JP Power among the first to claim insurance for project in Uttarakhand

Invoking the 'force majeure' clause for the shutting of its 400-Mw power project in the state, a top company official said the estimated loss was Rs 50 cr

The Jaypee group’s Jaiprakash Power Ventures has become one of the first companies to lodge a claim for compensation due to the Uttarakhand floods. Invoking the ‘force majeure’ clause (for being unable to fulfil commitments due to forces beyond one’s control) for the shutting of its 400 Mw power project in the state, a top company official said the estimated loss was Rs 50 crore. The barrage is covered with debris, though the powerhouse 25 km downstream is unharmed.

But its insurer, United India Insurance, is not in favour of clearing the claim as it says the power plant itself is not flooded. “We do not think there is any disruption at the power plant which is insured,” a United India source said, asking not to be identified. Since the project shut in mid-June due to the floods, its stock has fallen 27 per cent and is trading at a lifetime low of Rs 14.95 a share. The scrip has lost 60 per cent of its value since January, one of the worst performers among mid-cap stocks. A company source said the compensation would be addressed in accordance with the power purchase agreement with the state board.

The project’s incentives can also be recovered under a business interruption insurance policy, as it has an industrial all-risk cover, including a loss of profit cover, a company official said.

Group sources say it will take some months after the monsoon to clear debris from the barrage and resume power generation. Apart from closure of the plant, the high indebtedness of the company’s promoter, Jaypee Infratech, and no sign of sale of its cement units is making its investors worried. Like the power company, Jaypee Infratech has lost 60 per cent of its value on the stock exchange since January, to just Rs 22.70 a share as on Monday.

Bankers say investors are concerned as despite over-leverage, JP Power plans to spend Rs 530 crore on a 4-million-tonne-a-year (mtpa) cement grinding unit at Nigrie and plans to set up a two-mtpa one at Bina.

Till early this year, Jaypee was in talks with the Birlas to sell its Gujarat-based cement units for Rs 4,000 crore. However, no announcement has come till date. The deal is needed to reduce debt. This had soared to alarming levels after it undertook many high-cost infrastructure projects, including the Noida-Delhi Expressway, apart from investing in cement units.

Due to high net debt of Rs 52,500 crore as on March this year,  the group has already deferred a planned $20-billion capital expenditure towards a 14-mtpa cement capacity expansion, an 8-Gw power capacity addition, the Ganga expressway project and capital expenditure on diversifications in ports, oil and gas. Jaypee is expecting to raise funds by selling its land bank worth Rs 2,000 crore, said a banker.