Competition & Collaboration

Came across this very interesting transaction which took place recently – in March, Reliance Industries Limited (RIL) and Adani Power Limited signed a 20-year power purchase agreement for 500 MW, marking a rare, strategic collaboration between the two conglomerates. RIL will acquire 26% stake in one unit of Mahan Energy’s thermal power plant of 600 MW capacity. As per the exchange filing by RIL, “The proposed investment by the company is in compliance with the provisions of the Electricity Rules, 2005”.

Rule 3 of the Electricity Rules, 2005 provides the requirements that a power plant must meet to qualify as a captive generating plant – it must meet the following tests to enable them to take advantage of exemption of cross subsidy surcharge:

• Ownership Test: captive users are required to own at least 26% in the captive generating plant
• Consumption Test: captive users are required to consume at least 51% of the aggregate electricity generated from the power plant (to be determined on an annual basis)

?A very informative article on the Rule and its interpretation can be found here.

?A very fitting example of - when the vision and purpose is very large, competition and collaboration can co-exist, naysayers be damned.