Lanco shareholders may miss Q3 dividend

APTransco move leaves the firm dazed

The board meeting of Lanco Kondapally Power Private Limited held here on Monday could not take any decision on the issue of dividend in the light of the liquidated damages slapped by the Andhra Pradesh Transmission Corporation (APTransco) on the company.

Taken aback by the APTransco's action, the lenders of the 368-mega watt gas-based power project are said to have suggested to the management not to announce any dividend to the shareholders.

However, R K Chavali, IFCI's (lead financier) nominee director on the board of Lanco Power, denied giving any such suggestion, claiming that they came into the picture only after the company passed a resolution on dividend.

But the State Bank of India (SBI) had already clarified its position on dividends in a letter to the company prior to the board meeting, reacting to the news reports on liquidated damages, sources said.

On account of the developments, the share holders may miss the third quarterly dividend of about Rs 20 crore, proposed at the rate of 6 per cent on the equity of Rs 340 crore.The board has three nominee directors, one each from IFCI, PFC and SBI.

Last week, APTransco had issued notices to Lanco Power for the recovery of liquidated damages and deducted Rs 45 crore from the monthly power purchase bill which is in the range of Rs 48 crore, payable to Lanco Power. Transco is also said to have told the company that it would recover the remaining Rs 50 crore from the next bill.

The issue of delay in commissioning the project had been a bone of contention between the two entities right from the year 2000 when Transco issued its first notice for the recovery of around Rs 80 crore towards liquidated damages for the delay. But the issue had been kept in abeyance for the last four years.

However, in a sudden turn of events, APTransco decided to use the liquidated damages clause enshrined in the Power Purchase Agreement (PPA) on Lanco following the dismissal of a special leave petition filed by it in the Supreme Court on December 15, 2005.

In its petition, the power utility pleaded for the reduction of the installed capacity of Lanco to 334 mega watt as was originally agreed and allow it to recover the Rs 132 crore fixed costs paid for additional capacity from November 8, 2001 to December 10, 2003.

This is the first instance in the country after the Dhabol episode where a government body resorted to recovery of liquidated damages from a private power project. With APTransco having a lot of other ammunition to fire at IPPs, the lenders of these projects, including that of Lanco Kondapally project, are worried over the fate of their returns.

APTransco's move is considered as the final phase of its strategy to break the morale of IPPs, which till now have put up a brave front, to make them yield to the wishes of the present government to reduce their fixed costs. It may be recalled that after coming to power the Congress government led by Y S Rajasekhara Reddy constituted a high power committee under the chairmanship of state finance minister K Rosaiah to hold negotiations with the managements of three private power companies, namely GVK Power, Spectrum Power and Lanco Power.

After a couple of rounds, Rosaiah wrote to the government stating that the negotiations with IPPs did not give any desired results. The negotiations quickly deadlocked as the two parties, IPPs and APTransco, had stuck to their guns.

While the IPPs wanted the power utility to withdraw all court cases filed against them before a negotiated settlement on the issue of revised fixed costs, APTransco termed the initial offer of IPPs in this regard as peanuts and asked for a substantial discount.

These developments had affected the Lanco group more than the other firms and even strained the relations between chief minister Y S Rajasekhara Reddy and Congress MP L Rajagopal, who was once considered close to the farmer.

Lanco Group, which has projects worth over Rs 10,000 crore on hand for execution, has been promoted by Rajgopal himself. This was followed closely by the resignation of Lanco Power's managing director and Rajagopal's confidant, Y Harish Chandra Prasad, who was instrumental in setting up of the project.

Now the direct offensive by APTransco is expected to impact the Group's operations due to financial and legal problems.