Odisha nixes Adani plan, invokes RoFR to buy AES stake in power project

State govt to pay Rs 1,000 cr for 49% holding in complete reversal of privatisation drive; It already owns 51% in OPGC which owns and runs a 1,740 Mw coal-fired plant

In a complete reversal of its privatisation policy, the Odisha government has decided to exercise its right of first refusal (RoFR) to buy out 49 per cent equity stake held by US-based AES Corporation in Odisha Power Generation Corporation (OPGC) for Rs 1,000 crore.  

The state government holds a 51 per cent stake in OPGC, which owns and operates a 1,740-megawatt (Mw) coal-fired power plant in the state.

By invoking its RoFR in August-end, the Odisha government has put a major hurdle in Adani Power’s plan to buy out AES’ stake, announced in June this year.

“The Odisha government had first gone ahead with the privatisation drive with much fanfare to attract foreign investors to the state, and sold its 49 per cent stake in OPGC with management control to AES Corporation — a Fortune 500 company.  By exercising its RoFR, the Odisha government has surprised everyone,” said a power sector official.

In 1998, the Odisha government had divested 49 per cent stake in OPGC as part of its privatisation drive.  This was after AES Corporation had been invited to Odisha in 1992 to develop the Ib Valley thermal power plant, following the opening up of the economy by the Indian government.

Stating it would be able to get better value, the Odisha government asked AES whether it would be able to run the plant on an operations and management basis after it took over 100 per cent stake in the company.

In 2019, AES decided to exit from coal-based power stations across the globe, including in OPGC, and launched a global search to sell its stake.

In June this year, Adani Power and AES signed a transaction to acquire AES’ stake and even received requisite permission from the Competition Commission of India and other regulators.

“The new units of 2x660 MW plant just commissioned few quarters back, are already running at a very low capacity of 350 mw of electricity generation. By showing a red flag to private sector investment, the state government has sent the wrong signal to potential investors,” said the official.

By taking over the plant and trying to run the operations, bankers fear the entire stake may lose value. Since the power purchase agreement (PPA) of the 420-Mw plant ends in 2026, the plant would require a fresh PPA and additional investment to modernise the older plant.

An email sent to the Odisha government on Wednesday did not elicit any response till the time of going to press.

Two decades ago, the Odisha government had sold its Talcher power plant to NTPC at a very low valuation as it failed to run the plant on its own. After NTPC’s takeover, the Talcher plant turned around — it is now one of the best-performing thermal plants in the country.

The Odisha government’s investment comes at a time when private sector companies the world over, including local giants such as Tata Power, CLP, Adani, are investing in building more capacities in the renewable power sector instead of coal-based plants.

“The valuation of 51 per cent of the Odisha government would have gone up multiple times in the same way the Indian government had gained in Hindustan Zinc by selling part of its stake to Vedanta and retaining 26%. Private companies know how to run operations. The state government should use the Rs 1,000 crore on public welfare programmes,” said another official.

A few weeks back, Sajjan Jindal-led JSW Energy pulled out of the ~5,300-crore acquisition of the Kamalanga power station owned by GMR Group, and declared that JSW would not add any thermal power assets to its portfolio.

The reversal of privatisation policy comes at a time when Odisha’s rankings fell down in the ease of doing business league table of Indian states to 29 in 2019, from 14 a year ago.  The rankings of all Indian states were based on the implementation of the Business Reform Action Plan launched by the Centre in 2015. The Odisha government has reportedly objected to its low rankings.

The story so far
 

Jan 2020:  AES offers to sell its 49% stake in OPGC as global policy to exit coal

June 2020: Adani Power signs deal with AES to buy stake

July 2020:  CCI clears Adani acquisition of AEC stake

August 2020:  Odisha says it will buy out AES