BackRIL plans power foray for retail biz
RIL plans power foray for retail biz
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The Mukesh Ambani-owned Reliance Industries Ltd (RIL) plans to set up captive power generation capacity of around 4,000MW at an investment of Rs12,000 crore to supply power to the 6,000 outlets that its subsidiary Reliance Retail plans to open.
The Anil Dhirubhai Ambani Group, managed by Mukesh Ambani’s brother Anil Ambani, claims that this violates an existing non-compete agreement between the two business groups.
“The first of these captive units will be set up in Maharashtra," said an RIL executive, who did not wish to be named.
The captive power units will have a unit size of around 400MW each and will generate power at a tariff of Rs2.60 per unit. RIL is in talks with Siemens Corp., Alstom, Mitsubishi Heavy Industries (MHI) and General Electric for setting up the power generation units.
By 2012, the company hopes to be generating 4,000MW of power that will be supplied to Reliance Retail’s supply chain, including cold-storage facilities and stores. Reliance Retail has drawn up plans to invest Rs25,000 crore by 2012 in its retail business and set up a chain of hypermarkets, supermarkets and speciality stores across 784 cities and towns.
The plan to supply captive power to its retail business is separate from another plan of RIL that envisages setting up power projects in its special economic zones (SEZs) to generate 4,000MW of power.
“We plan to set up an overall capacity of 8,000MW for our retail outlets and associated units and the two special economic zones in Mumbai and Haryana. Our SEZs will have a power requirement of 2,000MW each," said a member of the Reliance Industries board, who did not wish to be identified.
On Wednesday, the government extended the in-principle approval to Reliance Industries’ Maha Mumbai SEZ by one year but reduced its size to 5,000 hectares in keeping with the current policy on SEZs. The company’s other SEZ is coming up in Haryana.
The power plants that are being set up in the SEZs will require another Rs12,000 crore of investment.
“We will ramp up our capacity in accordance with the development of our SEZ plans. We will sign agreements with the Power Grid Corp. of India Ltd and the state grids that will enable us to wheel power from our captive units to these outlets and installations for which we will be paying them wheeling charges," added the board member.
Wheeling is a concept that involves using transmission networks to ferry power from a captive plant to an area where it is needed.
RIL’s recent discoveries of large reserves of natural gas in the Krishna-Godavari basin give the company an assured supply of fuel for its power projects.
Anish De, an associate director at accounting firm Ernst & Young, said that the decision to set up captive power plants would help RIL “get cheap power". However, he added that “open access, though provided in the Electricity Act, 2003, has a lot of fissures. It will take effort but can be done."
A Mumbai-based power sector analyst, who did not wish to be identified, said RIL’s move could lead to a conflict with Reliance Energy Ltd, part of the Anil D Ambani Group. “However, the fine print of the non-compete clause (between the two groups) needs to be read in great detail," he added.
RIL and Anil D Ambani Group are already engaged in a dispute over the former’s decision to set up captive power projects in its SEZs as reported by Mint on 20 April.
Reliance Energy claims that this is in violation of the January 2006 agreement between the two groups. The agreement lists areas in which companies belonging to the two groups will not compete with each other.
The exact nature of this violation isn’t known. “RIL is not allowed to set up any power project as per the demerger agreement," said a spokesperson for the Anil D Ambani Group, who declined to elaborate on the issue.
The agreement, which is available on the RIL website, says RIL can sell any surplus power from a captive plant to anyone “after first offering it to" ADAG. The non-compete agreement is valid for a 10-year period beginning 2006.
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