Tata Electric Companies to invest in the Mangalore project - Views on News from Equitymaster

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  • Feb 18, 2000 - Tata Electric Companies to invest in the Mangalore project

Tata Electric Companies to invest in the Mangalore project

Feb 18, 2000

The Mangalore Power Company (MPC) has announced that Tata Electric Companies (TECs) has joined in as a partner in their venture. This follows the withdrawal of Cogentrix from this project, and since then China Light & Power Company (CLP) Power International has been left behind as the sole promoter. Tata Electric Companies consists of three power companies: Tata Power, Andhra Valley and Tata Hydro. Assets are owned jointly and revenues and expenditures are shared in the ratio of 50:30:20. The 3 companies have separate licenses to generate and distribute power to the city of Mumbai and surrounding areas.

Cogentrix delcared its intention to withdraw from the project in December'99, mainly because the project took too long to start as it was involved in legal problems with the Supreme Court on corruption charges. However shortly after Cogentrix's withdrawal, the supreme court cleared MPC of all charges. Cogentrix stated that they would reverse their decision only if the centre gave the project a counter guarantee and the Karnataka government adhered to the terms of the PPA signed in November'97.

The Karnataka power sector has been in a state of flux and questions are being raised about the viability of huge independent power producers (IPP) ventures. However the new state government has been trying to rectify the situation by encouraging infrastructure in the state and the power sector is getting a new thrust.

As the power sector reforms have been very slow, many foreign power companies who had initially shown their intention to enter the Indian power industry are loosing interest. The main reasons being delays in the project to start operations, corruption at all levels and too many bureaucratic hitches. However things are changing slowly and the government is trying hard to speeden up the reform process. One recent example of this is the governments decision to go ahead with the reforms in Uttar Pradesh where it plans to split the SEB into three parts covering transmission, generation and distribution. This step was taken despite the strong opposition by the labour unions.

This move on part of Tata Electric Companies can be seen as a means of getting into power projects outside Maharashtra to increase their geographical reach as the Mumbai market is limited. These projects will also enable the company to increase its profits from IPP and not depend only on profits from Mumbai operations where it holds license to distribute power.

Market View:
This move by TEC will also enable it to change fund managers perception about the company who had punished it for not being aggressive about entering into IPPs.

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