Shares of Reliance Power Ltd surged 10% to ₹23.30 on the National Stock Exchange (NSE) after the power company and its subsidiary entered into an indicative memorandum of understanding with U.S.-based alternative investment firm Varde Partners for availing debt of up to ₹1,200 crore ($150 million)

The power producer said it is raising funds for settlement, discharge, acquisition and restructuring of certain financial debt.

The drawdown of the debt will be subject to finalisation and execution of binding documents and all requisite approvals including regulatory approvals as per applicable rules and regulations, the company says in an exchange filing.

The stock exchanges will be updated once the terms of the proposed financing are finalised and the definitive documents in relation to the proposed financing are executed, it says.

Reliance Power, a part of the Reliance Group, is a private sector power generation and coal resources company. It has one of the largest portfolio of power projects in the private sector, based on coal, gas, hydro and renewable energy, with an operating portfolio of 5,945 megawatts.

This comes at a time when the central government is planning to amend Electricity Rules 2005 to allow power distribution companies pass on additional costs arising from power procurement variation and transmission costs to end consumers of electricity.

"The impact in the cost due to such variation shall be automatically passed through in the consumer tariff, on a monthly basis", said the draft notification circulated to the states and other stakeholders by the Union Ministry of Power last month.

It said an appropriate commission shall within 90 days of publication of these rules specify a price adjustment formula for recovery of the costs, arising on account of the variation in the price of the fuel or power purchase costs.

The draft has also published a formula for arriving at the cost per unit for passing on the additional costs. Such monthly automatic adjustments shall be trued up on an annual basis by the Appropriate Commission.

Fortune India reported that the move, which will burden consumers, is part of the attempts to improve the poor financial health of distribution companies. Prime Minister Narendra Modi had earlier urged state governments to clear bills due to power distribution companies to bring stability in India's energy sector. Various estimates say overall debt of power utilities is over ₹6 lakh crore and they owe power generating companies dues to the tune of ₹2-2.5 lakh crore.

Varde Partners

Reliance Power soars 10% on plans to raise ₹1,200 cr debt