Engineering & cement conglomerate Larsen & Toubro has decided to put on the backburner its plans for setting up a special purpose vehicle (SPV) for routing its investments in the power sector. This SPV was to be the holding company for all investments in the power sector.
The company has taken this decision as reforms in the power sector have failed to take off and this has led to avenues for investments drying up.
The key to power sector reforms is the turnaround of the loss making state electricity boards so that they are in a position to pay for the power purchased. A key ingredient of this strategy is charging commercial rates for agricultural consumers. This has been successfully stalled by politicians and reforms in the boards has been proceeding at snail's pace. Even the Maharashtra State Electricity Board, which has otherwise impeccable credentials and a history of not defaulting, is now feeling the pinch in the wake of the Dabhol controversy.
"Under the present circumstances it makes no sense for an SPV, and plans for setting it up have been put on the backburner," sources close to L&T said.
The Larsen & Toubro spokesman has in an official response to Business Standard neither confirmed nor denied this development. "Investments in the power sector for generation projects have not moved because states are not able to provide escrow as a payment security mechanism. Financial institutions are therefore not lending to any of the independent power projects unless this issue is resolved," he said.
"Accordingly, the government has introduced the new Electricity Bill in the Lok Sabha. Until this is passed and the distribution systems are privatised, the power generation sector is not likely to see any flow of investment," the spokesman added.
Earlier, Larsen & Toubro had chalked out ambitious plans for the power sector. It had planned to invest Rs 100 crore in the SPV which in turn would raise about Rs 200 crore as debt. L&T was to hold 51 per cent in the SPV with the balance 49 per cent being offered to financial institutions and strategic investors. The Infrastrucuture Leasing & Financial Services had evinced interest in picking up equity in the proposed SPV.
