Is Adani Group getting confused and heading for insolvency?
Adani Power in a doghouse
1. Adani Group has reported large losses over 2 years for writing off investments in Mundra TP. AG is beset with troubles at Adani Power which has sky-high debt and minute net equity.
2. Turnaround at Adani Power is not coming any time soon. For example flagship, Mundra TP has been moth-balled. AG has not found buyers nor can it be run at a profit.
3. Court has disallowed compensatory higher tariff on imported coal for Mundra TP and has asked AP to refund earlier rebates at $1.5bn.
4. Rebate scheme encouraged AG to over-invoice coal imports and falsely claim higher compensation. It is also being investigated for parking monies abroad through over-invoicing capital equipment imports. The reported value of the scam is almost $4.5bn (see link 1).
5. AG/ AP has sought ex gratia higher tariff from states, but in the process may have lost its PPAs. Gujarat discom has identified cheaper alternatives to make up the shortfall.
6. Gujarat is planning to build 5000MW solar project which can be done quite fast. It is transferring coal-linkages & PPAs to out-of-state TPs -- which being closer to coal mines, can access cheaper coal.
Changing realities for thermal power producers
7. There is overcapacity of thermal power plants and more plants are under construction. Coal reforms and ever-improving transmission infra have created tough competition among coal-based power producers. It is forcing inefficient producers out of business.
8. Centre has increased domestic coal production and streamlined and liberalised coal linkages. Shortest route for sourcing coal is being promoted --eg. power producers can opt out of supply agreements and inter-state linkages are being adopted.
9. Indian Railways has reduced long-distance freight costs, allowed private freight terminals and wagons, and increased rail linkages including the upcoming Eastern DFC. The coastal route has been opened for transporting coal from East to West coast.
10. This has lowered cost of domestic coal; increased its availability and quality; and brought into play under-utilised plants that are close to coal mines or have low-cost road, rail or shipping linkages. As a result, thermal plants running on imported coal are becoming uncompetitive and untenable.
What is happening at Adani power?
11. Adani Power will now use domestic coal for two plants to improve profitability.
12. Queensland Coal Project will be put on hold as offtake to Mundra TP is not guaranteed. If QCP eventually goes ahead, Adani may earn more by selling coal in the open market.
13. AG/ AP will expand the Udupi Karnataka plant and add a new 1600MW Godda TP in Jharkhand. AP needs $2B for it but its net equity is around $150m — so how will it borrow or fund these projects?
14. Apparently, Bangladesh is paying over the odds, but this doesn't explain why Godda should rely on imported coal and that too when TP is located in a coal mining region!! (see link 2).
15. AG is doing solar power projects. It has 2GW renewables portfolio and is planning 10GW by 2022. It is in the process of setting up a "state-of-the-art solar manufacturing ecosystem". It claims to have strong financials, see http://adanirenewables.com
Links
1.
http://www.climatechangenews.com/2017/04/13/supreme-court-loss-creates-new-problem-adanis-australian-mine/
2.
https://www.theguardian.com/business/2018/apr/26/adani-builds-coal-fired-power-plant-in-india-to-send-energy-to-bangladesh
Adani Power in a doghouse
1. Adani Group has reported large losses over 2 years for writing off investments in Mundra TP. AG is beset with troubles at Adani Power which has sky-high debt and minute net equity.
2. Turnaround at Adani Power is not coming any time soon. For example flagship, Mundra TP has been moth-balled. AG has not found buyers nor can it be run at a profit.
3. Court has disallowed compensatory higher tariff on imported coal for Mundra TP and has asked AP to refund earlier rebates at $1.5bn.
4. Rebate scheme encouraged AG to over-invoice coal imports and falsely claim higher compensation. It is also being investigated for parking monies abroad through over-invoicing capital equipment imports. The reported value of the scam is almost $4.5bn (see link 1).
5. AG/ AP has sought ex gratia higher tariff from states, but in the process may have lost its PPAs. Gujarat discom has identified cheaper alternatives to make up the shortfall.
6. Gujarat is planning to build 5000MW solar project which can be done quite fast. It is transferring coal-linkages & PPAs to out-of-state TPs -- which being closer to coal mines, can access cheaper coal.
Changing realities for thermal power producers
7. There is overcapacity of thermal power plants and more plants are under construction. Coal reforms and ever-improving transmission infra have created tough competition among coal-based power producers. It is forcing inefficient producers out of business.
8. Centre has increased domestic coal production and streamlined and liberalised coal linkages. Shortest route for sourcing coal is being promoted --eg. power producers can opt out of supply agreements and inter-state linkages are being adopted.
9. Indian Railways has reduced long-distance freight costs, allowed private freight terminals and wagons, and increased rail linkages including the upcoming Eastern DFC. The coastal route has been opened for transporting coal from East to West coast.
10. This has lowered cost of domestic coal; increased its availability and quality; and brought into play under-utilised plants that are close to coal mines or have low-cost road, rail or shipping linkages. As a result, thermal plants running on imported coal are becoming uncompetitive and untenable.
What is happening at Adani power?
11. Adani Power will now use domestic coal for two plants to improve profitability.
12. Queensland Coal Project will be put on hold as offtake to Mundra TP is not guaranteed. If QCP eventually goes ahead, Adani may earn more by selling coal in the open market.
13. AG/ AP will expand the Udupi Karnataka plant and add a new 1600MW Godda TP in Jharkhand. AP needs $2B for it but its net equity is around $150m — so how will it borrow or fund these projects?
14. Apparently, Bangladesh is paying over the odds, but this doesn't explain why Godda should rely on imported coal and that too when TP is located in a coal mining region!! (see link 2).
15. AG is doing solar power projects. It has 2GW renewables portfolio and is planning 10GW by 2022. It is in the process of setting up a "state-of-the-art solar manufacturing ecosystem". It claims to have strong financials, see http://adanirenewables.com
Links
1.
http://www.climatechangenews.com/2017/04/13/supreme-court-loss-creates-new-problem-adanis-australian-mine/
2.
https://www.theguardian.com/business/2018/apr/26/adani-builds-coal-fired-power-plant-in-india-to-send-energy-to-bangladesh
4
Shared publicly
- Mundra plant has an enterprise value of Rs 22,475 crore. Its debt stands at Rs 21,707 crore. Factoring in cash of Rs 338 crore, the valuation works out to Rs 106 crore.
REPLY 44w - 44w
- Interview: Praveer Sinha, CEO, Tata Power
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Mundra Ultra Mega Power Plant: 4000MW thermal power was fully commissioned in 2013.
Centre likely to shut down 250-odd plants that are over 25 years old, says Tata Power MD
Mumbai, June 24
While Tata Power is optimistic about growth opportunities in the renewable energy sector and several new business verticals, thermal generation remains its core business as coal-based capacity accounts for 70 per cent of its total 10,757-MW portfolio. Going forward, the company is not planning to add new thermal capacities but may acquire stressed power assets through Resurgent Power Ventures (its JV platform with ICICI Venture Funds Management and other investors) as it believes the government is on the right track in solving issues in the power sector. Edited excerpts of an interview with Praveer Sinha, Tata Power CEO and MD:
The Mundra plant in Gujarat, which accounts for half of your thermal capacity, has been making losses for several years now. Do you see this issue being resolved anytime soon?
This is a challenge for us as international coal prices have been going up in the last few years, but we are taking a number of steps internally such as improving efficiency and increasing the blend of coal. We are also now trying to source different coal from different places so that it gives us flexibility in terms of pricing. But the government on its own has been making a huge effort; they are in the process of forming another High Power Committee. They also want a solution because it is a pity that plants (producing electricity at) one of the lowest costs are not able to generate and schedule power. It is an asset of the country, and the State is buying power at 1.5 times the cost. So it is not in the interest of anyone that plants of such capacity are left out and you buy power at high cost from some inefficient ones. I am sure the government will sort this out because the stakes are high and the public interest is not being served by not running these plants.
A lot of stressed assets are likely to be up for sale. Will you be trying to acquire some?
We keep on looking at long-term opportunities through our joint platform with ICICI. What matters eventually is the cost of power. I should not get carried away by the fact the plant has Power Purchase Agreements (PPAs).
It is important that you should have a proper cost of power, proper PPA and proper technology.
I will be hesitant to go for sub-critical equipment. We have a lot of filters and we would not like to take up a project where we cannot schedule the power supply. We are all committed to (fighting) climate change, so (we need to see) how do we contribute from our side so that we don’t add to the emissions but reduce them and still effectively run the plants.
Given the issues the sector is facing, from lack of long-term PPAs to coal supplies, is it possible to turn these stressed assets around?
These are transition times for India and I am sure we will find solutions that will ensure many of these plants are able to structure the PPAs and coal sourcing. In fact, the government is looking at some 250-odd power plants that are more than 25 years old — this is something like 34 GW of capacity and there is an opportunity to close some of them down, especially those having small equipment, highly inefficient and polluting also.
Once that space is created, new generation capacity will come and coal will get allocated. With the same amount of coal, we can produce more power. I am sure this is on the top of the government’s mind.
REPLY 39w - New rail freight lines & doubling in JV with Northern will create dedicated tracks to shift coal. Electrification will increase capacity by 20%. Rs 6000 cr will be spend on it and another Rs 1150 cr to expand operations in anticipation of higher offtake.
REPLY 35w
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