Seek linkage afresh, ministry tells Maharashtra unit buyer
In a dampener for the banking sector and promoters of power projects, the coal ministry has decided that sale of a power plant will not automatically carry its coal linkage as part of the sale, but must be applied for afresh.
The ruling has been invoked for the acquisition of a 600-MW plant by RP-Sanjiv Goenka group company CESC at Chandrapur in Maharashtra. Consequently, the thermal power plant completed this year has been mothballed.
CESC managing director Aniruddha Basu told FE the company had been informed that a coal linkage could not be bought along with the buyout of a plant.
“We are ready to do whatever is required, including the payment of a penalty, to restore linkage. But the government is unable to take a decision for lack of policy,” Basu claimed.
The coal ministry’s stance, if extended to other power plants where promoters may look to exit, could hit investor sentiments which have ebbed in recent years due to a paucity of fuel supply and rising costs. The stipulation could impact valuations of the projects adversely. A large number of power projects are either operating below their optimum capacities or are stranded, making it difficult for lenders to recover funds.
In 2009, CESC had acquired Dhariwal Infrastructure Private Ltd, which ran the Chandrapur plant from the Manikchand Group. CESC renamed it Dhariwal Infrastructure, dropping the term “private” after acquiring the full equity.
The plant had been issued a coal linkage which had added to its valuation, but the standing committee on coal linkage informed CESC that consequent to the name change it had become a new company and so the letter of assurance issued to it was now invalid.
The power plant’s coal linkage from South Eastern Coalfields (SECL), a subsidiary of CIL, therefore stood withdrawn. The linkage committee also informed CESC that since the change in the name of the company and its status had not been communicated to the former earlier, the plant would need to apply afresh for the linkage.
A coal ministry source too confirmed to FE about the development and said the Cabinet would need to take a decision now.
Meanwhile, documents have been forwarded to the law ministry for reference as the case is unprecedented. There are no rules covering such situations. Also, as most decisions on coal allocation are under judicial review, the ministries would also want to tread cautiously on the issue.
CESC has invested Rs 3,500 crore in the project on a 75:25 debt to equity ratio. It has completed the first 300 mw unit in February, followed by the second 300 mw unit in August this year. But the plant is unable to start commercial production without the coal linkage. With the project mothballed, the plant is running its maintenance on imported coal.
In the process, the company will have to fork out nearly Rs 400 crore a year for debt services, Basu said. This is over and above the additional one-time payment of Rs 977 crore of fine for excess coal recovery in the Coalgate case, the RP-Sanjiv Goenka group company will have to pay to the government.
CESC currently has an installed capacity of 1225 mw in West Bengal. It plans to commission another unit of 1,200 MW from its upcoming plants in Haldia in the same state and from the Chandrapur project.
Not a package deal:
* Coal ministry refuses transfer of coal linkage to the buyer of the 600-MW plant at Chandrapur in Maharashtra
* CESC told that coal linkage could not be bought along with the plant
* The ministry’s stance, if extended to other power plants, could hit investor sentiments
* Several projects are operating below their optimum capacities