Financial Daily from THE HINDU group of publications
Sunday, Sep 08, 2002
Markets - Recommendation
Industry & Economy - Power
Private investment: Low current
IT is a comment on the state of affairs in the power sector that even after a decade of vigorous wooing of private investment, the only major private players are those who were in business much before reforms began Tata Power, BSES, CESC, Ahmedabad Electricity and Surat Electricity. Yes, there are a few small independent power producers (IPPs) here and there but we have not really had any major private investment in the sector save Dabhol Power Company.
But then, that is also in a mess right now and is hardly a good showpiece for power sector reforms.
Tata Power and BSES are going strong though and consolidating their positions.
The former is the biggest private sector player with a total generating capacity of 2,278 MW.
The two are on a similar growth path, making forays into telecommunication. They are also active in the distribution segment BSES has just bagged two of the three distribution companies of Delhi Vidyut Board put up for privatisation, with Tata Power bagging the third.
BSES scalded its fingers badly in the Orissa experiment where it has had to bear tremendous losses from the distribution companies it acquired.
However, the lessons learnt from there have been factored into the Delhi deals and hopefully, BSES will taste success here, which is crucial not just for itself, but for the entire reform process.
Tata Power has broken out of its Mumbai moorings in recent times with some aggressive acquisitions of businesses from group companies, apart from investment in new capacities elsewhere in the country.
Its experiment with acquiring captive power plants (Jojobera of Tata Steel and Wadi of ACC) and its entry into the IPP segment (81.3 MW Belgaum) have proved quite successful. It has added 240 MW in two stages at the Jojobera plant, taking its capacity there to 307.5 MW besides doubling capacity to 75 MW at the Wadi plant.
In 2001-02, the CPP and IPP businesses accounted for 18 per cent of Tata Power's generation and the company is actively scouting for similar opportunities elsewhere.
It has also struck the first privatisation deal in transmission the 1,200 km, 400 KV line to evacuate power from the Tala hydel project in Bhutan to Delhi at an estimated cost of Rs 1,200 crore. The project is being implemented in a joint venture with Powergrid Corporation on a BOOT basis.
Tata Power is evolving as an energy company with interests in oil and gas, coal and electricity. It acquired group company, Tata Petrodyne, which is in the oil exploration business.
It also plans to bid for coal fields when they come up for privatisation. Tata Power last year acquired the Power Systems division of Tata International Ltd., which is engaged in transmission EPC business.
Besides this, the company has also forayed into the telecom field with a fibre-optic network between Mumbai and Pune. However, its biggest investment in this sector to date is the Rs 500 crore invested in Panatone Finvest, the special purpose vehicle floated by the Tata group to acquire the government stake in VSNL.
This particular investment has got the stock market worried as adequate returns may not materialise in the near term.
It is notable that the investment is almost equal to the net profit of Tata Power in 2001-02 which was Rs 508.3 crore.
BSES has also been on an aggressive investment drive. It recently commissioned its 220-MW gas-based power plant in Andhra Pradesh, established as a joint venture with two other construction companies.
Besides this, it is also working on a 1,000 MW coal-fired plant at Maithon in association with Damodar Valley Corporation and a 165-MW liquid fuel project in Kerala in a joint venture with a local government company.
It has been going slow on its telecom plans, probably, as a result of the losses it suffered in the Orissa distribution ventures. Its biggest gamble to date is obviously the Delhi privatisation where success will be critical.
The declaration by the Reliance group, which owns 37 per cent equity in BSES, that the latter will be its vehicle for investments in power has generated some excitement in the market.
BSES's performance in the last few quarters has been indifferent with earnings registering a drop. In the first quarter of this fiscal, BSES' earnings fell 4.71 per cent to Rs 84.69 crore.
This followed a 67 per cent drop to Rs 31.93 crore in the 2001-02 fourth quarter.
Among the other private players, CESC, which generates and distributes power in Kolkata, has been in the red for the last four years with accumulated losses of more than Rs 500 crore.
Ahmedabad Electricity and Surat Electricity, belonging to the Torrent group, have chosen to stick to their respective turfs and not ventured into any major projects.
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