In January 2008, it took barely few minutes for hungry investors to fully subscribe to the Rs 11,000-crore IPO of Anil Ambani’s Reliance Power Ltd (RPL), the biggest-ever IPO by an Indian company that got oversubscribed 62 times.
However, two years later on May 7, 2010, soon after the Supreme Court announced its verdict in the Ambani brothers dispute over gas supplies, it again took only few minutes for the fortunes of Anil’s RPL to tumble. Its share price fell by 12 per cent, losing a total market capitalisation of Rs 4362 crores.
So it’s genuine for investors to wonder how the ruling will impact the gas-based power plants planned by RPL. While raising funds through the Reliance Power IPO in 2008, Anil had promised to use them to build power plants, most of them being gas-based, including the Rs 28,000-crore Dadri project with a 7,800MW capacity.
“There is no question that the power projects will get derailed,” said officials within RPL. “We have planned enough coal-based capacity in addition to the gas-based power plants.”
Also, Anil, in a statement issued immediately after the Friday verdict, has assured investors of his company’s commitment to execute over 35,000 MW of greenfield power generation capacity.
However, experts pointed out that to fulfill this assurance, Anil will have to do some tough re-negotiations with brother Mukesh over assured gas supplies for his power plants or look for alternatives. Anil and Mukesh are expected to begin re-negotiations next week.
But what about the impact on power tariff of Anil’s gas-based projects? A renegotiated gas price of $4.2 per unit against the earlier $2.34 per unit for the plants will impact the cost of power, as the fuel under the new deal could come at a price that is 80 per cent costlier.
“While Anil will have to re-negotiate the gas price, the court ruling indicates that he has secured an assurance over the supplies,” said Aseem Dhru, CEO of HDFC Securities. “So RPL has not lost on all counts.”
Officials in the power ministry said that besides the uncertainty over availability of fuel, the fate of the Dadri plant is also stuck because of the land allocation issue. The Allahabad High Court in December 2009 decided to restore the rights of farmers protesting against acquisition of their land for the plant.
Since then has been no clarity on the land issue though RPL claimed that the court’s decision will not come in the way of the Dadri project.