Sasan's ability to boost Reliance Power's profitability is yet to be tested

The UMPP's financials will be consolidated with RPower's earnings only after the sixth unit gets operational

Reliance Power (R-Power), promoted by billionaire Anil Ambani, appeared victorious when it bagged the 3,960 Mw Sasan ultra mega power project in a re-bid in July 2007 after the Lanco Infratech consortium was disqualified. Reliance Power matched Lanco’s ambitiously low rate bid of Rs 1.19 a unit.

The power plant, at a coal pit-head in Madhya Pradesh, is being developed at a cost of  Rs 25,000 crore and is expected to be fully operational next month, with the commissioning of the sixth 660 Mw unit. For now, 3,300 Mw capacity of the Sasan project is operational but its accounts are not consolidated with Reliance Power’s because it is not fully capitalised. The numbers will be consolidated once the sixth unit comes on stream.

However, analysts are not sure how much Sasan will contribute to R-Power’s profitability. “Sasan will certainly be a profit making unit but how much can it really contribute to R-Power’s earning will depend on final orders from regulators on the pending issues,” said an analyst with a foreign brokerage, who did not wish to be identified.

R-Power has filed four petitions with the Central Electricity Regulatory Commission (CERC) for adjustments in rates related to changes in the law during construction and afterwards, an unprecedented depreciation of the rupee and a rise in prices for bulk diesel consumers.

The Commission has reserved judgment on these petitions. R-Power did not respond to a questionnaire sent to it on Wednesday.

Besides, R-Power is booking revenue for the Sasan plant based on the third-year rate, Rs 1.3 a unit, but the billing is based on the second-year rate, of 70p a unit, according to a CERC order that refused to accept March 2013 as the date the project went commercially operational.

“Due to this, corresponding receivables of Rs 350-400 crore have accumulated in R-Power’s books,” said Sumit Kishore, analyst with JP Morgan Securities. R-Power has appealed in the Appellate Tribunal for Electricity against the CERC order.

R-Power has 6,000 Mw operational generation capacity in thermal and renewable energy. This includes 3,300 Mw at Sasan, 1,200 Mw at Rosa in Uttar Pradesh and 600 Mw at Butibori in Maharashtra. The company, which bagged three of the four ultra mega power projects awarded so far, has 15,000 Mw of capacity under implementation.

There is, however, not much progress on the 4,000 Mw Krishnapatnam ultra mega power project, which will be fed by imported coal, or the 3,960 Mw Tilaiya project, another one on a coal pit-head.

R-Power has also planned another 3,960 Mw project at Chitrangi in Madhya Pradesh for which coal availability is not yet confirmed. Its 2,400 Mw power project at Samalkot in Andhra Pradesh also faces issues over gas availability.

“With the Supreme Court disallowing diversion of surplus coal for commercial purposes, the fate of the Chitrangi project now hangs in the balance,” said Abhinav Sharma, an analyst with HDFC Securities.

He is also not assigning value to the Krishnapatnam, Tilaiya, Chitrangi and Samalkot projects, implying 14,400 Mw of the 15,000 Mw capacity Reliance Power under implementation may be stuck.

This explains the high hopes Reliance Power has of the Sasan plant boosting its profitability. Reliance Power reported a net profit of Rs 253 crore for the six months ending September 2014, nearly unchanged from Rs 251 crore in the corresponding period of 2013-14. This was despite revenue growing at faster rate of 35 per cent to Rs 1,784 crore during this period, indicating rising interest costs and depreciation. Reliance Power’s debts climbed to Rs 30,316 crore debt in September 2014 from Rs 30,042 crore six months ago.