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C. Shivkumar

BANGALORE, June 25

THE GMR group is likely to fully buy out equity stakes of CMS Generation and ABB in the 250-MW lignite-based Neyveli power project.

CMS, a US-based power producer, and ABB, the Swiss energy equipment maker, together hold 99 per cent of the equity stake in the Neyveli project, which is already generating power into the Tamil Nadu grid.

ABB holds the stake through a subsidiary company ABB Energy Ventures. The remaining one per cent of the equity is currently held by ST Power Systems Ltd.

The stake of CMS and ABB currently amounts to Rs 420 crore in the $320-million (Rs 1,492 crore at current exchange rate) Neyveli project. Another ABB-affiliate company Alstom was the engineering, procurement and construction contractor. Neyveli power has a 30-year power purchase agreement with Tamil Nadu Electricity Board (TNEB).

The GMR Power Generation Corporation's Director, Mr B.V.N. Rao, confirmed the development. However, he added, "we are still in the diligence process and the price for their stakes will be decided only after this is complete."

The move to buy out the stake comes close on the heels after GMR bought out PSEG, another joint venture partner in the 220-MW barge-mounted Tanir Bhavi Power Company Ltd last year. Last year, GMR had also bought out CMS's equity stake in the 200-MW Basin Bridge power station.

Sources, however, said here that the pricing was likely to be well below Rs 420 crore. This is despite the fact that the Neyveli plant is already generating power. The sources said that some components of the payment security mechanism in the project were incomplete, leading to the low valuation.

The escrow account for the project has still not been operationalised though the plant went into financial closure in October 2001 and began generating late last year. The escrow account was expected to have been operationalised three months before project commissioning.

However, the project has a three-month revolving letter of credit with TNEB as the first line of security, the sources added and is also backed by a sovereign guarantee for the comfort of both the domestic and commercial lenders.

The sources also said that another major disadvantage with the project was the high price of lignite charged by the Neyveli Lignite Corporation Ltd, which charges about Rs 1,153 per tonne, as against the international price of less than Rs 700 per tonne. Despite the high price of fuel however, the variable component of the power tariff was still low at Rs 1.16 a unit.

However, the sources said, that the project lenders and the bulk power buyer, TNEB would have to approve the sell out. This is because under the original lending covenants of the domestic financial institutions, promoters are not expected to reduce their stakes below 51 per cent during the debt repayment period.

But foreign lenders, however, have no such covenants other than ensuring the prompt payment of debt servicing dues. Neyveli project debt is in the region of about $220 million (Rs 1,023 crore at current exchange rates).

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