Covid-19: JSW Energy puts GMR Kamalanga acquisition on hold

Sajjan Jindal-promoted JSW Energy on Wednesday said it had put the acquisition of GMR Kamalanga on hold, citing on-going uncertainty as the reason.

In February, JSW Energy said it would acquire GMR’S Kamalanga power project (1,050 Mw) in Odisha for ~5,321 crore. In the February a notice to exchanges, JSW said it had entered into a ‘share purchase agreement’ with GMR Energy for acquiring 100 per cent shares in its subsidiary GMR Kamalanga Energy.

“The transaction has been put on hold given the ongoing uncertainty and will be revisited once the situation normalises,” JSW Energy said on Wednesday.

Kamalanga is one the 36 identified stressed power assets that was undergoing debt resolution. The project ran into trouble because of lack of coal supply. The project cost for the plant is estimated at ~6,519 crore. The plant has three power purchase agreements (PPAS) with Grid Corporation of Odisha (GRIDCO), Haryana Utilities, and Bihar state utility. If completed, the acquisition would have taken JSW Energy’s total installed power generation capacity to 5,609 Mw.

JSW Energy in its statement said, “Power demand over the short term is expected to be muted attributable to subdued economic activity due to the ongoing Covid-19 situation.”

Why have you put GMR Kamalanga Energy acquisition on hold? Will you pursue other expansion plans drawn up earlier?

It is on hold because of the current uncertainty (Covid-19-induced). As far as IndBarath Energy is concerned, no new NCLT hearing has taken place in the past three months. We are continuing with plans for our Kutehr hydro project in Himachal Pradesh. In the past two months, however, no new construction activity has taken place due to the lockdown.

Would you be interested in commercial coal mining? And, would you prefer switching to domestic coal instead of imported?

For commercial mining, we need to examine which mines are coming up, in terms of location, the logistics costs, and other terms and conditions. Our power plants were technologically designed for imported coal. We have the permission to use 50 per cent domestic coal at our plants. If we see merit in it, we will definitely look to switch to domestic coal.

Would you also consider branching out to power distribution for Union Territories (UTS)?

The privatisation of power distribution in UTS is a positive move by the government. The distribution sector needs to open up to

avoid payment issues. We will look at it and decide once details are known.

What is the reason that your profit for the March quarter appears not much impacted by Covid-19-related issues?

Close to 87 per cent of our sales are under long-term contracts and, hence, generation on deemed plant load factor basis has been quite good. Offtake under power purchase agreements was down 15 per cent, however, short-term contract was up 30 per cent. So, overall generation was down only by 3 per cent. Lower fuel costs and interest costs also helped.

June would be the first quarter where the full impact of Covid-19 will be seen on financials. Are you expecting power firms to report higher losses?

It will vary according to the company. JSW Energy will not be impacted by Covid-19.

How is the firm optimising costs and go about its capital expenditure plans?

We have been cutting down our operations and maintenance costs for the past three years. We will look at a maintenance capex of ~75-100 crore for our power plants. Growth-related capex will be decided as and when the situation improves. We are examining if we need to take any salary cuts. If at all we do that, it will be for the top and middle management. Given we are under-leveraged, we do not need any money to be raised.

What is the status of receivables from state discoms?

For JSW Energy, the receivables are on a flat to reducing trend. Last quarter also saw a decline in receivables. After March, receivables have come down further by 15 per cent.

Has the power demand trend changed with some industrial units resuming operations?

The situation is improving. Total demand was up 1.9 per cent in the last quarter even though power demand was down 27 per cent in the last week of March. For April, power demand was down 23 per cent year-on-year. For May, so far, it is 19 per cent down.

"For commercial mining, we need to see terms and conditions... If we see merit in it, we will definitely look to switch to domestic coal. We will (also) look at power distribution and decide once details are known"