Robust 'plug-and-play' model key to UMPP development

Domestic coal-based UMPPs to deliver competitive tariff due to lower risks

While the Centre has proposed to develop 10 ultra mega power projects (UMPPs) in phases, companies in the power sector say the government should strengthen the ‘plug-and-play’ policy for time-bound completion of projects. They also say the bidders must undertake a rigorous ‘risk assessment’ to satisfy lenders and price their bids for true costs.

Finance Minister Arun Jaitley had announced the plug-and-play model in his last Budget, announced in February 2015, for big-ticket infrastructure projects, including UMPPs. Under this model, winners of such infrastructure contracts can start implementing their projects immediately, with the government putting in place all regulatory clearances.

“UMPPs are bound to yield very competitive price discovery. However, before putting out for bidding, the power ministry should ensure plug-and-play in the real sense by providing all approvals, clarifying the taxation issues in two special purpose vehicle structure, providing for change in law in coal sourcing countries and provision for review for factors beyond the control of developers,” Ashok Khurana, director-general, Association of Power Producers (APP), told Business Standard.

PowerGrid Corporation of India's former chairman and managing director R P Singh observed that given the stress of private thermal units, the government should be very clear as to where finance will come for the proposed UMPPs. According to Kameswara Rao, partner (government reforms and institutional development) at PwC, domestic coal-based UMPPs bring a combination of lower risk and larger scale, which should attract financing and deliver competitive tariffs. “While bidders incur the risk of mine development, they have limited scope to recover any excess costs through commercial sales of coal or power.”

POWER PLAY
UMPPs IDENTIFIED FOR BIDDING:

• Bhedabahal, Odisha: Fresh RFQ & RFP to be issued after finalisation of standard bidding documents
• Cheyyur, Tamil Nadu: Fresh RFQ & RFP to be issued after finalisation of standard bidding documents
• Kakwara, Bihar: Site identified and SPV namely Bihar Infrapower Ltd incorporated
• Hussainabad, Jharkhand: Site identified and SPV namely Deoghar Mega Power Ltd and Infrastructure incorporated

Six other UMPPs in various stages of planning include Bijoypatna (Odisha), Kalahandi (Odisha), Surguja (Chhattisgarh), Tamil Nadu (site yet to be finalised), Gujarat (site not yet finalised) and Niddodi (Karnataka)

Debasish Mishra, partner (consulting) at Deloitte Touche Tohmatsu India, said given the current situation of significant generation capacity stranded without long-term contracts, existing contracted capacities running at low utilisation and focus on renewable energy, the private sector’s interest and ability to invest in coal-fired UMPPs right now will be low. “However, a few large generators may take a longer term view and participate in the first few bids, if they feel preparation on part of the government in terms of the plug-and-play-model is substantial.”

According to former Union power secretary R V Shahi, the UMPP scheme is the best to deliver power stations with cheapest power in the larger interest of the consumers. However, for a variety of reasons, there are only two UMPPs — Sasan and Mundra — that are currently operational.

“We must encourage more UMPPs by facilitating all initial project management activities. Now that the government has resolved some of the issues, we can expect some UMPPs to come on line during the course of year,” said Shahi.