NHPC may pick equity stakes in stalled power projects to help revival

Written by Subhash Narayan | New Delhi | Updated: Jul 15 2013, 09:19am hrs
State-owned hydro power company NHPC has been asked to pick up minority equity stakes in hydro power projects awarded to private firms which have been languishing due to either paucity of funds and technical expertise or regulatory issues.

Sources told FE that the state-owned firm could pick up to 49% stake in such ventures and help revive the projects. The PSU will also be able to exercise control over the JVs with powers to nominate managing directors. Though the plan is at a conceptual stage, the company is understood to have received some inquiries about such partnerships, including from Arunachal Pradeshs 2,000 MW KSK Upper Subansiri Hydro Electric project. Other projects in the state like Siang Lower (2,700MW), Subansiri Middle (1,600MW) and Subansiri Upper (2,000MW) offered to Reliance Energy, Jaiprakash Associates, and Jindal Power (JPL) could also potentially see such participation by NHPC. Company officials, however, denied any such more at this juncture.

The KSK Upper Subansiri hydro electric project was offered to the private sector company by the Arunachal Pradesh government, though NHPC did the initial ground work and prepared the detailed feasibility report. The plan is to create a special purpose vehicle for the JV.

At present, there are about 66 hydro power projects allocated to various private sector developers by different states but are yet to be implemented. Some of these include Panan 300 MW hydro project in Sikkim, 700 MW Tato II in Arunachal by Tato Hydro Power, 1750 Mw Demwe Lower being developed by Athena Demwe, 240 MW Kutehr in Himachal Pradesh by JSW Energy.

The plan for the power sector is akin to the JVs being proposed between steel/mineral PSUs such as SAIL, RINL, NMDC and private players for setting up steel units. The plan would be implemented if it makes business sense for NHPC to pick up equity in private sector projects. It should be noted that several of these projects were allocated by various state governments to private players on the basis of financial commitments and the promise of free power to sections of consumers but now face uncertainty due to changed economic conditions, said a power ministry official.

It is expected that NHPC would initially pick up stakes only in the case of projects for which preliminary feasibility reports have been prepared. The techno-commercial attractiveness and the NHPCs proximity to the project location would be another important criterion.

As per government guidelines, NHPC can invest up to 15% of its net worth or R500 crore in each of these joint ventures. The overall ceiling on such investments in all projects put together is 30% of the net worth of the PSU. NHPC could also rope in other strategic investors, co-developers, consultants and even state governments as equity partners in the proposed JV arrangement.

An NHPC official said that though the JV proposal was discussed earlier, no concrete proposal has come to the company board. He, however, agreed that the arrangement would come handy for NHPC which is facing difficulties in implementing several of its own projects due to difficulties in land acquisition and other environment-related issues. Moreover, the PSU could redeem some of the projects that were taken away from it by the state governments in favour of private sector developers.

Twenty-one of the private sector projects facing delays with a total power generating potential of 24,780 MW are more than 500 MW in size, and have been allocated to 13 developers. Another 24 projects, with a total capacity of 7,617 MW, are with 20 developers, and 21 more projects, with a total capacity of 2,796 MW, are with 15 developers.

NHPC will only invest in SPVs of private developers that have entered into PPAs for selling 60% of the power to beneficiary states. The debt to be raised by the JV company for implementation of the project would be on non-recourse borrowing from NHPC. Alternatively, NHPC could also lend its balance sheet support to the SPV, in which case the total borrowing limit of the PSU would be enhanced.