Ambani-Adani, the billionaires of India considered enemies have recently announced a business collaboration which came as a piece of shocking news to many. I
n the collaboration, Mukesh Ambani’s Reliance Industries acquired a 26% stake in the Madhya Pradesh power project of Gautam Adani.
Reliance has been considered as the major force in the oil & gas industry and telecom whereas Adani’s focus remains infrastructure- airports and ports and mining.
Adani Group has invested a lot in the green energy sector and cement industry. Ambani has invested in lithium-battery companies, solar and semiconductors.
There is an overlap we can see in the interest and investment of both these firms and that was a major reason why they were considered rivals. This collaboration is seen as pure business where rival businessmen come together for their benefit.
What are captive units?
Captive units have become a buzzword after the Ambani-Adani news. Captive power units are facilities near factories which provide localized sources of power to the establishment. It is usually used to keep the lights of factories on.
Decoding the Reliance-Adani Agreement
Both companies informed the stock exchanges that Reliance Industries will acquire 5 crore equity shares in Mahan Energen Ltd (MEL), a subsidiary owner of Adani Group. These shares acquired are worth 50 crores with 10 rupees face value per share. Reliance will use 500 MW of generation capacity for captive use.
“Mahan Energen Ltd (MEL), a wholly owned subsidiary of Adani Power Ltd (APL), has entered into a 20-year long-term power purchase agreement (PPA) for 500 MW with Reliance Industries Ltd (RIL), under the captive user policy as defined under the Electricity Rules, 2005,” – Adani Power
After the agreement, Reliance and Adani Power had to agree to the 26% takeover if Reliance Industries wanted to take full advantage of the agreement and enjoy all the perks.
Reliance Industries already has captive units at mega oil refining and petrochemical complexes in Gujarat and Maharashtra. It also has a coal bed methane extraction centre in Sohagpur in Madhya Pradesh. The usage of the new 500 MW unit is still unclear.
The agreement is complete, but the investment is still dependent on the approvals by MEL.
The reason behind the agreement
Though the official statement of the firms lacks any reason behind the agreement, many have speculated that the move is a strategic one. Both firms have factories and need power to keep the factories working. This agreement will enable both firms to keep their factories on while having control over the power plant.