Ambani-Adani's Mahan Energen deal: A win-win situation for both giants

Two of India’s largest conglomerates – Reliance Industries and the Adani Group’s power business – entered into an understanding late last week. It will involve RIL picking up a 26 per cent stake in Mahan Energen Limited (MEL), a unit of Adani Power housed in Madhya Pradesh. In terms of ticket size, it is relatively small at Rs 50 crore but the strategic implications are important.

It gives RIL access to 500 megawatts of power with the intention to use it for captive purposes. According to Mahan’s website, the existing capacity is 1200 MW across two plants of 600 MW each, with a plan to add another 1,600 MW – again two plants of 800 MW each.

In a statement, RIL said the proposed investment “is in compliance with the provisions of Electricity Rules, 2005 in terms of which the company, as a captive user, is required to own 26% proportionate ownership in one unit of MEL of 600 MW capacity, with RIL being the captive user of 500 MW generation capacity.”

This is a 20-year long-term purchase agreement. To put it in perspective, a captive power plant – normally situated close to a large manufacturing unit to provide power to that business – is constructed with the objective of providing regular supply.

In this case, RIL is sourcing power from a captive plant (MEL) and as a consumer, must own 26% in that. It must be mentioned that both the conglomerates operate in businesses such as renewable power.

There are many advantages that accrue to both RIL and Adani. If the former had to put up a 500 MW plant at say Rs 4 per MW, it would have been an outgo of at least Rs 2,000 crore, notwithstanding the time taken.

Deven Choksey, MD, DRChoksey FinServ, says RIL gets access to cheaper power as does Adani to capital coming in. In terms of pricing, RIL would have paid upwards of Rs 10 per unit. “Now, it could be as low as Rs 3.5-4,” he thinks.

This plant in Madhya Pradesh was acquired in mid-2021 from Essar Power after it had gone into insolvency. It was a part of many power assets that The Adani Group then picked up across thermal and renewable.

Given its location, the Adani group can easily use the plant to cater to its power requirements across businesses in central and eastern India. “For the Adani group, equity has come back and the debt can easily be serviced. From Reliance’s perspective, the power can be transmitted to locations as far as Jamnagar.”