BGR, Kalinga Energy follow Tata Power, shelves thermal projects in Odisha

Back out due to poor fuel linkage; state to lose Rs 10,000 cr investments, 2,320 Mw power capacity

Thermal power projects are gradually losing traction in Odisha with a clutch of developers deciding to shelve their planned projects. After Tata Power, BGR Energy Systems Ltd and Kalinga Energy and Power have communicated their intent to scrap their proposed coal-fired projects in the state.

Chennai-based BGR Energy Systems had proposed to set up 1,320 Mw coal-based power station at Bhapur in Odisha's Nayagarh district, committing an investment of Rs 6,287.93 crore. Kalinga Energy & Power Ltd, an Odisha-based developer, had sought to develop 1,000 Mw power project at a cost of Rs 4261.27 crore. It signed a memorandum of understanding (MoU) with the Odisha government in February 2009.

"Both BGR Energy and Kalinga Energy have written to the state government with an intent to shelve their projects. Without coal blocks or firm linkages, thermal power producers are finding it tough to commission their projects. Also, the scenario is shifting in favour of renewable power with tariffs getting more competitive”, said a state government official.

On its own, the state government has not renewed the lapsed pacts of Essar Power and Vijay Ferro Power over their lack of interest to implement projects.

The walking away of thermal producers from their projects has posed a threat to Odisha's potential to emerge as a thermal power hub. Weak power demand, lack of coal block or firm linkages, delay in land acquisition and difficulty in raising credit has prompted the promoters to draw back their plans. Between 2000 and 2014, Odisha signed MoUs with 30 IPPs with a total generation capacity of 37,000 Mw. The state government went on a MoU signing spree to secure long-term power security.

Though Odisha was already a power surplus state, the idea behind chasing coal-based power projects was to get power at competitive rates from the Independent Power Producers (IPPs) and sell excess power through its trading agency Gridco. The sale of surplus power by Gridco either to the spot exchanges or to states with deficits through bilateral pacts was seen as a strategy to shore up its stressed finances. But, the strategy fell through as IPPs struggled to secure coal blocks even with the state government's recommendations. Later, Odisha lost its discretionary advantage to recommend award of coal blocks with the beginning of the system of transparent auctions. Some developers like Monnet Power who managed to win a coal block after tough bidding found the coal block unsustainable.

In the MoUs the state government signed with the IPPs, it was entitled to 14 per cent power share if a coal block  was allocated to the developer. If no coal block was alloted, the state could still get 12 per cent of the power generated at variable cost.

"For IPPs, there is no coal block or the guarantee of a firm linkage in Odisha. This together with the trouble in land acquisition and longer break even periods due to cost and time overruns do not make thermal power projects a safe bet”, said a senior executive with a power company.

Most of the MoU bound power projects in Odisha have remained non-starters to this date. The ones that have commenced operations are Vedanta-owned Sterlite Energy, Ind-Barath (Energy) Utkal Ltd, GMR Energy and B C Jindal owned Jindal India Thermal Power Ltd (JITPL).