Lanco Amarkantak: As corporate rivalry and competition intensify in India, billionaires are outbidding each other to acquire distressed projects and new assets. Adani outbid many including Jindals to acquire Ambuja Cement and now India’s number 1 and number 2 on the rich list are competing for a power plant based in the Congress ruled state of Chattisgarh.
Furious Bidding for a Bankrupt Company
Lanco Amarkantak, a thermal power producer based in Chattishgarh, is unable to pay back its loans and is now in the process to be acquired. The lenders of the Lanco Amarkantak rejected the bid by Vedanta Limited, which offered Rs 3,000 crore for the project, including Rs 2,150 crore in the form of bonds to be paid over seven years, part payment from the cash balance lying in the company. The Vedanta offer was rejected primarily because the payment was not upfront.
Now a new set of players are bidding for it. The names include Reliance Industries Limited, Adani Group, and state owned power Finance Corporation (PFC) that has also put in a bid in partnership with REC Ltd.
RIL had made the very lucrative bid of around Rs 1960 crore for the project and may pay the money upfront to lenders. If the company’s bid is selected, it would be RIL’s entry into coal-based power production.
In comparison, Adani’s Power offered Rs 1800 crore for the project, including bonds at 8 per cent interest payable over 5 years. While PFC-REC duo has offered RS 3,400 crore payable, to be paid in 20 years and 40 per cent equity to lenders.
Lanco Amarkantak Power has already claimed worth Rs 4,632 crore from 17 lenders, including PFC and REC’s share account for 42 per cent of the admitted claims.
The Reason
The power consumption in India is increasing exponentially with the expansion of industries and universal household connection to electricity. However, the economies of the power sector have been broken so far due to heavy involvement of PSUs, which were badly managed and inefficiently run.
The Modi government is pushing for major reforms in the sector through Electricity (Amendment) Bill. While some government involvement is necessary given the strategic importance of infra sector like power, the government need not to manage the entire value chain but involve in key areas and manage efficiently.
On one hand, India generates surplus electricity with solar, coal, and other resources at a rate that would put highly efficient players across the world to shame, while on other aggregate, technical and commercial (AT&C) loss is around 21.7 %- a shameful figure. So, more than one-fifth of the value is destroyed in AT&C losses during distribution and this figure is rising.
Privatising the Sector
Privatising the power distribution sector would enable the private players to enter the business and bring down the distribution cost. This might result in the power sector getting more efficient, because of which, the general public and the businesses across the country can have 24×7 uninterrupted power supply.
Power is generated in the country at as low as 2-3 rupees per unit while the distribution companies sell it at between 7-12 rupees per unit (rates are different for households depending on the area and even higher prices for corporate companies), and still incur huge losses.
The government has also floated the idea of portability which would enable the consumers to port the service provider without changing connection, just like one does in the case of the Telecom sector. The portability is a noble idea and it can break the monopoly for the public as well as private players. But the country needs more private players, and for that, the government is bringing the Electricity Amendment Bill.
Given the fact that economics of the power sector is expected to improve with the reforms, many private players are eying business in the sector. And this is the reason behind big corporate houses trying to outbid each other for a project in Chattisgarh.
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