Financial Daily from THE HINDU group of publications
Tuesday, Jul 26, 2005
Financial Daily from THE HINDU group of publications Tuesday, Jul 26, 2005 |
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Corporate
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Mergers & Acquisitions SAIL, NTPC plan to merge two joint ventures into single entity Our Bureau
Kolkata , July 25 SAIL and NTPC are planning to merge two of their existing joint ventures into a single entity. The two joint venture companies are NTPC SAIL Power Company Pvt Ltd (NSPCL) and Bhilai Electric Supply Company Pvt Ltd (BESCL). Both are 50:50 joint ventures. The first was created in March 2001, and the second was established in March 2002. According to a senior SAIL source, the matter has already been discussed by the SAIL board of directors. An approach note has also been prepared and the issue has been approved by the top management. However, the merger proposal has a major hurdle to cross. The Union Government does not allow a `Navratna' PSU to invest more than Rs 200 crore in a joint venture. This limit needs to be increased for both SAIL and NTPC before they can go ahead with the merger. Despite this hurdle, it is learnt that SAIL has decided to take the necessary preparatory action on the proposed merger. The company is also contemplating appointing a legal and financial consultant for the merger exercise. Supporting the merger proposal, the SAIL official said that both ventures were in the same business of power generation and were run by the same management. Even the Chairman and CEO of the two companies are the same. "Moreover, both the companies have an identical organisational structure and the two also follow the same management practices. All these factors only support our merger proposal." The merger would also help the two companies reduce their operational, administrative, and management expenses. The combined entity would have stronger financial muscle. The total capacity of NSPCL is 120 MW. It runs two 60 MW units located close to the Durgapur and Rourkela steel plants. BESCL's total capacity is 74 MW, spread over three units but all located at Bhilai Steel Plant. BESCL recently started adding fresh capacity of 500 MW (2 x 250 MW) at Bhilai at an estimated cost of Rs 2,480 crore. While the two promoters are chipping in with 30 per cent of the project cost, the remaining 70 per cent is funded through market borrowings. The first unit is scheduled for completion by the middle of 2007 and the second by October 2007. "But the BESCL authorities have set an internal target of completing the first unit by March 31, 2007," sources said. Once the unit is commissioned, it will drastically reduce Bhilai Steel Plant's over-dependence on the Chattisgarh State Electricity Board (CSEB). Currently, the steel plant has an agreement with CSEB for contract demand of 197 MVA. The new plant will also reduce the plant's power expense from Rs 4.2/kwh (as charged by CSEB) to Rs 2.6-2.7/kwh.
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