IFC may pick up 10% in Duhangan project

International Finance Corporation, the Washington-based private sector lending arm of the World bank, is likely to take a 10 per cent stake in the 200 MW Allain-Duhangan power project of the LNJ Bhilwara group.

"IFC has indicated to us that it will invest $7 million for a 10 per cent stake in AD Hydro Power Ltd," LNJ Bhilwara chairman, Ravi Jhunjhunwala, told Business Standard.

AD Hydro Power Ltd is implementing the hydro power project in the Manali district of Himachal Pradesh at a cost of $200 million. According to Jhunjhunwala, IFC is also likely to invest another $40 million in debt. "The remaining debt of $100-120 million has also been tied up with Indian banks and financial institutions. The closure will happen in October once the IFC approval comes," he added.

Like the group's first hydro-electric power project, a 90 MW unit at Kullu under Malana Power Company, AD Hydro Power Ltd has neither signed a power purchase agreement with any state electricity board nor will it hand out an EPC contract (this can help bring about savings of 25 per cent, according to Jhunjhunwala).

But unlike Malana, the LNJ Bhilwara group has decided not to give a group guarantee for the Allain-Duhangan project. "Now that the Malana project is operating succesfully, we feel there is no need for a group guarantee," Jhunjhunwala added.

The group is hoping to sell power at Rs 2.80 per unit from the Allain-Duhangan project once it goes on stream in 2008. This, according to Jhunjhunwala, would translate into a return on equity (REO) of 25-30 per cent.

"We are selling power from Malana to Haryana at Rs 2.40 per unit. We are in talks with 2-3 other state electricity boards and think we can raise the rate to Rs 2.75-2.80 per unit once the three-year contract with Haryana expires next year. This will improve the ROE from Malana Power Company from the current 26-27 per cent by another 2-3 per cent."

Jhunjhunwala also said that the group is evolving a new structure for its power business with Malana Power Company becoming the holding company for all new projects including AD Hydro Power Ltd.

The group is in talks with a couple of overseas power project developers to offload a minority stake in Malana Power Company Ltd. "We will zero in on one of them in the next 4-6 weeks," he said.