Adani in talks to buy Reliance Power’s 600 MW thermal plant

Mumbai: Adani Power Ltd has begun talks to acquire the 600 MW Butibori thermal power project in Nagpur once owned by Anil Ambani's bankrupt Reliance Power Ltd, two people aware of the matter said.

A deal is likely in the range of ₹2,400-3,000 crore, translating to ₹4-5 crore per MW, the people cited above said on the condition of anonymity. A potential acquisition would help India's largest private thermal power producer capitalize on the rising electricity demand in the country.

Project value

"Adani Power is negotiating with CFM Asset Reconstruction Co. to acquire the project under Vidarbha Industries Power Ltd. The value of the project, which consists of two power plant units, was earlier around ₹6,000 crore, but currently, the production (power generation) has stopped; so, the valuation has to be lower. The plant fits into Adani's strategy," one of the two people said.

The Butibori project is owned by Vidarbha Industries Power, a subsidiary of Reliance Power. CFM ARC, which acquired all of its loans for ₹1,265 crore, is currently the only lender to the project.

Emails sent to Adani group and CFM ARC remained unanswered.

"The entire deal will be funded through the internal accruals of Adani group," the person cited above said, adding the deal can help Adani gain an edge over others since it is meant for supply in Maharashtra, India's largest power-consuming state.

Sajjan Jindal-promoted JSW Energy Ltd had earlier shown interest in the project, but withdrew later citing valuation and operational issues, the person cited above said. An email sent to JSW Energy remained unanswered.

Reliance Power in Mumbai used to source power from Butibori while the company was a distributor in the city. Later, Adani Electricity Mumbai Ltd acquired the Mumbai distribution business. The Vidarbha-Adani power purchase agreement ended on 16 December, 2019, landing the Butibori project in a cash crunch. Lenders took Vidarbha Industries to the bankruptcy court; however, the company has not been admitted for insolvency proceedings yet.

Also read: Adani Power to sell Bangladesh-bound power in India after Centre eases norms

Adani's plan

The Adani group is keen on expanding its thermal power capacity; in a presentation earlier this month, it said the growing peak power demand is "accentuating the need for dispatchable capacity best served by thermal power".

Ongoing negotiations value the plant much below the conventional price of thermal plants in India since both of its units remain shut due to lack of coal, the person cited above said.

This is where Adani Group's strategy comes into play.

The acquisition is part of Adani's strategy to integrate its coal-based power plant in Tiroda near Nagpur with the Butibori project, resume power generation and supply electricity to Mumbai and surrounding regions to gain an edge over rivals Tata Power and MSEDCL, the person cited earlier said.

Adani's 3.3 GW coal-based supercritical plants in the Tiroda project on Bhandara-Gondia state highway is around 125 km away from Nagpur, where the Butibori Power project is located. The project has long-term PPA with Maharashtra state for 3085 MW, which can be potentially enhanced if the planned acquisition of Butibori project goes through.

Tiroda supplies power through a 219KM Tiroda-Warora transmission line and two 765 KV Tiroda-Aurangabad 630KM long transmission lines. This can be expanded to other regions if the Butibori project acquisition plan succeeds.

Adani sources about 10.75 mtpa of domestic coal for the Tiroda power plants from a subsidiary of Coal India Ltd.

"The logistics part can be taken care of by in-house capabilities. So, the scope of this fuel supply agreement can be further increased to include the Butibori Power Project, if the acquisition is done. So, on several parameters, the acquisition makes sense for the group," said the first person.

Balance sheet

Adani Power, with ₹60,281 crore in revenues and ₹20,829 crore in net profit in FY24, has 15.25 GW capacity installed across nine power plants. It is India's only independent power producer with in-house, mine-to-plant logistics capability handling about 60 mmtpa coal and 13 mmtpa fly ash.

According to a company presentation last week, around 80 GW of additional coal-based capacity addition is required by FY31-32 to address the accelerated growth in power demand, of which 49 GW opportunity is "currently untapped".

Adani Power said coal-based capacity is critical for base load power to integrate 500 GW of renewable power by 2030, which has been set as a target by the government as part of its net-zero transition plan.

Also read: Adani Power Q1 Results: Net profit drops 55% to ₹3,913 crore, revenue up 36%

The company projected the average power demand to grow from 186 GW now to 243 GW by 2031-32 and the peak demand to increase from 282 GW to 390 GW by FY32.

Adani's plans echo India's rising electricity demand, particularly in Maharashtra. According to CEA, the electricity demand for Maharashtra is increasing with a CAGR of 4.1% from FY24 to FY32.

The peak demand has been growing steadily on the back of rising weather temperatures, more redevelopment projects and upcoming metro rail lines in Mumbai and other parts of Maharashtra.

The Adani presentation showed that during the June quarter, it generated 26 billion units and sold and 24.1 billion units, much higher than in the first quarter of last fiscal. Power demand in Maharashtra alone was 53.3 billion units in the June quarter.