing costs have taken a toll on infrastructure projects, many of which have been stalled due to fuel shortage, and delays in securing regulatory approvals and acquiring land. Economic growth slowed to 5% in the year ended 31 March, the slowest in a decade.

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