Reliance bids lowest to win Tilaiya Ultra Mega Power Project

Friday, January 30, 2009, 7:10 by Business Editor

Anil Dhirubai Ambani’s Reliance Power bagged yet another contract by bidding the lowest, leaving the second lowest bidder National Thermal Power Corporation with a comparative margin of 53 paise to win the 4,000 MW Tilaiya ultra mega power project (UMPP).

This is Reliance Power’s third contract in a row, after Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh.

Reliance bid for an amount of 1.77 Rs. per unit, leaving behind other competitors like NTPC who bid for 2.34 Rs. per unit and Jindal Steel and Power Limited who bid 2.67 per unit. The other bidders included Vedanta group and Sterlite and Lanco. The bid by Reliance Power as per analyst is a very aggressive bid as the gap between the top two is comprehensive, although this bid is bigger than the 1.19 per unit made for the Sasan project.

Initially, eleven companies were qualified for the Tilaiya UMPP project, but due to the continuing worldwide slowdown credit crisis saw many back away from the bid. Those who backed out include companies like Tata Power, Essar Power and Larsen & Tubro.

“Given the turmoil in the global markets, it would take more time before conditions are conducive for financing such large projects,” Lanco Infratech which withdrew from the bidding said in a statement to the Bombay Stock Exchange after coming out as the highest bidder.

The Tilaiya project is assumed to be cheaper than the Sasan project as there is a slide in steel price and the ease which Jarkhand coal mines provides. The project will use domestic coal which will be mined from a captive expanse that will be allocated for the project developers. The complete project will cost somewhere around 16000-17000 crores with a debt equity ratio of 70:30.

The coal mine in Jharkhand is estimated to have 972 million tones of coal reserves which is 86% more than what is required for the plan and will help the project all the more. Reliance Power will need to dig 2 tones of earth to mine out 1 tone of coal.

An I-sec report recently said that any tariff of above 1.70 per unit will be a profitable bid which will also be helped by low input costs.

“We expect the contract to be signed in a month,” the PFC official said. The bids were started by a high-level committee inclusive of representatives from the governments of Bihar and Jharkhand

Once the results are out officially the Reliance Power will be officially making use of the services provided by the Jharkhand Integrated Power limited, as they will be equipped with special purpose vehicle for the Tilaiya project.

The government intended to complete the bidding of Tilaiya UMPP project before June 2007 and give away 5 other UMPP’s over the next few months which could be delayed now due to issues like establishment of an appropriate site, access to water resource and other mandatory clearances.

India needs to spend $600 billion on adding capacity to meet electricity demand, which may triple to 335,000 megawatts by 2017 if the country’s economy maintains its current pace of growth, McKinsey & Co. said in June 2008.

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