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Chhatrasal coal block cannot be de-allocated now: J P Chalasani

Interview with RPower's Chief Executive Officer

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With the Comptroller and Auditor General () alleging Rs 29,033-crore financial gains to , coal allotment to has come under scanner once again. RPower’s Chief Executive Officer tells Jyoti Mukul the government has upheld the sanctity of past contracts by ratifying the use of surplus coal. Edited Excerpts:

The CAG report has called for a review of allocation of the Chhatrasal coal block for the Sasan power plant. Do you think this is justified?
The decision to use surplus coal from Sasan has been ratified by the empowered group of ministers (EGoM) on two separate occasions, once in 2008, and again in 2012. The opinion of the attorney general of India and the fact that the EGoM decision was upheld by the Delhi High Court (in 2009) are testimony to the strong legal basis on which the decision was based.

The finance minister has indicated the government may again take up the issue in the light of the attorney general’s and CAG’s views. Is a relook warranted, considering the EGoM has twice approved use of surplus coal in Chitrangi?
On the contrary, we welcome the government’s statement clarifying its position on the matter very succinctly. The finance minister has said the CAG report did not take note of the Attorney General's opinion, nor the EGoM’s subsequent decision, which is regrettable. We wholeheartedly welcome and completely endorse the government stand on this issue. The government has sent out a very clear and strong message asserting the importance of upholding sanctity of past decisions and ensuring that there are no measures taken with retrospective effect, threatening to undermine the investment climate in the country.

Will taking away of the block impact RPower’s Sasan or Chitrangi projects?
Chhatrasal coal block is an integral part of Sasan UMPP. All three blocks were allotted in September-October, 2006 — prior to the bidding process — to Power Finance Corp (the nodal agency designated by the power ministry). The coal block allocation letters form a part of the bidding documents. It was much later that RPower emerged as the winner of the bidding process and subsequently, Sasan Power was transferred to RPower on August 7, 2007.

We understand the Attorney General is understood to have opined that since the allocation of all the three coal blocks to Sasan UMPP was an entitlement to the developer as a part of the bid documents, they cannot be de-allocated now and it would amount to vitiation of the bidding process. In our view, it’s not a question on impact for Sasan or Chitrangi. It’s a question of the environment of investment climate in the country.

CAG has also questioned the award of UMPPs to RPower saying company did not fulfil the bid evaluation criteria (that the aggregate capital cost of projects developed by the bidding consortium not be less than Rs 3,000 crore). What are your views?
In the case of Sasan UMPP, RPower had claimed an experience of Rs 4,416.6 crore (aggregate capital cost), which is more than the bid requirement of Rs 3,000 crore. We have furnished all details that were required from us including certificates from our Statutory Auditors. The evaluation process was overseen by various committees headed by eminent persons such as Deepak Parekh and E Sreedharan and having representations from public sector banks and state governments. It was a multi-tier evaluation process which was appreciated by all stakeholders.

With Sasan tariff at Rs 1.196 a unit and Chitrangi at Rs 2.45, isn’t the company gaining by using the block allotted for Sasan for Chitrangi as well?
I’ve been in the power sector for over 30 years now. I can tell from my experience that no two projects can have the same tariffs. Even NTPC plants next to coal mines have very wide variations in their tariffs – as much as three times. Even the expansion plants located at the same place using the same coal have different tariff. Power tariffs vary based on risk profiles of the projects and other project specific parameters and the timeline of execution. Chitrangi has a completely different risk profile from Sasan and thereby includes several other costs that are not present in Sasan UMPP.

Another reason for the differential tariff between Sasan and Chitrangi is that Chitrangi uses Sasan surplus coal only to the extent of about 40 per cent of its total fuel requirements; the remaining needs to be sourced from other sources which add enormously to fuel cost. Obviously, since fuel is a major component of tariff, Chitrangi’s average tariff is going to be higher. Hence the company is not realising any undue windfall profits from the usage of incremental coal in the Chitrangi project.

By when do you think Sasan power project will start generation?
We are on target to expeditiously complete the Sasan UMPP well in advance of the schedule. The first unit is expected to be commissioned by the end of 2012. Further, work is progressing at a fast pace in the coal mines also, which are expected to begin producing shortly. The entire project will come up two years ahead of its schedule which proves the execution capability of the company.

The project with its landmark tariff of Rs 1.19 per kWh (kilowatt hour) will benefit over 350 million Indians in seven states. There is an estimated benefit of over Rs 1.20 lakh crore, if one compares the average power purchase prices of these states with Sasan’s tariff.

Does the company want to expand the capacity of Sasan plant?
The company has always endeavoured to contribute in the expeditious augmentation of the country’s power capacities and we will continue to pursue those objectives. It is our efficiency and initiative that will produce more coal by using advance technologies and higher investment. We are not in the coal business and seek to convert coal into power and sell power through competitive bidding thus ensuring that the benefits of coal blocks are enjoyed by power consumers.

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