R-Power protests review of Sasan coal diversion

Reliance Power (R-Power) has rushed to rebut an anticipated adverse comment by the Union comptroller and auditor-general (CAG) for having been allowed, in 2008, to divert coal from the mines allotted for its Ultra Mega Power Project (UMPP) at Sasan in Madhya Pradesh to its other mega project at Chitrangi in the same state.

The decision to permit this use of coal surplus to Sasan’s use was taken by an Empowered Group of Ministers (EGoM). CAG had sought the power ministry’s comments on the issue.

R-Power has argued that the decision had not resulted in any undue benefit to it or any loss to the exchequer. It has written to six Union government ministers, including law minister Salman Khurshid and power minister Sushilkumar Shinde. “Any proposal to review EGoM decisions taken more than three years ago could severely dent the confidence of the international lending community in Indian projects and would signal lack of policy stability, thereby jeopardising infrastructure investments in the country,” R-Power said in the letter to Shinde.

Besides Sasan, R-Power had got the contracts for two other UMPPs, at Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand. In the case of Tilaiya, too, the company is keen to use the captive coal for other power plants; however, after initially agreeing, the government has dithered on notifying the decision.

RPower’s letter said the EGoM decision of permitting incremental coal from UMPPs is completely in line with the policy on captive coal and all applicable laws, with several precedents. Further, the decision was in line with bid documents and existing policy and was upheld by the high court at Delhi. Besides, the government, through affidavits in the Supreme Court, had affirmed there had been no arbitrary distribution of largesse.

The company said there was no change in the commercial conditions subsequent to the award of UMPP projects to RPower and all bidders knew of the existence of excess coal reserves. The government had the right to decide on use of surplus coal, if any, from allotted blocks.

The total reserves of all the three allocated mines was 760 million tonnes, while the requirement for Sasan UMPP was around 400 mt. As the existence of surplus coal and the government’s right to allow its use was known to all the bidders before the financial bid for Sasan UMPP, the financial benefit of such surplus coal was in-built into the rate, Rpower says.

Financial closure has been achieved for the Sasan project, expected to start generation in January 2013, much ahead of the bid schedule.