Budge Budge Unit Cost Under Scrutiny

The West Bengal State Electricity Board (WBSEB), under orders of the state power department, is scrutinising the revised Rs 2460 crore cost estimate for the 500 mw Budge Budge thermal power project of CESC Ltd.

The state government is unwilling to accept the cost escalation of nearly Rs 800 crore without satisfying itself.

The project cost is likely to be recovered from the fixed portion of the tariff. The scrutiny has to be completed quickly if the cost escalation has to be included in the revised tariff, which is overdue.

Of the Rs 2460 crore project cost estimate, Rs 1480 crore is the projected base station cost, finance charges (Rs 648 crore), taxes and duties (Rs 185 crore) and evacuation cost (Rs 147 crore).

In its defence, RPG power utility CESC is reported to have told the board officials that the base station cost of Rs 2.96 crore per mw compares favourably with project costs of various power projects even in the scenario of a global slump in capital goods costs.

CESC has listed four reasons for the cost overrun. One, an increase of Rs 111 crore in financing charges for reasons beyond its control.

Two, a Rs 65 crore increase because of non-funding of project pre-commissioning interest charges through tariff contrary to an earlier government assurance.

Three, an increase of Rs 136 crore owing to time overruns and the temporary suspension of work under government orders. Four, a Rs 210 crore increase due to the change in the scope of work.

CESC has argued that the financing charges increased because of the high premiums payable due to high country risk, rupee devaluation, change in funding plan and time delays. Company officials have told the board officials that the fall in the countrys sovereign rating required it to seek counter-guarantees from financial institutions for the export credit loans for the turbine package costing it Rs 45 crore. Additionally, Rs 30 crore had to be paid to the UK government as ECGD premium and Rs 36 crore on account of the rupee devaluation.

The state power department had agreed in October 1991 to allow CESC to charge interest costs incurred during the implementation period to the tariff, but later withdrew the facility in line with the government policy. As a result, CESC had to seek additional loans.

There were two reasons for the delay in work schedule. One, about six months were lost due to the environment ministry suspending work. CESC officials say a further 12 months were lost due to financial weakness of boiler supplier ABB-ABL, which has refuted the charge.

The company has stated that it had to accept whatever land was allocated to it by the state government. This necessitated design changes and longer conveyor lines leading to an increase of 103 crore. The other components of the cost escalation were changes in the boiler burner management (Rs 24 crore), coal handling plant (Rs 22 crore), intake water system (Rs 10 crore) and other plants (Rs 36 crore).

A dispersed layout resulted in a Rs nine crore cost hike for cables and Rs six crore for increased erection requirement.