R-Power's 4,000-Mw UMPP hits roadblock, may seek govt help

Anil Ambani Group firm Reliance Power's (R-Power) 4,000-Mw Krishnapatnam ultra-mega power project (UMPP) is facing roadblocks due to various reasons, including a recent change in Indonesian law which mandates all parties to sell coal at market prices.

Earlier, Indonesian coal mines had the freedom to bilaterally agree coal prices with buyers. The recent change in law will impact the viability of this project as well as others that are based on imported coal, especially from Indonesia.

"This change by the Indonesian government will adversely impact not only Krishnapatnam, but all existing and future imported coal-based power plants in India, including UMPPs," Ashok Khurana, the Director General of the Association of Power Producers, said.

The association is likely to approach the government to find a solution in the interest of capacity addition in the country, he said.

Other issues impacting the Krishnapatnam Project include the condition of the soil where the foundation for the boiler has to be laid and land disputes at strategic locations.

A team of officials of the Central Electricity Authority (CEA) recently visited the project site at Krishnapatnam in Nellore District of Andhra Pradesh. According to sources, the company has slowed down the construction of the project due to these factors.

"Even after going 75 metres down, engineers found marine sand, which may not be a good sign for laying foundation. If it has to be filled with layers, the cost would go up significantly," sources said.

When contacted, R-Power officials said the company has briefed their stand to the visiting CEA officials.

According to the CEA's latest report on the project, as of May 31, work on the boiler foundation is yet to start, sources said.

"90% boundary work completed. Soil investigations for sea water intake systems are in progress. Work on boiler foundation has not yet started," the report said.

The Krishnapatnam UMPP was originally a 5x800 Mw project, which was later configured to 6x660 Mw.

It is expected that the project will start generating power from the year 2013 and will be completed before the contemplated schedule. The project achieved financial closure in July, 2009. The lenders for the project are a consortium of almost 12 banks lead by IDBI and the lending was done on a project finance basis for an estimated project cost of around Rs 17,450 crore ($4 billion) with a debt-equity ratio of 75:25.