No decision on Adani's Mundra plant transfer

Adani Power needs lenders' go-ahead for hiving off the plant

The Union government’s board of approval (BOA) for Special Economic Zones has deferred a decision on Adani Power’s proposal to transfer its Mundra power plant in Gujarat to a subsidiary.

In a meeting on July 3, the BOA withheld the decision, asking the company to first obtain a no-objection certificate (NOC) from lenders. The NOC will have to follow the directions laid out by the National Company Law Tribunal (NCLT).

The Mundra plant has debt of Rs 28,753 crore, which is not being transferred with the plant. Adani Power requires the BOA approval as the 4,620-megawatt (Mw) power plant, with five units of 660 Mw each and four units of 330 Mw each, is located in a SEZ — Adani Ports and Special Economic Zone (APSEZ).

In a statement on Tuesday, Adani Power confirmed the deferment and said the BOA approval was mandatory to make the demerger effective in accordance with the SEZ Act and rules.

“We have approached the lenders and once an approval is granted, we will take the process forward as required. The NOC from the banks would be taken through a meeting conveyed as per the directions of NCLT,” the company said.

Adani Power, power business subsidiary of Adani Group, is the holding company of the Mundra plant and is a co-developer of the SEZ.

The company said its board of directors had approved the “demerger of the Mundra power undertaking to a subsidiary of the Adani Power with associated assets and liabilities including bank loans, and is also subject to necessary approval and consent of stock exchanges, lenders, shareholders and NCLT, etc.” 

The company wants to transfer the power plant to Adani Power (Mundra) Ltd through a slump sale. It will also enable Adani Power to sell a stake in the plant to power offtakers. Both Adani Power and Tata Power have asked the Gujarat state utility, Gujarat Urja Vikas Nigam Limited, to buy a 51 per cent stake in the ailing thermal power plants.  

Following a Supreme Court order on April 11, both the companies were denied compensatory rates on account of changes in Indonesian law. Adani Power is sourcing coal for the Mundra plant from Indonesia.

Since Adani Power had accounted for the compensatory tariff, it had to reverse Rs 4,364.84 crore from its books. This led to Adani Power incurring a loss of Rs 6,174 crore for 2016-17, against a profit of Rs 551 crore in the previous year.

The power plant has long-term power purchase agreements (PPAs) with the Gujarat and Haryana utilities for 2,000 Mw and 1,424 Mw, respectively.

Arundhati Bhattacharya, chairman and managing director, State Bank of India, had met Gujarat Chief Minister Vijay Rupani on Monday. Though the agenda for the meeting was not officially known, there was speculation that the proposed sale of power plant to the state government was part of the discussion.

SBI is one of the lenders to Adani Power, which has a total consolidated debt of Rs 49,231 crore as of March 2017.

Trouble arose for Adani Power and Tata Power after Indonesia banned coal supply at less than international prices in September 2010. The two companies approached the Central Electricity Regulatory Commission (CERC) for compensation. The CERC ruled that such change cannot be classified as change in law or force majeure under the PPAs but allowed compensatory rates under exercise of regulatory power.

In the past, equity infusion by promoters helped the company meet its debt obligations. In 2016-2017, promoters put in close to Rs 1,700 crore as equity in the company.