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Reliance Power Ltd------------------------------------------------------ Maintain UNDERPERFORM
Lenders refuse to disburse loans for Krishnapatnam UMPP
● As per a news report in the Economic Times, lenders for Reliance
Powerís 3.96 GW Krishnapatnam UMPP have refused to disburse
loans for the project due to concerns about project feasibility given
likely increase in coal cost because of changes in Indonesian
mining regulations.
● Reliance Power expected to source coal for Krishnapatnam
UMPP from its Indonesian coal mines at US$35/t, but with the
new regulations, coal cost is likely to rise to US$65/t, implying
losses of Rs2.33/kWh at contracted tariff. Hence, Reliance Power
has requested the Indian government to revise its tariff upwards.
● The Ministry of Power has now requested the Andhra Pradesh
government (primary project beneficiary) to intervene in the matter
and find a solution with Reliance Power. However, the way ahead
for Krishnapatnam UMPP remains unclear.
● As previously highlighted, if tariff negotiations fail, Reliance Power
could opt to surrender the project to minimise losses. This could
imply a loss of Rs4.5 bn (Rs1.6/sh) in terms of capex incurred and
bank guarantees submitted. Besides, this would most likely be
litigated by project beneficiaries. Maintain UNDERPERFORM.
Indonesian mining regulations threaten project economics
Krishnapatnam UMPP is a 3.96 GW imported coal-based project
awarded to Reliance Power through competitive bidding (Case II
bidding) process at a levelised tariff of Rs2.33/kWh. To meet the coal
requirements of this project, Reliance Power acquired three coal
mines in Indonesia. Reliance Powerís bidding was based on the
expectation of procuring coal from Indonesia at about US$35/t at its
project site (landed cost).
However, in Sep 2010, the Indonesian government introduced a new
regulation, Benchmark Price Regulation, requiring all Indonesian coal
producers to export coal at or above a benchmark price (determined
based on certain indices) for each grade of coal. Besides, this
regulation is expected to be implemented with retrospective effect,
requiring even existing coal supply contracts to be modified by Sep
2011. The new regulation implies all tax and royalty payments made
to the Indonesian government shall be based on benchmark prices (or
actual selling price, whichever is higher). This would result in landed
coal cost for Krishnapatnam project to increase to US$65/t (as per
companyís estimate).
Figure 1: Key specifications of the 3.96 GW Krishnapatnam UMPP
Capacity (MW) 3,960 (6x660)
Location Andhra Pradesh
Project cost (Rs bn) 175.0
Debt:Equity 75:25
Debt (Rs bn) 131.3
Equity (Rs bn) 43.8
Bid tariff (Rs/kWh) 2.33 (levelised)
Fuel type Imported coal
Fuel source Indonesian coal mines acquired by Reliance Power
Scheduled COD September 2013 (Unit-1)
Power offtake Andhra Pradesh (1.6GW), Maharashtra (0.8GW), Tamil Nadu
(0.8GW), Karnataka (0.8GW)
Lead arranger IDBI Bank
Joint lead arranger Power Finance Corporation (PFC)
Lending consortium REC, LIC, UCO Bank, Union Bank, Andhra Bank, Corporation
Bank, PNB, IOB, SBBJ, State Bank of Hyderabad, Vijaya
Bank, Punjab and Sind Bank, Yes Bank, Indian Bank
Source: Company data, Credit Suisse estimates
Reliance Power has requested for tariff revision
Reliance Power, through The Association of Power Producers, has
represented to the Indian Government for revising its tariff upwards for
the Krishnapatnam project to absorb the likely increase in fuel costs.
Developers, like Reliance Power, argue that these costs should be
permitted to be passed under the ëchange in law clauseí in their power
supply contracts.
Lenders back away from funding Krishnapatnam UMPP
As per a news report in the Economic Times, given concerns about
project feasibility in view of the likely increase in coal cost because of
the change in Indonesian mining regulations, lenders have now
refused to disburse loans for the project. Recently, media reports also
highlighted that work on the Krishnapatnam project has been stalled
as per the site survey conducted by a team of officials from the CEA,
Ministry of Power and APPGCL. As per the news report, the Ministry
of Power has now requested the Andhra Pradesh government
(primary beneficiary of the project) to intervene in the matter and work
out a solution with Reliance Power.
Way ahead for Krishnapatnam UMPP remains unclear
As highlighted in our note dated 11 July 2011, titled Surprises from
Krishnapatnam UMPP likely, if Reliance Power is disallowed to revise
Krishnapatnam UMPPís tariff upwards, then it could opt to surrender
the project to minimise its losses. This could result in litigations from
the beneficiaries of the project. Besides, the company could lose
Rs1.5 bn (mostly equity funded) already invested in the project and
Rs3 bn bank guarantee could also be confiscated. We continue to
maintain our UNDERPERFORM rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Power Ltd------------------------------------------------------ Maintain UNDERPERFORM
Lenders refuse to disburse loans for Krishnapatnam UMPP
● As per a news report in the Economic Times, lenders for Reliance
Powerís 3.96 GW Krishnapatnam UMPP have refused to disburse
loans for the project due to concerns about project feasibility given
likely increase in coal cost because of changes in Indonesian
mining regulations.
● Reliance Power expected to source coal for Krishnapatnam
UMPP from its Indonesian coal mines at US$35/t, but with the
new regulations, coal cost is likely to rise to US$65/t, implying
losses of Rs2.33/kWh at contracted tariff. Hence, Reliance Power
has requested the Indian government to revise its tariff upwards.
● The Ministry of Power has now requested the Andhra Pradesh
government (primary project beneficiary) to intervene in the matter
and find a solution with Reliance Power. However, the way ahead
for Krishnapatnam UMPP remains unclear.
● As previously highlighted, if tariff negotiations fail, Reliance Power
could opt to surrender the project to minimise losses. This could
imply a loss of Rs4.5 bn (Rs1.6/sh) in terms of capex incurred and
bank guarantees submitted. Besides, this would most likely be
litigated by project beneficiaries. Maintain UNDERPERFORM.
Indonesian mining regulations threaten project economics
Krishnapatnam UMPP is a 3.96 GW imported coal-based project
awarded to Reliance Power through competitive bidding (Case II
bidding) process at a levelised tariff of Rs2.33/kWh. To meet the coal
requirements of this project, Reliance Power acquired three coal
mines in Indonesia. Reliance Powerís bidding was based on the
expectation of procuring coal from Indonesia at about US$35/t at its
project site (landed cost).
However, in Sep 2010, the Indonesian government introduced a new
regulation, Benchmark Price Regulation, requiring all Indonesian coal
producers to export coal at or above a benchmark price (determined
based on certain indices) for each grade of coal. Besides, this
regulation is expected to be implemented with retrospective effect,
requiring even existing coal supply contracts to be modified by Sep
2011. The new regulation implies all tax and royalty payments made
to the Indonesian government shall be based on benchmark prices (or
actual selling price, whichever is higher). This would result in landed
coal cost for Krishnapatnam project to increase to US$65/t (as per
companyís estimate).
Figure 1: Key specifications of the 3.96 GW Krishnapatnam UMPP
Capacity (MW) 3,960 (6x660)
Location Andhra Pradesh
Project cost (Rs bn) 175.0
Debt:Equity 75:25
Debt (Rs bn) 131.3
Equity (Rs bn) 43.8
Bid tariff (Rs/kWh) 2.33 (levelised)
Fuel type Imported coal
Fuel source Indonesian coal mines acquired by Reliance Power
Scheduled COD September 2013 (Unit-1)
Power offtake Andhra Pradesh (1.6GW), Maharashtra (0.8GW), Tamil Nadu
(0.8GW), Karnataka (0.8GW)
Lead arranger IDBI Bank
Joint lead arranger Power Finance Corporation (PFC)
Lending consortium REC, LIC, UCO Bank, Union Bank, Andhra Bank, Corporation
Bank, PNB, IOB, SBBJ, State Bank of Hyderabad, Vijaya
Bank, Punjab and Sind Bank, Yes Bank, Indian Bank
Source: Company data, Credit Suisse estimates
Reliance Power has requested for tariff revision
Reliance Power, through The Association of Power Producers, has
represented to the Indian Government for revising its tariff upwards for
the Krishnapatnam project to absorb the likely increase in fuel costs.
Developers, like Reliance Power, argue that these costs should be
permitted to be passed under the ëchange in law clauseí in their power
supply contracts.
Lenders back away from funding Krishnapatnam UMPP
As per a news report in the Economic Times, given concerns about
project feasibility in view of the likely increase in coal cost because of
the change in Indonesian mining regulations, lenders have now
refused to disburse loans for the project. Recently, media reports also
highlighted that work on the Krishnapatnam project has been stalled
as per the site survey conducted by a team of officials from the CEA,
Ministry of Power and APPGCL. As per the news report, the Ministry
of Power has now requested the Andhra Pradesh government
(primary beneficiary of the project) to intervene in the matter and work
out a solution with Reliance Power.
Way ahead for Krishnapatnam UMPP remains unclear
As highlighted in our note dated 11 July 2011, titled Surprises from
Krishnapatnam UMPP likely, if Reliance Power is disallowed to revise
Krishnapatnam UMPPís tariff upwards, then it could opt to surrender
the project to minimise its losses. This could result in litigations from
the beneficiaries of the project. Besides, the company could lose
Rs1.5 bn (mostly equity funded) already invested in the project and
Rs3 bn bank guarantee could also be confiscated. We continue to
maintain our UNDERPERFORM rating on the stock.
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