U.S. Ex-Im Bank Grants $917 Million Loan to Reliance Power for Sasan UMPP

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading Indian private sector power developer Reliance Power Limited (BSE:532939) (Mumbai) has secured a $917 million export financing guarantee from the Export-Import Bank of the United States (Washington, D.C.) (U.S. Ex-Im Bank) for the company's 4,000-megawatt (MW) ultra-mega power project (UMPP) at Sasan in Madhya Pradesh. The funding will be utilized to proceed with the mining equipment order placed with Bucyrus International (NYSE:BUCY) (South Milwaukee, Wisconsin). In June, the U.S. Ex-Im Bank decided to withhold the loan to Reliance Power after studies indicated that the Sasan project could pose long-term environmental threats.

According to Fred P. Hochberg, the president of the Ex-Im Bank, the bank reconsidered its decision on the financing for the Sasan project to support the creation of new jobs, development of renewable energy projects and increase energy exports in the U.S. Reliance Power's contract is likely to create 1,000 direct jobs and 650 new opportunities in the supply chain. The decision to provide the financing comes after Reliance Power signed a memorandum of understanding with the Ex-Im Bank to construct a 250-MW renewable energy power project and take steps to reduce carbon dioxide emissions at the Sasan site to 850 grams per kWh.

The Ex-Im Bank's decision to provide financing for the Sasan project comes at a time when Bucyrus International's third-quarter revenues dropped 15.7%. The slump in earnings has been attributed to delays in the execution of several projects. CEO Tim Sullivan has indicated that funding delays faced by Reliance Power have adversely impacted Bucyrus International's revenues. Bucyrus International provides equipment to customers in copper, iron ore, coal and oil sands.

Environmentalist groups have vehemently opposed the bank's decision to fund the Sasan UMPP on the grounds that the federal bank was using renewable energy projects to negotiate thermal power projects. The UMPP is likely to produce 26 million tons of greenhouse gas emissions, which is considerably higher than the combined emissions of all projects approved by the Ex-Im Bank in 2009. In the midst of protests and accusations, the Ex-Im Bank is also considering financing the 4,800-MW Kusile coal-fired power project in South Africa.

Reliance Power is part of the diversified Anil Dhirubhai Ambani Group (ADAG) (Mumbai). ADAG has business interests spanning energy, media, energy, logistics and telecommunications. Reliance Power's energy portfolio consists of 35,000 MW of projects in various stages of construction and operations. Presently, the company is operating combined-cycle power plants at Kochi in Kerala (165 MW), Shahjahanpur in Uttar Pradesh (600 MW), Samalkota in Andhra Pradesh (220 MW) and Goa (48 MW). The company is also constructing seven hydropower, two gas-fired and seven coal-fired power projects.

Reliance Power is developing three of India's four UMPPs. In addition to the Sasan UMPP, the company is also constructing UMPPs at Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand. The Sasan UMPP, which is a pithead coal power plant, has received captive coal linkages from the Moher-Amlohri extension, Chhatrasal and Moher coal mines. In April last year, a consortium of domestic banks led by the State Bank of India (BSE:500112) (Mumbai) assisted in completing financial closure for the project.

Reliance Power has also signed levelized tariff agreements at the rate of $0.027 per kilowatt-hour and power purchase agreements with seven states. As part of the agreement, Delhi, Haryana, Uttar Pradesh, Punjab, Rajasthan, Madhya Pradesh and Uttarakhand will respectively receive 11.25%, 11.25%, 15%, 2.5%, 37.5%, 2.5% of the electricity generated by the project. The first unit is expected to be commissioned in 2012. Earlier, Reliance Power awarded the contract for the boiler-turbine-generator package to Shanghai Electric Group Company Limited (SHA:601727) (Shanghai, China), and the engineering, procurement and construction contract to Reliance Infrastructure Limited (BSE:500390) (Mumbai). The Krishnapatnam UMPP will use coal imported from Indonesia. The first unit will be commissioned in 2013, and the project is expected to be fully operational by 2015. The Tilaiya project is likely to be completed and operational by 2017.

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