Lanco building $4.5bn of power plants across India

India’s largest integrated infrastructure developer has six power plants under construction, to be operational over the next three years.

Lanco Infratech, the New Delhi-headquartered power developer, currently has six coal, hydro and solar power plants under construction in different states of India, representing an approximately $4.5 billion investment and 4,600 megawatts (MW), the firm told Infrastructure Investor. All six are slated for completion over the next three years.

Three of the plants are coal-based, two are hydro, and one is solar. The coal plants are almost triple the size of any of the other power plants. How quickly the plants are able to start up will depend largely on how the banks release financing, according to Sharad Jhingan, the chief operating officer of structured finance at Lanco.

“We are hoping these new plants will bring good quality power to the country,” Jhingan said. “We’re also pre-empting what we see as a slowdown in new power plant construction.”

Lanco already has more than 4,700MW of power plants in operation across 12 states in India. Around 63 percent of the fuel for Lanco’s plants is coal, 34 percent is from gas, and only the remaining 3 percent is from renewables, consistent with patterns in the rest of India.

India’s power sector is one of the country’s most underdeveloped infrastructure sectors. Government estimates put the country’s energy deficit at around 9 percent, and some studies say that could grow to more than 10 percent this year. Unfortunately, the sector has also developed inefficiencies that make it difficult for private investors to make good returns.

For example, India’s power grid is largely divided by states, and a company has to work with the governments of each on as well as with the central power ministry. In addition, a power plant’s supply of coal has to be sourced entirely from the government.

A crippling problem for the private sector, however, is depressed prices. Power has been a subsidised sector for many years, and because the country got used to that, households often refuse to buy power at anything but the subsidised price.

“The people have come to expect the government to supply power at low to no cost,” Jhingan explained. “But the problem is the governments don’t have the money to keep supplying power at that price, so you have rolling blackouts,” Jhingan said. As households and businesses have had to seek alternative power – which is quite expensive – the competitiveness of India’s economy has eroded.

To offset some of these imbalances for the private sector, Lanco also bought the Griffin Coal Mining Company in Australia for about $800 million in February 2011. Lanco now has its own source of coal, which can supplement the supply from the government. That investment has given Lanco more “independence,” Jhingan added.

“It is imperative that [India] get more power plants up and running, and get more supplies of coal,” he said.

With about $7.7 billion of assets under management, Lanco Infratech is India’s largest integrated infrastructure developer and one of its largest power plant operators. Apart from power plants, Lanco also invests in roads, pipelines, real estate and mining. To continue its growth after a fairly challenging year financially, Lanco is also looking to sell a few of its assets in the next year, Jhingan confirmed, but declined to give details.