The merger proposal, to be deliberated by the boards of the three affiliateson June 14, will bring the group's power companies under one umbrella with acombined turnover of about Rs 3,000 crore. The board of directors will alsotake up a proposal to "raise additional capital in an appropriate form".

Tata Power, Andhra Valley, and Tata Hydro-Electric operate together as bulkpower supply licensees in Mumbai, and share income/expenses in a 5:3:2ratio. TEC is the largest licensee in India, accounting for 50 per cent ofthe installed capacity for licensees.

Sources said the merger proposal, which was being weighed by the group for along time, has finally received approval following relaxation in stamp-dutynorms by the state government. "This is an opportune time for going aheadwith the merger, as the stamp-duty norms are no longer as rigid as in thepast," said sources close to the group.

On the Bombay Stock Exchange, Tata Power gained slightly, to close at Rs63.90, while Andhra Valley Power and Tata Hydro-Electric ended the day at Rs42.25 and Rs 42.50 respectively.

The group's top brass, which met on Thursday, is believed to havedeliberated threadbare the issue of making a counter-bid for theMumbai-based BSES, and decided against the move.

Sources said the meeting, which was chaired by group supremo Ratan Tata,included top group officials, including N Soonawala, HN Sethna, CR Vevaina,Ishaat Hussain, Kishore Chaukar, among others, felt it would not be prudentto make a counter-bid to Reliance Industries' open offer for BSES.

The merger proposal for TEC comes at a time when the group's power flagshipis facing a sharp revenue drop due to lower offtake by BSES, which has beenevacuating power from its Dahanu plant. Besides, with a bulk of itsindustrial customers moving away from the city, TEC has been loaded withsurplus capacity. It is, however, believed that existing shortages anddemand growth in the western grid will be able to absorb the new capacitiesplanned by the company.

TEC has chalked out an investment plan of a whopping Rs 4,800 crore inindependent power producers and captive units, which is slated to enhancegeneration by over 600mw. The company also plans to invest in modernisationof existing units and liquefied natural gas (LNG) projects.

The company has entered into a joint-venture agreement with Total Gas &Power India, a wholly-owned subsidiary of French giant Total, for theestablishment of an LNG terminal at Trombay. The project will have aninitial terminal capacity of three million tonnes per annum, and TEC is inthe final stage of negotiations with suppliers of LNG in the Middle-East.TEC, which has a license to distribute power to bulk consumers in the city,sells a large amount of power to BSES and BEST. But as BSES has its own500mw power plant at Dahanu and is able to bring the entire generation toits consumers in the city, its purchase demand from TEC is reducing everyyear.

Faced with this dilemma, TEC has appealed to the state government and theMaharashtra State Electricity Board not to give in haste clearance to BSES'495mw Palghar power project, as it may have an adverse impact on itsbottomline.