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BW Businessworld

A Jinxed Deal

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The proposed sale of power assets of Jaiprakash Power Ventures (JPV) has been making news for over a year now.

The latest development is that the company has entered into a binding agreement with Sajjan Jindal-owned JSW Energy to sell its power plants, which have a combined generation capacity of 1,891 megawatts (mw). The bouquet includes the 300 mw Baspa-II Plant, the 1,091 mw Karcham Wangtoo (KW) Hydro-electric Plant and the 500 mw Bina Thermal Power  Plant. Before the MoU for this deal was signed, two other companies had shown interest in JPV’s hydro assets.

One of them, PJSC or Taqa — a consortium led by Abu Dhabi National Energy Co. — withdrew from the agreement to purchase two of JPV’s hydro plants for Rs 9,689 crore on 24 July 2014. The other was Anil Ambani-owned R-power, which entered into a non-binding MoU with JPV to buy its three operational hydro power plants for Rs 12,000 crore. The deal fell through in just two months.

Irrespective of whether JPV proves lucky this time with JSW Energy, the failed deals will definitely raise some tough questions. The first being whether there was something that sent away the previous prospective buyers. And if there was something, was it a problem specific to the project or symptomatic of the larger issues plaguing India’s energy projects.

While Taqa said its decision to pull out was triggered by a change in the business strategy and priorities of the group, R-power never gave any official reason for its decision to backtrack.

All that is known is last month the Central Electricity Authority issued a show-cause notice to JPV for violation of Techno Economic Clearance (TEC) conditions granted to KW project, casting a shadow over the future of the plant. The KW project, marred by tariff issues, was part of the bouquet of plants that JVP was selling in all the three MoUs it signed.

While the valuation of the power assets looks good, lack of clarity on the future revenue stream of the KW project could make it difficult for the prospective buyer to arrange finances for the deal.

JPV did not reply to BW’s queries seeking clarity on the proposed deal.

Valuation of power plants in India has always been tricky. There are underlying regulatory, financial and fuel issues that have to be taken note of. And JPV is no different.