GVK receives buy-out notice from APTransco

The decision was based on cost benefit analysis, says Transco CMD K Vijayanand

Hyderabad-based GVK Power and Infrastructure Limited said on Monday that it received a notice from APTransco about buying out its 217-Mw power plant at Jegurupadu in East Godavari district under the provisions in the power purchase agreement (PPA).

“The decision to buy out the plant was based on the cost benefit analysis. The refurbishment and maintenance costs proposed by the company works out to Rs 590 crore, which is as good as the money required to set up a new plant,” APTransco’s Chairman and Managing Director  K Vijayanand told Business Standard. AP Transco had engaged Grant Thornton to assess the plant’s terminal value, based on which the buy-out process is expected to be completed. The firm had assessed the its terminal value at Rs 294 crore, according to Vijayanand. In April, the state power utility had sought the government’s permission to buy out the GVK plant, one of the options provided in the PPA. Last week, a couple of days before the expiry of the PPA, Andhra Pradesh government gave its nod to APTransco for its request to buy out the plant.  “The PPA signed by GVK Industries, a step-down subsidiary of the company with the erstwhile APSEB (now AP Transco) stands expired by  June 20, 2015, as it had completed its validity period of 18 years,” the company informed the stock exchanges.



On whether the government favoured a buy-out of any private power projects after the expiry of PPAs, Vijayanand said it would be done only on a case-by-case  basis and not as a matter of policy. Efforts to reach out to the GVK senior officials, including GVK PIL Vice-Chairman G Sanjay Reddy, failed as they did not answer phone calls as well as e-mails.

The 208-Mw gas power project of Spectrum Power, which is currently under the management of the Asset Reconstruction Company (India), is next in line. While the PPA is due to expire some time next year, the company has already submitted its R&M plan with an estimated cost of Rs 260 crore to the power utilities, sources said.

GVK had roped in Alstom, the original equipment supplier, to undertake refurbishment of the plant for the purpose of expending the life of the project.  This international tie-up could have contributed to higher R&M cost estimates, sources feel.



AP Transco had engaged Grant Thornton to assess the plant's terminal value, based on which the buy-out process is expected to be completed. The firm had assessed the terminal value of the plant at Rs 294 crore, according to Vijayanand. 

While the PPA envisages completion of the buy out process in 60 days time, APTransco officials, however, made it clear that there was no other choice for the company other than accepting their decision. "Perhaps they may come for negotiations on the terminal value determined by us, which is understandable," Vijayanand said when asked as to what, then, the company was expected to do.

Jegurupadu phase 1 plant is the country's first private power project, which was set up in 1997 after the Centre had allowed private sector participation in power sector. The residual value of the plant aside, the company had also submitted a list of inventory worth of Rs 70 crore lying in the plant premises.