Power down: JSW Energy abandons Rs 5,321-cr plan to buy GMR’s Odisha unit

“Given the continued uncertainty due to Covid-19 pandemic, the parties have mutually agreed to terminate the said transaction,” JSW Energy said in a regulatory filing in the stock exchange.

Signalling that power companies want to bolster cash reserves and keep their debt burden minimal, JSW Energy has cancelled the Rs 5,321-crore deal to acquire GMR Infrastructure’s 1,050 mega-watt (MW) Kamalanga thermal power plant in Odisha. The two companies had announced the deal on February 17 and the Competition Commission of India approved it on April 7.

“Given the continued uncertainty due to Covid-19 pandemic, the parties have mutually agreed to terminate the said transaction,” JSW Energy said in a regulatory filing in the stock exchange. The company had said on May 20 that the transaction has been put on hold “given the ongoing uncertainty and will be revisited once the situation normalises”. As on March 31, the Kamalanga power project had accumulated losses of Rs 1,803.5 crore, resulting in substantial erosion of its net worth. The trade receivables of the project stood at Rs 1,503 crore.

GMR Infrastructure was planning reduce its debt of over Rs 4,000 crore it owed to IDFC (lead lender of the project), SBI, IDBI, Canara Bank and UCO Bank from this deal. The company had infused an equity of Rs 2,250 crore into this power plant. About 84% of the power plant’s capacity supplies electricity to Odisha, Haryana and Bihar under long-term power purchase agreements. It also has adequate coal supply arrangements from nearby mines, reducing fuel costs and resulting in lower risks of under-recoveries.

Operating the plant did not turn out to be viable for GMR because the competitive rates (Rs 2.89-3.39/unit) at which it sold power was not sufficient to recover the costs. Sector experts had earlier pointed out that JSW, with its relatively stronger balance sheet, could borrow at lower interest rates and improve the cost economics of the plant. Currently, JSW Energy has a power generation capacity of 4,559 MW comprising of 3,158 MW thermal, 1,391 MW hydro and 10 MW of solar power plants.