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This is an archive article published on December 10, 1998

SAIL turns back to NTPC, starts search for partner

New Delhi, Dec 9: The Steel Authority of India Limited (SAIL) has launched a global search for a partner for its proposed subsidiary powe...

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New Delhi, Dec 9: The Steel Authority of India Limited (SAIL) has launched a global search for a partner for its proposed subsidiary power company, now that its negotiations with the National Thermal Power Corporation (NTPC) have reached a point of no return.

The steel giant issued advertisements on Monday inviting “expressions of interest” from “competent Indian and foreign companies,” that were willing to be its joint venture partner in the power company. The bids will have to be submitted to SBI Capital Markets’ Mumbai office, or

Dresdner Kleinwort Benson’s London office by December 21, indicating SAIL’s urgency to tie up a strategic partner.

The subsidiary company will be spun off from parent SAIL, by hiving off three captive thermal power stations at Bokaro, Durgapur and Rourkela, with a total generating capacity of 542 mw. Initially, SAIL had begun negotiations with NTPC.

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The talks were abandoned when SAIL realised that feeding to the state power grids through NTPC, would bind the steel plantsto the prevailing two-part tariff structure and inevitably increase its cost of power. The captive power plants within the SAIL family produce power at roughly Rs 1.6 per mw, while the generating costs of thermal plants, contributing to the national grid are close to Rs 4.50 per mw.

The subsidiary power company will sell power at a mutually agreeable rate to the SAIL plants, through a long-term contract. The entire 542 mw of power generated at the three stations, will also remain captive to the SAIL steel plants at Bokaro, Rourkela and Durgapur.

The separate company for the three thermal generating units will be partly owned and operated by an energy company with expertise in thermal power generation. The strategic partner is being offered a “significant stake” and “operating control.”

According to SAIL sources, the company intends to offer upto 49 per cent shareholding in the joint venture to the strategic partner, but may even give it a controlling stake. The partner will, however, have to agreeto absorb all the SAIL staff employed at the three power stations in the joint venture company.

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The Steel Authority of India’s decision to spin off the power plants into a subsidiary company are in tune with its broad corporate plan of concentrating on its area of core-competence, steel-making. The company now generates 800 MW of power in-house and buys the rest from the national grid.

“We will have to continue buying power,” says SAIL’s executive director (power and energy), Ranjit Chakrabarty, explaining that the current swings inevitable at the rolling mills and hot strip mills of steel plants were beyond the capacity of small generating units. The SAIL dependence on the grid, therefore, becomes inevitable.

Chakraborty’s, incidentally, was the brain behind the supervisory load control centre, a load management tool that has already brought down SAIL’s electricity bills significantly.

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