India's GVK Power Awards $445 Million Contract to Expedite Augmentation of Gautami Power Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--GVK Power and Infrastructure Limited (BSE:532708) (Secunderabad, Andhra Pradesh), India's private-sector energy producer, has awarded a power equipment contract to fast track the expansion of its 464-megawatt (MW) Gautami power project. The $445 million contract has been secured by a consortium including Siemens AG (NYSE:SI) (Munich, Germany), Hyundai Heavy Industries Company Limited (SEO:009540) (Ulsan, South Korea) and Larsen & Toubro Limited (BSE:500510) (L&T) (Mumbai). GVK proposes to add another 800 MW of power-generating capacity at the site of its 464-MW, dual-fuel, combined-cycle Gautami power plant at Peddapuram, in the East Godavari district of Andhra Pradesh. Presently, the power plant consists of two gas turbines and one steam turbine.

In 2003, GVK signed a Power Purchase Agreement (PPA) whereby it agreed to supply high-speed diesel from this project to Bharat Petroleum Corporation Limited (BSE:500547) (BPCL) (Mumbai). GVK Power and Infrastructure, IJM Infrastructure (India) Limited (Hyderabad, Andhra Pradesh) and Maytas Infrastructure Limited (BSE:532907) (Hyderabad) hold 63%, 20% and 17%, respectively, in the project. In March, GVK Power and Infrastructure announced its decision to increase its stake to 63% in the power plant and augment capacity by another 800 MW. GVK decided to buy a stake in the Gautami power project after financial issues forced its earlier developers to pull out of the project.

GVK Power and Infrastructure Limited is part of the diversified GVK Industries Limited (Secunderabad, Andhra Pradesh). The group has business interests spanning urban infrastructure, manufacturing, hospitality and services. GVK Industries, which employs about 7,000 people, has an asset base of $1.22 billion and project orders worth $3.58 billion. GVK Power and Infrastructure Limited manages power projects, construction of roads, Special Economic Zones (SEZ), airports and highways. The power projects under construction are likely to increase the company's energy portfolio to 2,000 MW.

Currently, GVK Power operates the 216 MW, Jegurupudu-I combined-cycle power plant in Andhra Pradesh. Commissioned in 1997, it has the unique distinction of being a horticultural project that generates power. The $171.8 million, 220-MW second phase of this project is also nearing completion. In 2003, GVK Power signed a PPA with the Transmission Corporation of Andhra Pradesh (Hyderabad) to supply power from this project. The company is also planning to construct coal-based, gas-fired and hydropower projects. GVK Power also proposes to venture into the renewable energy sector in the future.

GVK Energy Limited (Secunderabad, Andhra Pradesh), a subsidiary of GVK Power and Infrastructure Limited, has announced plans to raise $300 million through private equity to fund its power plant expansions and coal-mine development. Another affiliate, GVK Coal Private Limited (Tokisud, Jharkhand) has completed financial closure of the $66.28 million coal-mine development project at Tokisud, near southern Karanpura in Jharkhand. The project will be constructed with debt and equity investments of $49.7 million and $16.5 million, respectively. The coal mine, which has proven reserves of nearly 52 million, is expected to supply 2 million tons per year of coal for GVK Power's plant at Goindwal Sahib. The company's 540-MW, coal-based power project at Goindwal Sahib is expected to be commissioned in 26 months. GVK Power is also exploring the possibility of developing another coal mine at Seregarha in Jharkhand to feed the Goindwal Sahib power plant. The Seregarha mine, which has reserves of 67 million tons, is expected to supply 1 million tons per year of coal.

In addition to the big expansion plans for its infrastructure business, the company will focus on expanding its energy portfolio. According to Isaac George, the chief financial officer of GVK Power and Infrastructure Limited, margins in the energy business are expected to improve and the company is confident of generating 70% to 80% of its revenues from this sector. In 2009-10, the power sector accounted for nearly 90% of its total revenue of $394.8 million. In 2008-09, revenue contribution of its energy business was about 69%.

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