Power projects on the blink despite clearances by government

Once a haven for infra major investment, power sector is now bereft of capital flow. Past delays still haunt the sector, and there are fears that Rs 2.5 lakh crore worth of projects would become NPAs

In a major hurdle to the National Democratic Alliance government's poll promise of 24x7 power for all, over 80 major projects - both generation and transmission - are facing delays. These projects have a stuck capital of Rs 3.75 lakh crore.

While land and fuel availability has been the prime reason for delay, issues relating to 20 generation projects have been resolved, according to officials. According to Project Management Group (PMG) data, the projects facing fuel issues have either got coal blocks or supply through the linkage system. The Centre and state-level clearances have also been achieved in land allocation.

But the delay in clearances has led to cost overruns, which could trigger another set of problems. "Restarting the delayed project cycle has as much to do with undoing the quagmire around clearances as recognition of cost overruns. Power projects stalled for over three to five years could now see cost overruns of up to one-and-a-half times. Moreover, these projects would find it onerous to justify viability in the context of erstwhile revenue commitments," said Rupesh Agarwal, partner, BDO India LLP.

State-owned National Thermal Power Corporation's (NTPC) Rs 15,000-crore north Karanapura project remained a non-starter for want of coal and land for almost a decade until last year when linkage was facilitated to it. The company was quick to award Rs 7,900-crore engineering, procurement and construction (EPC) contract for the project to Bharat Heavy Electricals Limited (BHEL). An NTPC executive said work was on full swing at the project site, but the delay has impaired their plans.

"There is still some clarity needed, after the allocation of coal. Adjustments to the power purchase agreements (PPAs) would be reviewed accordingly," said a senior NTPC executive. Revising the PPAs would involve another set of regulatory battles.

As many as 737 cases are pending at the Central Electricity Regulatory Commission (CERC); 80 per cent are for revision of tariff due to delays. Lanco Babandh Power Project in Odisha is a case in point. The project cost is being revised as it got delayed due to land allocation. The company is selling off its assets to battle mounting debt.

The Ultra Mega Power Plant (UMPP) of Tata Power and Reliance Power along with power projects of Adani Power are under the regulatory cloud. The case of compensatory tariff, which would cushion the power generators from fluctuation of imported coal prices and foreign exchange (forex), is back where it started after two-year fall-out with power procurers not amenable to a higher tariff. Meanwhile, Reliance Power pulled out of the Tilaiya UMPP as there was delay of over four years to allot land to it.

While thermal power projects might see some respite, hydropower projects continue to fester. Of the 80 stalled power projects, around 25 are hydro-based. Due to delays, the cost of the project, in almost all cases, has increased manifold thereby inviting regulatory tiff over tariff.

NHPC's Subhansari Power Project - after years of being in the line of fire between Assam and Arunanchal Pradesh over land allotment and power sale - would be operational soon with the current cost being twice the original Rs 6,000 crore, said NHPC officials. Transmission, on the other hand, is facing consequences of non-economic planning. There are instances where transmission projects have been planned ahead of generation units, which didn't come up. At the same time, there are no transmission lines to carry around 800 Mw wind power from Tamil Nadu, 7,000 Mw from west to south, and coal-based independent power producers in Chhattisgarh and Odisha.

Once a haven for infrastructure major investment, the power sector is now bereft of capital flow. Past delays still haunt the sector, with Rs 2.5 lakh crore worth of projects feared to become non-performing assets (NPAs) with the banks soon.