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Private equity firms' money stuck in Asian Genco projects

Singapore-based firm's projects here stuck in diverse controversies, cost overruns

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In May 2010, Singapore-based Ltd announced it had secured investments worth $425 million from a clutch of marquee private equity (PE) funds, to invest in the Indian power sector.

It was a big surprise. The funds included , , , Everstone and Goldman Sachs, and not many had heard of Asian Genco.

The financing by the PE biggies was the biggest equity transaction in the power sector till 2010 and touted as endorsing the fundamentals of the sector in India. Today, all the marquee investors are wondering at the fate of their investments -- most projects of Asian Genco in India have been delayed considerably and face massive cost overruns.

The allegations of bending rules to get a power project from the government of Sikkim have further delayed commissioning. The company was reportedly close to , son of the late Andhra chief minister, Y S Rajasekhara Reddy, and former Union power secretary R V Shahi, helping it to bag projects. As Jagan fell out of favour, the fate of its projects, especially in Andhra, are also hanging in the balance.

The company’s management, now operating from Hyderabad, has two big power projects in India under construction. One is a 50 per cent stake in a 1,200 Mw hydro power project in Sikkim called Teesta Urja. The second is a 1,320 Mw thermal power project in Andhra Pradesh called East Coast Energy, to be set up with an investment of Rs 6,570 crore. It also operates a few small projects.

Work on East Coast Energy was suspended after police firing in February 2011, in which two people were killed, after locals protested against land acquisition. In an email, a spokesperson of Asian Genco said they were expecting to soon restart work at the site, in Srikakulam district.

The company said the cost overrun was on account of interest rate and forex rate fluctuations and it was difficult to put a number to it. Typically, these cost overruns are finalised in the quarter prior to the commissioing. The project cost is Rs 6,571 crore, with a debt/equity ratio of 3:1. “The company was very aggressive in the initial stages and keen to complete by December 2014 (2x660 Mw configuration) but will now complete as per the original schedule of March 2015. The project has a contingency account, an industry-approved practice, that is around five per cent of the project cost and normally the cost overruns will be met from that fund," said the company.

In its Sikkim project, the company had to offer 26 per cent stake to the state government for Rs 296 crore in July. The project was marred by allegations that the local government allotted the projects to a company called Athena Projects Power Ltd, with no background in the sector, and later delayed offering the mandatory stake to the Sikkim government. Athena later promoted a Special Purpose Vehicle called Teesta Urja to enter into the JV with the Sikkim government later and become eligible for the project.

The company blames an earthquake in 2011 for its woes and the dispute with the government over the allocation of shares. The project cost has shot up to Rs 8,600 crore from its original one of Rs 5,700 crore. It is now expecting to commission the project by December 2013, two years behind schedule.

A company statement says the sector is witnessing huge issues related to fuel supply, land acquisition, financing, policy hurdles at the state and Centre, environmental clearance and the protests against setting up of any power plant across the country. "While alternative energy is a good alternative, there are issues in terms of capacity addition, cost of power generated from wind and solar, besides huge land tracts required. It will definitely work as a complement to the existing energy sources but will take a long time to become a viable alternative," the company says.

As for the PEs whch sunk millions of dollars into the project, they remain in a wait and watch mode.

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