Power firms put expansion plans on hold

Companies, investors disturbed at uncertainties over fuel, state utilities' health and power purchase agreements

A conservative approach to expansion plans is the order of the day in the power sector.

Tata Power is set to commission the first unit of its ultra mega power project at Mundra, Gujarat, and is progressing on the 575-Mw Kalinganagar project. The other projects are stuck. “Our projects in the pipeline are suffering delay due to land, fuel and other hurdles. The project planning in terms of the 1,600-Mw Dehrand and Naraj Mathapur units are all fraught with land acquisition delays,” said S Ramakrishnan, its executive director-finance.

Larsen & Toubro made plans two years earlier to set up as much as 6,000 Mw of power capacity. Currently, however, it seems content with putting through the 1,600-Mw Rajpura power project in Punjab. “At the moment, everything is slow,” said A M Naik, chairman. “Either you have issues with coal, with water or power purchase agreements. Our own plan is in as good or bad shape as other peoples’.”

Adani Power is treading the same path. Recently, it said capacity addition of as much as 6,000 Mw had been frozen, due to lack of clarity on coal issues. Three projects on the planning board, at Bhadreshwar and Dahej in Gujarat, and Chhindwara in Madhya Pradesh are held up due to delay in obtaining coal linkages. “We are not starting physical construction until there is clarity on coal linkages,” had said Ravi Sharma, chief executive officer.
 

SHORT-CIRCUIT
COMPANY	PROJECT PLAN	CAUSE OF WORRY
Tata Power	1,600-Mw Dehrand and Naraj Mathapur units	Land acquisition problems
Larsen & Toubro	Initial plans to set up 6,000 Mw of capacity, but now only putting through the 1,600-Mw Rajpura project in Rajasthan	Coal and water issues, PPAs
Adani Power	Capacity addition of 6,000 Mw hit; projects at Bhadreshwar and Dahej in Gujarat, and Chhindwara in Madhya Pradesh held	Delay in obtaining coal linkages

Though power companies say they’re working towards setting up capacity they’d already committed to but are increasingly becoming jittery on any new projects planned a few years before.

“Investors’ worries are three-fold,” explains Debashish Mishra, senior director, Deloitte Touche Tohmatsu. He says fuel-related uncertainties, the deteriorating financial health of state electricity boards and the current structure of rate-based competitive bids are three major risks being faced by investors in the sector.

In the current structure of Case 1 and Case 2 bids (two types of power purchase agreements), levelised rates are becoming uncompetitive if the bid has any portion of the rate as escalable. “A number of such PPAs have come under the scanner, especially in terms of escalation clauses in terms of fuel. Until these issues are resolved, investors and financiers would be wary of further exposure to the sector,” said Mishra.

However, none of the companies are moving away from the sector. They are simply waiting for clear policy guidance from government. “If you ask me, do you have a desire to do it (developing power assets), I do have a desire, provided all the fundamentals of all the project in all respects, including payment security, are very much in command,” said Naik.

Ramakrishnan said the shortage of domestic coal has also led to apprehension that the ambitious capacity addition targets of 90-100 Gw in the 12th Plan (2012-17) may not be met. “The country is likely to face a 20-30 per cent shortage in domestic supply of coal and there would be a gap in supply of domestic gas vis-a-vis projections. The country needs a well-planned energy security policy,” he said.