India's Sterlite Industries to Invest $4 Billion in Power Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--Sterlite Industries India Limited (NYSE:SLT) (Tuticorin, Chennai), a wholly owned subsidiary of Vedanta Resources plc (LSE:VED) (London, United Kingdom), plans to invest $4.06 billion during the next year to develop new power generation capacity of 4,500 megawatts (MW). This initiative, which will mark the company's entry into commercial power generation, will be undertaken by Sterlite Energy Limited (SEL) (Mumbai), a wholly owned subsidiary of Sterlite Industries.

The new projects to be developed include power plants in Lanjigarh and Jharsuguda in Orissa with a combined generation capacity of 3,150 MW, a 1,200-MW power plant in Korba, Chhattisgarh, and a 160-MW power plant in Rajpura Dariba, Rajasthan. All of the projects are being implemented on a fast-track basis, and about 2,500 MW of the proposed new generation capacity is expected to be installed by the end of 2009. These projects are also part of the plans announced by SEL in November 2007 for the development of 10,000 MW of thermal power projects during a period of five years.

SEL will operate as the commercial power generation arm of Sterlite Industries. About 50% of the power generated from the proposed projects will be sold on a commercial basis, while the remaining amount will be used as captive power to support the group's metal businesses.

In Jharsuguda, Orissa, SEL is setting up a 2,400-MW independent power project. The first unit of the project, with a generation capacity of 600 MW, is scheduled to come into operation by October 2009. The remaining three 600-MW units are scheduled for commissioning by December 2009, March 2010 and June 2010. The project entails a total capital outlay of $1.67 billion, with a debt component of $1.25 billion and an equity component of $415 million. A consortium of 19 financial institutions led by State Bank of India (BSE:500112) (Mumbai) has committed to provide a term loan of $1.25 billion to SEL for the power project. SEL has already contributed the equity component required for funding the project.

The Jharsuguda power project is estimated to require about 12 million to 13 million tons per year of coal. In November 2007, the Indian Ministry of Coal allotted a 112 million-ton coal block to the firm. The coal ministry also issued a letter to Coal India Limited (Kolkata, West Bengal) to provide feedstock to SEL on a long-term basis in order to fuel a power generation capacity of 600 MW. SEL is awaiting allocation of coal linkages for the 1,800-MW balance of the planned power generation capacity. SEL has entered into a memorandum of understanding with PTC India Limited (BSE:532524) (New Delhi), formerly Power Trading Corporation of India Limited, under which PTC can purchase up to 600 MW of power from the facility. SEL has also signed a power purchase agreement with Grid Corporation of Orissa Limited (Bhubaneswar, Orissa), under which the latter can purchase up to 960 MW of power from the facility.

In Korba, Chhattisgarh, Sterlite Industries is setting up a 1,200-MW power plant through its subsidiary Bharat Aluminium Company Limited (New Delhi). The project has been allocated the Durgapur-II/Taraimar coal block, which has estimated reserves of 211 million tons. SEL is also contemplating the Jharsuguda Phase II project with a capacity of 2,000 MW, and the Korba Phase II project with a capacity of 4,000 MW.

In Rajasthan, SEL is setting up a 160-MW captive power plant to support Sterlite Industries' upcoming zinc smelter with a capacity of 210,000 tons per year and a lead smelter with a capacity of 100,000 tons per year. The power plant is scheduled for commissioning by mid-2010.

SEL is also setting up the 1,980-MW Talwandi Sabo thermal power plant in Punjab with an investment of more than $1.83 billion. The project was awarded to the firm in March 2008 by the Punjab State Electricity Board (Mohali, Punjab) through a tariff-based competitive bidding process. With a tariff quote of $0.0576 per kilowatt-hour, the firm emerged as the lowest bidder, outbidding Reliance Power Limited (BSE:532939) (Mumbai), Larsen & Toubro Limited (BSE:500510) (Mumbai) and Tata Power Company Limited (BSE:500400) (Mumbai), among other contenders. The project will be developed on a build-operate-own basis in three stages of 660 MW each. The project is the largest thermal power plant being developed in Punjab and is scheduled for commissioning by April 2013.

Sterlite Industries currently operates five power plants in Chhattisgarh, Orissa, Rajasthan and Tamil Nadu, with a combined power generation capacity of 2,010 MW. Most of the power generated from these facilities is used for captive purposes. The firm has already invested $1.83 billion in its power ventures to date. With the proposed addition of 4,500 MW of power generation capacity, the total installed capacity of the firm will rise to 6,500 MW, while total investments made would amount to about $6.08 billion by 2010. SEL is also planning to come out with an initial public offering in the next three or four months to raise about $610 million by diluting up to 10% of its stake in order to fund its ongoing and new ventures.

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