The sweet Sasan coup
Returning from the brink of defeat to clinch the crown is a phenomenon common in sport. But last week, it was played out in business. Anil Ambani's Reliance Power Ltd (RPL) bagged the Rs 16,000-crore, 4,000 mw Sasan ultra-mega power project. But not before Andhra Pradesh-based Lanco Infratech (also see There's Life After Sasan on page 64) nearly walked away with the deal early this year. Lanco was given the Letter of Intent by Power Finance Corporation, which oversaw the tendering process. Early this year, Lanco quoted a tariff of Rs 1.19 per unit, well below the Rs 1.29 quoted by RPL for the captive-mine based power plant.
However, with Lanco's foreign partners not willing to stay the course, its bid was declared void by the government-a process that took close to five months. It involved hectic lobbying on the part of RPL, led by Anil Ambani, who paid several visits to Power Secretary Anil Razdan and Power Minister Sushil Shinde during the recent months. Says Power Secretary Razdan: "Yes, the bidders voiced their concern on the project."
Lobbying helped, but only up to a point. With Lanco's bid declared void towards the end of July, the stage was set for the next qualified bidder, RPL, to walk away with the trophy. But that was not to be -at least till RPL agreed to match Lanco's offer. According to officials, the government's informal advice to RPL was simple: shed profits and match the price, else the tender will be scrapped. Ambani bought the bait, even though his original tariff was extremely competitive given the risks of the sector. In the power sector, for every rupee of power sold, only 65 paise is collected, owing to theft and technical inefficiencies in near equal measure.
The question then is, was the government negotiating hard for the consumer or was it realpolitik at play? According to officials, a mix of both. Here's why: Lanco Infratech is founded by a Member of Parliament (MP), L. Rajagopal Rao, belonging to the ruling Congress party. Moreover, when Lanco's foreign partner for the Sasan project, Globeleq, went on the block early this year, Jindal Steel and Power bought the company. The promoter, Naveen Jindal, is more than just a businessman with interests in steel and power. He, too, happens to be a Congress mp. On the other hand, RPL promoter Anil Ambani's political credentials don't serve him very well in the current regime-till last year, he represented the opposition Samajwadi Party in the Upper House of Parliament.
Notwithstanding the patronage that Lanco and Jindal enjoyed with the Establishment, their case was indefensible-changing partners midcourse was not acceptable. On July 25, the GoM disqualified Lanco's bid for the Sasan project. However, while Lanco was willing to concede the project, it wanted an honourable exit. This meant that Lanco was returned its pre-bid deposit money of Rs 120 crore. According to officials, it is then that the government felt that unless it got RPL to reduce its tariff, the Sasan deal would be seen as a 'sell out' by public. Hence, the informal terms set out to Ambani, who was finally willing to sacrifice Rs 280 crore per annum and match Lanco's offer.
Does the Sasan deal make sense for RPL? After all, the market leader NTPC's new plants are more expensive and yet earn modest returns. Experts argue that RPL can hope to make more money than what flows from the 4,000 mw power plant itself. That's because the captive coal mine it gets as part of the deal has the potential to feed additional generation capacity due to the high calorific value (energy content) of coal. As a result, RPL can use less coal to generate the same volume of electricity. If this happens, RPL could technically expand its capacity and sell additional power. Says Shyam Wadhera, Director, Power Finance Corporation, who oversaw the Sasan project: "The coal quality in the captive mine is excellent, perhaps better than that in most coal mines in the country."
While the dust is beginning to settle on the project, it might not for a long time on the fate of the Sasan project consultants, Ernst & Young. After all, the controversy was stoked by E&Y's inability to assess the validity of Lanco's bid. Ironically, the wake-up call on the project was delivered by media, shortly followed up RPL itself, which actively lobbied with the government. On its part, the government has initiated a vigilance enquiry into the project.
For Ambani, the project marks a reversal of fortunes in the infrastructure sector. Early this year, he lost the 1,000-mw Anpara C power project to none other than Lanco. Surely, that should make the Sasan victory only sweeter. For the sector, the Sasan project sets a tariff benchmark for coal fired power plants in the country. "The tariff quoted by RPL is indeed very aggressive," says T.N. Thakur, Chairman, Power Trading Corporation. In a power-starved country like India, more such power bids may be required to make a difference.
