Reliance Energy to end FY08 with orders worth Rs 15,000 cr

Q: Can you give me the numbers; you have orders of how much?

A: Rs 7,000 crore is the contract value which we are handling today. Out of that Rs 5,500 crore is the balance value of the contract to be executed which has now come down to about Rs 4,500 crore which means that the outstanding value of the contracts are yet to be executed.

The other recent contract is the 2,600 megawatt DBC Raganathpur project. Looking at the way the power sector is growing, we should get involved with  Rs 7,050 core worth of projects by the end of this.

So that is roughly the business scenario of transmission, generation, distribution and the EPC that we are handling. As far as your question about EPC spinning off is concerned, it is completely a speculative one. I would prefer not to comment on the speculative issues. 

Q: If you could comment on the valuation, has Lehman Brothers valuing that EPC division at about Rs 3,000 crore. Do you think its fair?

A: I am not going to comment about some of the institutional investors' analysis of it. I can tell you about what projects we are doing and what projects we are going to get involved in future. 

Q: Getting back to the power projects you are bidding for, you currently have one at hand from Sasan. What kind of margins, do you expect these projects to deliver for you?

A: Normally, in the power sector, you have two types of projects. One is the cost based regulated tariffs, where you have 14% post tax returns for generation projects at this stage. The other is the tariff based competitive bidding projects and it depends on the efficiencies you bring and the enormous returns you make. Therefore, we have mix of both, predominantly the tariff based competitive bidding projects. The regulated one that we have is the stage I of Rosa project in UP which is cost based project, where we get 14% post tax returns. Rest depends on our efficiencies and we expect reasonable returns on all these projects.

Q: With all the power projects that are currently underway for Reliance Energy, how much of it will be executed over the next 9 to 12 quarters and whether this will involve any capex or money spend?

A: Right now the initial set of projects which is about 20,000 megawatts size are in different stages of development. Roughly if I need to give a break up, about 7,000-8,000 megawatts will be the coal based projects including Sasan, the 1,200 megawatts Rosa project in UP and 1,200 megawatts in Shahpur near Mumbai. These are the coal-based projects and we have a gas-based projects at Dadri and Shahpur and hydro project in Arunachal and Uttaranchal.

So I expect that the except for the hydro projects which have little longer gestation period compared to the other two, the rest of the projects will get commissioned in the next 4-5 year period. Infact in next 3 years, the first project to come on would be the Rosa project which we are expecting to come in 2010 and at frequent intervals, rest of the projects will follow and most of these projects would get commissioned in the next 4-5 years time  except the hydro which would take 2-3 years more because of the long gestation period. 

Q: I know you would shy from commenting on markets speculation but the move has been quite strong both in Reliance Energy and RNRL stocks. Is there any plan at all to merge the two businesses of Reliance Natural Resources to some how be a part or an arm of REL?

A: This completely speculative so obviously I don't think you expect me to answer that and second question is any mergers is more of the decision of the board and the shareholders.      

Q: The project that you have on hand is about Rs 75,000 crore and not all of it will come from you of course but what is the line of financing for all of this?

A: If you look at Reliance Energy financials, we are debt free at the net levels and we have the top ended credit rating for the company as a whole. Plus if you look at our balance sheets today, we have roughly cash or the cash equivalent of over Rs 10,000 crore, so obviously we have strong financial platform to launch ourselves on this. Therefore we don't see a big issue with respect to the equity portion of it. As far the debt is concerned obviously we will raise from the market. Different projects would have a different debt equity ratios at this stage and it is difficult to comment on overall debt equity ratio.  

Q: 80-20 is what most projects will be implemented at. Is that the rough thing that you would doing it at?

A: The 80-20 could be one of them but I can't really say that 80-20 would be every project since it depends project to project. It depends upon the comfort of the lenders with respect to off take. For example, if you take Sasan project, it has the lowest tariff in the country today. It  supplies to 14 off takers so we have a diversity of risk from that angle on this. The tariff is so low and the confident level for payment securities is extremely high. We have a robust payment security mechanism, the tariff being so low though it has its own advantage plus it is a domestic coal.

It has a captive coal mine so it has significant strengths in other projects. Obviously the lenders would be looking at it from that angle and added to that is our skills sets in the project management. Implementing projects especially large complex projects in a shorter period of time is what was hired on this. So we are optimistic that there won't be an issue on raising debt from both domestic and international markets and we are also optimistic of having the best possible debt equity ratio compared to anyone else in the country.

Q: Again a question on sister company that you are closely involved in you bidding with RNRL for gas consortium but reports are that they are getting into city gas distribution, do you have any updates on those plans?

A: RNRL is the fuel management company whereas Reliance Energy is  a power sector company and you need to have a backward integration in terms of the fuels for the coal gas various things and RNRL provides that. As for the city gas distribution, one of our group companies Reliance Fuel has applied for the city gas distribution in Delhi, Mumbai and other places so RNRL is mainly the fuel company which supports our power initiatives of Reliance Energy. It gives us end-to-end strengths of starting from the mining or the gas exploration to the retail distribution so means it enables us to integrate ourselves in the entire energy value chain.