State govt power projects in pause mode

Late last year, Karnataka state government called for initial bids for three gas-based power projects with a size of 700 megawatts each. As many as eight companies qualified in the bids, but the projects are held up due to questions over fuel supply.

Earlier, the three projects at Gadag, Belgaum and Davanagere, were supposed to be fired by domestic gas from the Dabhol Bidadi pipeline. “The state government was supposed to get a part of domestic gas, which was to be used for these projects. Later, they wanted to use imported LNG, which changes the financials of the projects,” said one of the bidders for the project.

Yet another project by Karnataka state government, in Gulbarga has been delayed since 2008. The coal-based project was originally planned to be fired on domestic coal. As many as 13 companies qualified in the initial round but the interest in the project waned after the state government decided to convert it into an imported coal-based project.

Many such case 2 projects which were planned, especially at the state government level, are not seeing the light of the day. In case 2 projects, government provides land, fuel linkage and environmental clearances to private companies which seek to develop these projects.

“Bidders expect fuel tie-up, land acquisition and environment clearance to be in place or reasonable progress made by government on these, at the time of bidding in Case 2 projects,” said Deloitte Touche Tohmatsu Senior Director Debasish Mishra.

Lack of planning is also yet another reason which is dogging the execution of these projects. “The competitive bid process has shown a vast improvement over the negotiated, guaranteed-returns cost-plus contracts prior the Electricity Act 2003. To be effective, however, utilities undertaking competitive power procurement under Case 1 and Case 2 routes, need to do proper groundwork. They need to assess their future power requirements rigorously, and understand the cost implications which they are prepared to bear. If this is not done, utilities could end up bearing a higher cost later, or may delay the process whilst they come to grips with the implications. The delays in turn impacts the bidders who structure their bids on current costs of fuel, finance, and equipment which have been volatile in recent years,” said Kameswara Rao, Leader-Power practice, PriceWaterhouseCoopers.

Two more such projects in Orissa were also delayed due to a tussle between state and central governments. The state which is also expected to get an ultra mega power project (UMPP) was asked by the central government to cancel its plans for two coal-based projects to be executed by the state. One of the projects is 1,980 megawatt project in Jharsuguda and yet another is a 1,200 megawatt expansion project by Orissa Power Generation Corporation (OPGC).

“The state is not accepting the central government’s argument that it will not need both these projects because a 4,000 megawatt UMPP would take care of its power deficit needs. Now, these projects will take off only after the battle is resolved,” said a source close to the development.

In Punjab too, a 1,320 Mw project in Gidarbaha which was earlier supposed to seek competitive bids was cancelled. The state instead chose to allot the project to government utility NTPC, and sources say the state made the decision to diversify its risk.

The state already has three projects, which are being executed by private developers like GVK in Goindwal Sahib, Sterlite Energy in Talwandi Sabo, and Larsen & Toubro in Rajpura.

Experts say state government projects are also delayed because it is getting tougher to attain coal linkages, and their necessary approvals.

“With new classification by the Ministry of Environment and Forests in terms of no-go areas for coal blocks, movement in allocation has become slow. Some projects also have not got much headway in terms of land acquisition,” said, Ernst & Young Partner-transaction Advisory Services Kuljit Singh.