NEW DELHI: The purchase of a 26% stake by Mukesh Ambani-led Reliance Industries Ltd (RIL) in a Madhya Pradesh power project owned by Gautam Adani’s Adani Power is seen as a ‘landmark’ development in India’s corporate world.
However, this partnership is rather driven by current electricity norms around captive power units and there are rarely any signs of the two powerful billionaires joining forces soon in other areas of common interest.
“Reliance had limited choice other than to tie up and purchase a 26% stake in the power plant owned by an Adani Group company. Adani’s Mahan Energen is the only facility in the area that has the capacity to readily provide the power requirement of Reliance and as per electricity rules around captive power units, it became the right thing for the two to tie up,” said a partner at a leading consultancy firm requesting not be named. He added a handful of similar deals take place every year in the country and RIL as well as Adani have captive power units around their mega factories.
Generally, captive power units are power plants constructed next to an industrial unit to provide power to the facility. In many cases, it is constructed by the factory to avail an undisputed source of power. The company, which builds the factory, sells a 74% stake in the power unit to a power-generating company for smooth day-to-day running. However, in many cases, a power company constructs the captive plant and then sells 26% to the consuming company upon completion. Either way, to be considered a captive plant, the consuming industrial unit must own at least 26% of the generating unit.
While picking a stake in Mahan Energen Ltd (MEL), a wholly owned subsidiary of Adani Power, RIL said the investment is in compliance with the provisions of the Electricity Rules, 2005, which say a captive user must own a 26% stake in the captive unit.
The deal will give RIL 500 MW of electricity from MEL’s Madhya Pradesh-based power plants for captive use. “One unit of 600 MW capacity of MEL’s Mahan thermal power plant, out of its aggregate operating and upcoming capacity of 2,800 MW, will be designated as the Captive Unit for this purpose,” Adani Power said in an exchange filing. It added that RIL will pick up 5 crore shares with a face value of 10 (Rs 50 crore).
This rare partnership by Gautam Adani and Mukesh Ambani, two of Asia’s richest billionaires, made many believe that the competition between them to dominate India’s future power and energy landscape and outdo each other on the global billionaire list is not as intense as seen by many. It also raised speculations of future partnerships.
Ambani and Adani, both hailing from Gujarat and both believed to be close to Prime Minister Narendra Modi, have avoided crossing each other’s path in their entrepreneurial journey while maintaining a cordial relationship with each other.
While Ambani has made his fortune in businesses such as oil-to-chemical, gas, retail and telecom, Adani has amassed wealth by expanding his ports-to-power empire. Adani group also became the country’s second-largest cement manufacturer by acquiring Ambuja and ACC a few years ago.
While the street was forecasting a clash between the two titans when Adani group applied to participate in 5G spectrum auction in 2022, Adani snubbed the rumours by buying 400 MHz spectrum in 26 GHz band, which is not for public networks. Even in the media business where Adani Group ventured recently and Reliance is a major force, Adani received support from a firm with erstwhile links to Ambani to takeover NDTV.
The only major business area where the two are competing is in the field of green energy. Both of them have ambitions to dominate India’s clean energy requirements and have committed billions of dollars to it.
Partnership driven by current captive power norms
This partnership of two richest men of India is rather driven by current electricity norms around captive power units and there are rarely any signs of the two powerful billionaires joining forces soon in other areas of common interest