Odisha may drop demand for free power from IPPs

With almost all independent power producers (IPPs) refusing to offer free power from their coal-based plants proposed in Odisha, the state government is mulling to drop 'free power' clause from its comprehensive thermal policy on the pipeline.

“Almost all IPPs that have signed MoUs (memorandum of understanding) with the state government are reluctant to offer free power to the state grid. The power producers say since they have achieved financial closure and already tied up power sale agreements, they would not be in a position to provide free power. This has prompted us to revisit the proposed policy on thermal power plants. There is every possibility that the state government will do away with the provision for free power”, an official source said.

The state government's letters to IPPs, seeking their commitment on supplying free power drew a blank.

“We have not agreed to the state government's proposal for free power. With input costs escalating, the promoters of power plants are making limited profits. No project proponent will agree to offer free power as it will render the power project unviable”, said a senior official of Ind-Barath Energy Utkal Ltd (IBEUL).

Ind-Barath's first unit with a capacity of 350 MW is set to go into generation from March 2013 with the second unit of equal capacity scheduled to be commissioned by June 2013. The company proposed to set up a 1360 Mw power station at an investment of Rs 6450 crore. It has already invested Rs 2000 crore on the power project.

Rajdeep Mohanty, resident director, Jindal Stainless Ltd said, “The demand for free power is unreasonable. It will render power projects unviable and lengthen their break even periods. No MoU signed player would be in a position to provide free power.”

Concerned over the nominal advantage accrued to the host state due to the implementation of coal-based power plants, the Odisha government had urged the Centre to revise its policy to allow supply of 25 per cent free power from IPPs and 33 per cent free power from power plants based on coal washery rejects to the host state..

Later, the state government scaled down its demand for free power from power plants based on coal washery rejects to 13 per cent as the original demand was deemed unreasonable.

The Odisha government had pointed out that while states consuming the power and coal from the host state get benefited, the host state gets a nominal advantage of limited employment opportunity and a very low royalty on coal.

Both coal mining and power generation being in the manufacturing sector, hardly any ancillary industry gets developed around these activities. The above situation leads to an inequitable sharing of cost and benefits from coal mining and power generation.

The host state also suffers from severe adverse impact which includes huge quantum of land acquisition and consequential displacement and rehabilitation of the locals, mostly tribals. In addition to this, these projects lead to progressive depletion in forest cover posing a threat to preservation of flora and fauna, great risk of environment pollution, strain on water resources, over utilization of the state's existing infrastructure and other resources like roads and railways, unfilled mine voids and un-reclaimed land.

Odisha had inked MoUs (memorandum of understanding) with 29 IPPs with a total envisaged generation capacity of 37,000 MW. In addition to this, Mahaguj Collieries Ltd, a joint venture between the state owned power generation companies of Maharashtra and Gujarat, had proposed to set up a 2500 MW (10x250) power plant near Angul based on coal washery rejects.