Mukesh Ambani and Gautam Adani — the country’s two biggest tycoons — have formed an uncharacteristic grand alliance in the power sector through an equity-for-captive power deal at a time when they are preparing to square off for battle in the green energy space.

Reliance Industries Ltd (RIL), Ambani’s flagship, has struck a deal under which it will pick up a 26 per cent stake in an Adani Power subsidiary in Madhya Pradesh in exchange for 500 MW of captive power from a coal-based electricity generating unit.

Under the terms of the transaction, RIL will pick up a 26 per cent in Mahaan Energen Ltd (MEL), a wholly- owned subsidiary of Adani Power Ltd (APL), for Rs 50 crore.

The arrangement comes on account of Electricity Rules, 2005 which stipulates that no power plant shall qualify as a “captive generating plant” unless at least a 26 per cent stake in the unit is held by the captive user(s). There is an additional requirement: at least 51 per cent of the electricity generated by the plant must be consumed for captive use.

In a late night regulatory filing on Wednesday, APL said MEL had entered into a 20-year long-term Power Purchase Agreement (PPA) for 500 MW with RIL under the `Captive User’ policy as defined under the Electricity Rules, 2005.

It added that one unit of 600 MW capacity of MEL’s Mahan thermal power plant, out of its aggregate operating and upcoming capacity of 2800 MW, will be designated as the captive unit for this purpose.

“In order to avail the benefit of this policy, RIL has to hold a 26 per cent ownership stake in the captive unit in proportion to the total capacity of the power plant. It will accordingly invest in 5 crore equity shares of MEL, aggregating to Rs 50 crore for the proportionate ownership stake’’, APL added.

In a separate filing, RIL said its investment is expected to be completed within two weeks of receipt of completion of conditions precedent and receipt of such approvals by MEL.

It was not immediately clear where Reliance Industries intended to use the enormous amount of captive power from the MEL unit. The group already has captive units at its oil refining and petrochemical complexes in Gujarat.

Acquired plant

MEL, which is engaged in generation and supply of power, was incorporated on October 19, 2005.

The power plant, originally owned by the Ruias and called Essar Power MP Ltd, went into insolvency. It was acquired by the Adanis in March 2022 through the resolution process under the Insolvency and Bankruptcy Code (IBC).

The power plant in Singrauli operates a 1,200 MW (2x600 MW) thermal power plant (Phase-I project) in the villages of Bandhaura, Khairahi, Karsualal and Nagwa in Tehsil Mada, Singrauli district, Madhya Pradesh. The plant is close to prominent coal-bearing regions.

MEL proposes to expand its generating capacity by setting up two pulverised coal-based ultra supercritical units of 800 MW each, totalling 1600 MW, in Phase-II.

It had posted a turnover of Rs 2730.68 crore for the year ended March 31, 2023 as compared with Rs 1393.59 crore in the previous fiscal.

Green energy

The two large conglomerates have announced grand plans in green energy – a new competitive arena where the two giants are expected to butt heads very soon.

The Adani Group is aiming to become the world’s largest renewable energy producer by 2030 while Reliance which is equally optimistic about building four gigafactories at Jamnagar in Gujarat — one each for solar panels, batteries, green hydrogen, and fuel cells. The Adanis are also building three giga factories for manufacturing solar modules, wind turbines and hydrogen electrolysers.

The captive power deal involving MEL is the first direct transaction between the two large conglomerates.

The only association they have ever had – fleeting and indirect – was in 2022 when the Adanis were trying to gain control of NDTV.

In August 2022, an Adani group firm had acquired a little over 29 per cent in NDTV which was then controlled by Radhika and Prannoy Roy. It came after Vishvapradhan Commercial which held warrants of RRPR Holdings, a NDTV promoter entity, was sold to AMG Media Networks, an Adani Enterprises arm.

Vishvapradhan Commercial had extended a loan of Rs 400 crore to the promoters of NDTV in 2009-10. It was initially controlled by Reliance Industries and was later acquired by the Nahata group and subsequently by Surendra Lunia of the Infotel group.

Gautam Adani recently attended the pre-wedding celebrations of Ambani’s youngest son, Anant, at Jamnagar earlier this month.