'Cheyyur ultra mega power project financially not viable'

Implementation of project would risk raising power tariffs, according to private agency report

A report of the US-based Institute for Energy Economics and Financial Analysis has found the Cheyyur ultra mega power project (UMPP) to be financially unviable under the existing tariff policy, and may result higher power tariffs.

The report noted the Tamil Nadu government, being the lead promoter of the project, may have to bear the risk of additional fiscal costs arising from the project implementation.

The study was done by Tom Sanzillo, director of finance at Institute for Energy Economics and Financial Analysis, with inputs from Jai Sharda of alternate research house Equitorials.

"Any new program design must either pass the greater costs to users or necessitate greater governmental costs (subsidies)," according to the report.

Power tariff from the 4,000-Mw Cheyyur UMPP, to operate on imported coal, would be Rs 4.90 each unit in the first year of operation (ie in 2021), with a levelised price of Rs 5.95 over the plant's lifetime.

The report noted the listed tariff does not include the potentially significant environmental liabilities arising in the form of lawsuits seeking compensation and reparation for damage to health, agriculture, fisheries and local hydrology. The project didn't figure out cost overruns as a result of delay in land acquisition and other issues.

"...even this conservative tariff is well outside the range of other approved UMPPs and the large coal plants. It is also likely to be higher than the average cost of electricity in Tamil Nadu," said the report.

According to it, the important public policy goal to provide electricity at affordable rates would be undermined by approving the Cheyyur project.

It added the evolved cost structure was based on factors (imported coal costs and debt service), which are outside the control of the plant operator. The combined financial risks has led to the pull out of several private sector players in the plant, it mentioned.

In January this year, the Union ministry of power had terminated the bid process for the proposed after seven out of eight applicants have pulled out of the fray citing unfavorable bidding rules and their inability to secure bank financing. "The recognition by the Union power ministry on the flaws in the original project design is a step in the right direction," the report said.

The Union power ministry had decided to rework the bid specifications and place the project for rebidding towards the end of 2015, according to reports.

While NTPC had been the sole bidder, private players Adani Power, CLP India, Jindal Steel & power, JSW Energy, Sterlite Energy and Tata Power opted out of the project.

The estimated Rs 24,200 crore project is being sponsored by a consortium of 17 distribution companies, who would underwrite the asset. Of the 17 sponsoring discoms, seven would get power allocation by the Ministry of Power.

As its share, Tamil Nadu would receive 1,600-Mw or 40 per cent of the total electricity generated by the plant.

The lead utility for the project is Tamil Nadu Generation and Distribution Corporation Limited.