Rs 100-cr deal with South Koreas Hanjung to tide over firms financial woes
The Essar group has decided to virtually pull out of the 330 mw naphtha-based Bhander power project in Madhya Pradesh by divesting almost its entire stake to South Korean chaebol Hanjung. Essar, which will retain only a small fraction of the equity, is expected to earn over Rs 100 crore from the deal. The funds would go a long way in helping the group resolve its financial problems.
Hanjung had recently placed an application with the Union government to pick up 100 per cent stake in the power project. The company plans to retain 50 per cent of the equity while the balance would be sold to other foreign companies. Essar would retain only a marginal fraction (five to ten per cent) in the Rs 1,350 crore project.
The South Korean company is slated to invest around Rs 200 crore in terms of foreign direct investment while the balance would be brought in by Essar and the other foreign companies which pick up a share in the equity. Essar would only be providing local technology and other inputs for the project. Hanjung also plans to retain the EPC contract for the project, which works out to roughly Rs 950 crore.
Essar, which was initially the only promoter of the Bhander project, was able to get the power purchase agreement cleared by the Madhya Pradesh State Electricity Board almost a year ago. The project has also been allocated its liquid fuel requirement by the state government and the Centre.
A spokesman of the company confirmed Essars move on the Bhander project and said that they had decided not to promote any more power projects other than the groups recently commissioned 515 mw Hazira power plant in Gujarat. The company has decided to consolidate their position in the existing project, which would include increasing its capacity at a future date.The capacity of the Hazira plant, which works out to roughly one-eighth of the total installed capacity in Gujarat, meets the demand of its steel plant and a part of the demand in the state. The plant sells around 300 mw to the state grid, while the balance (215 mw) is used for captive purposes.
The Essar group holds the entire equity in the power plant at Hazira. While 42 per cent of the equity is held by Essar Steel, nine per cent is held by Essar Oil and the balance of 49 per cent held by Prime Hazira in Mauritius. The group plans to divest its stake in Prime Hazira and is still negotiating the sale with various companies.