Hinduja Project Runs Into Trouble

The counter-guarantee for the Hinduja-National Power promoted 1,040 mw Vishakapatnam project has run into fresh problems after the Centre transferred the Railways' coal supply default liabilities on to the Andhra Pradesh government.

Although the promoters are ready to sign the counter-guarantee, the Centre has refused to the sign the agreement until the state government agrees to pick up liabilities arising on account of the Railways.

Confirming this, Union power minister P R Kumaramangalam told Business Standard, "The counter-guarantee will be given to the promoters as when the state government accepts this and signs the related agreement." Under the terms of the counter-guarantee, the coal supply contract has to be signed first.

Andhra Pradesh government officials said chief minister Chandrababu Naidu is unwilling to take on such a huge liability. The promoters on the other hand are unwilling to rework the coal supply contract.

The Centre transferred the liability to the state because it is not willing to amend the Railways Act and the finance ministry will not bear the liability out of the budget.

Amending the Railways Act will create a precedence whereby any individual effected by the Railways could file for consequential damages. The liability cannot be borne out of the budget because one organ of the government cannot bypass laws governing another organ.

Even the state government used this reasoning, but failed to have any effect on the Centre. "Which is why the project reached deadlock," an official said.

The problem of Railway liability centres around the back-to-back arrangement between the ministry of coal and the Railways for the supply of coal from Mahanadi Coalfields. Under the coal supply agreement, it is the responsibility of the coal company, Coal India Ltd, and the Railways to supply the contracted amount of coal to the project.

However in the event of any accident during transit, it is the responsibility of both the ministry of coal and railways to reimburse the power company on consequential losses incurred due to non-supply of coal and not merely the value of coal being transported. Consequential losses run to into several thousands of crores of rupees because of the disruption in power supply.

In such an event, the Railways, as per the Railway Act, cannot pitch in beyond the value of the goods, leaving the entire onus on the ministry of coal.

The ministry of coal says it will not sign the coal supply agreement because Coal India Ltd will be completely wiped out if it enters into such a deal. "Coal India Ltd is in the business of supplying coal, not mega-watts. We will not sign the agreement unless we are assured that the entire onus is not put on our head," a coal ministry official said.