RNRL, Rel Power merger on cards?

The gas-based energy resulting company Reliance Natural Resources (RNRL) and its other group companies controlled by billionaire Anil Ambani have been in news since the end of a high-profile gas supply dispute with his brother.
CNBC-TV18 now learns that Reliance Power and RNRL will consider a merger in a share swap deal on Sunday. It is also being leant that the government will allocate gas only post merger, which is likely to be announced soon.

Sources also inform that Reliance Industries is likely sign gas sales and purchase agreements (GSPAs) with Reliance Power upon merger and may even pick up small stake as a ‘fuel supplier’ in the company post merger.
However, it is also being learnt that the entity will be valuated prior to the stake sale.

Why is the merger essential?
The merger, sources say is necessary to ease gas allocation and for signing power purchase agreements (PPAs) with state governments. “State governments are unlikely to allow RNRL to charge marketing margins.”
RNRL is not the final entity that is going to use gas. So it will be difficult for the government to allocate gas to an entity which does not use gas. Once RNRL gets merged into Reliance Power, which recently acquired three power plants from Rel Infra in which R Power was a bit of a beneficiary. The skew was towards R Power. It gets these three plants which it has brown field expansion plans lined up for. So the government can then go ahead if RNRL it merges with R Power, allocate gas to an entity which has a brown field expansion on the line.
Samalkot Goa or the Kochi plant that recently got into R Power will be the plants that ADAG group will put forward to the government. That okay we have these three power plants we are going to expand the capacity by a thousand megawatt each in these plants and so we need gas for that. The government can then say okay we can allocate gas to you because we have heard these discussions in the media that the government is not too keen on allocating gas to green field expansions. The power plant which are not in existence right now so brown field expansions could be allocated gas which is the rational which is why power plants are transferred from Reliance Infra into R Power. So this is the whole story. It is much of a logical next step. It is likely to happen soon that is the what we are telling you. Joker in the pack is the share swap deal. You saw RNRL collapse some indication that the skew maybe towards R Power the entity which will now exist, RNRL becomes an non-existing entity so it could be skew towards R Power that is logical but you never know there could be a surprise. So let us watch for the share swap deal and when it happens.

source : Money Control

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Tagged as: Rel Power, RNRL