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Ultra mega ambitions

Business Standard  |  New Delhi 

Power Secretary RV Shahi appears to have pulled a rabbit out of his hat at a time when his ministry has fallen hopelessly short of the capacity creation target for the current five-year plan, which ends in March. Compared to the original Tenth Plan target of adding 41,110 Mw of new capacity, later scaled down to 36,956 Mw, the current expectation is that only 28,000 Mw will come on stream""a shortfall of more than 30 per cent on the original target. While most observers had written off Mr Shahi's ultra-mega power projects (of 4,000 Mw each) as castles in the air, the power secretary has managed to get 16 bids for two of nine such projects last week. Mr Shahi now expects an equally good, if not better, response when bids for the other such projects open next year. And while it is true that there was no foreign bidder for the first two projects, Mr Shahi believes they were looking for "proof-of-concept"; now that this has been demonstrated, the big international power firms will be back for the next around. While some observers will remain sceptical, the fact is that the bidders have submitted Rs 2,000 crore by way of bank guarantees, and this would suggest that Mr Shahi is batting on a good wicket.
There are downstream issues that must now be addressed; specifically, who will buy and pay for the power that these ambitious projects will generate. Most state electricity boards (SEBs) continue to have weak balance sheets and poor cash flow. If demand is to come from them, it will be difficult to find financiers for the new projects. Various states have indicated that they would be interested in buying power from the ultra-mega projects, but their capacity to pay remains in doubt because of the lack of progress in cutting subsidies. Power trading is an option, but it would be a brave investor and banker who invests Rs 20,000 crore in a project whose fortunes depend on such trading. The country's total power trading today amounts to around 3,000 Mw worth of power generation.
"Open access", which allows power suppliers to bypass SEBs or their successor entities and reach out directly to large consumers (eventually, to even smaller consumers such as apartment complexes), is the obvious way out since large suppliers, such as the ultra-mega power projects, could tie up creditworthy users with long-term contracts. By virtue of being situated on coal pitheads, the generation costs will be low (the Sasan project in Madhya Pradesh has been allocated a captive coal mine, while the one at Mundhra in Gujarat will use imported coal). The issue therefore boils down to the call that investors have to take, on the capacity of the system to reform itself in the five years that it will take for the projects to come on stream. Theoretically, the country should have "open access" in another five years even though regulators are dragging their feet on it right now. By then, the transmission lines that need to be developed and strengthened at a cost of Rs 15,000-16,000 crore, to be able to evacuate large amounts of power, will also have been built. If all goes well, the gamble is probably worth it.

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First Published: Tue, December 12 2006. 00:00 IST