The board of Adani Power on Tuesday approved the slump sale of its 4,620 MW thermal power plant in Mundra, Gujarat, to its subsidiary Adani Power (Mundra). According to media reports, Adani Power may offer a majority stake in the subsidiary to Gujarat Urja Vikas Nigam (GUVNL), the state electricity board. The debt relating to the Mundra unit is in the region of Rs 15,000 crore. “This sale is for a lump sum consideration, without values being assigned to the individual assets and liabilities,” the company said in a notice to the stock exchanges. A slump sale, experts said, might be a tax efficient way of transferring the power asset out of Adani Power. They said the carry-forward losses of the unit would be transferred to the subsidiary. In Q4FY17, the Gautam Adani-promoted company reversed an amount of Rs 3,650 crore on account of compensatory tariff that it had accrued for the Mundra plant. This followed a ruling by the Supreme Court in April disallowing compensatory tariff on account of a change in the price of imported Indonesian coal. Adani Power is highly leveraged with a debt-equity ratio of more than 10 times at the end of March 2017. The consolidated debt is estimated by analysts at close to Rs 50,000 crore. Emails sent to Adani Power and GUVNL on the issue remained unanswered till the time of going to press. The transfer of the unit would leave Adani Power with a smaller level of debt. It would allow the company to “source its funding more efficiently for investments in capacity expansion and asset acquisition”, the company said in a stock exchange filing.
Revenues from the Mundra plant in 2016-17 were `11,018 crore and constituted 93.7% of Adani Power’s total revenues. The Mundra plant, designed to run on imported coal, ran into trouble after an unforeseen hike in the price of Indonesian coal. The company, along with Tata Power (which also runs an imported coal-based power plant in Mundra), sought compensatory tariff increases for the electricity supplied from the Mundra plants on account of the rise in fuel costs. The Supreme Court ruled on April 11 that power firms were not eligible for relief for any adverse fallout from policy changes effected by a foreign government. The company began cutting power supply to Gujarat in a phased manner from April 27. Currently, the Mundra plant supplies only 750 MW to GUVNL against the stipulated 2,000 MW.
It told GUVNL authorities that operating the Mundra plant at the power purchase agreement-specified tariffs using imported coal was increasingly becoming non-viable. Adani had signed PPAs with distribution companies in Gujarat and Haryana in 2007 and 2008, respectively. Prices of power in the two PPAs (of 1,000 MW each) with Gujarat were set at Rs 2.89 per unit and Rs 2.35 per unit. It had agreed to sell 1,424 MW to Haryana at Rs 2.94 per unit.
On May 15, the Central Electricity Regulatory Authority (CERC) granted Adani Power full compensation for the rise in the cost of electricity generation at Mundra due to increased domestic levies on imported coal. The company had said in the petition that the assorted levies had cost it over Rs 29 crore in just one month, in September 2015. Adani Power’s consolidated earnings before interest, tax, depreciation and amortisation for FY17 fell 29% to Rs 6,391 crore mainly due to lower recognition of compensatory tariff by Rs 2,002 crore. “Consequent to outcome of the Hon’ble Supreme Court judgement, we have engaged with the stakeholders for possible remedial measures for long-term sustainability of the Mundra Plant,” Gautam Adani, chairman, Adani Power, had said while announcing the full-year results last month.