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Is the govt's mega-power plant dream over?

Lack of enthusiasm from private players is prompting a rethink on the part of the government that may change the bidding regulations altogether

Shreya Jai  |  New Delhi 

The government envisioned the generation of adequate power needed by the burgeoning economy when it planned ambitious coal-fired ultra mega power projects (UMPPs), each with a capacity of 4,000 Mw. A beginning was made with the identification of 16 such projects in the mid-2000s. Now, several years later, the story is not so electrifying. The four projects that were awarded to private players find themselves embroiled in problems, while the bidding for two others have been scrapped by the government.

Just before the bids for the Cheyyur project in Tamil Nadu and the Bedabahal project in Odisha were to be opened, the private players withdrew. In a communication to the Union ministry of power through the Association of Power Producers, they expressed concern over the Design, Build, Finance, Operate, (DBFOT) model of the They pointed out that the did not apportion risks equitably. “All losses go to the power generator and gains to the procurer, leaving the power producer as a contractor,” the letter said.

A BUMPY RIDE
  • 16 planned by the government
  • Four projects awarded so far— three to Anil Ambani-promoted Reliance Power, one to Tata Power
  • Bidding for two projects in Tamil Nadu and Odisha scrapped by government
  • Tata Power’s UMPP is embroiled in a legal battle over tariff
  • R-Power’s Sasan UMPP is operational; Tilayiya & Krishnapatnam projects are embroiled in legal issues
  • Expert committee to prepare new standard bid documents

Given the lack of enthusiasm of private players, the government has now decided to draft a new standard bid document. All fresh bidding will take place under its provisions. In a letter to the Power Corporation, the convenor for the bidding, the has said that fresh bidding would now be held according to the new regulations, likely to be drafted within a couple of months. Ministry officials also privately say that Piyush Goyal, minister of state for coal, power and renewable energy, was eager to have the bidding regulations amended to enable bigger investments in power generation.

“This is a correct step,” says A K Khurana, director general of the Association of Power Producers, a grouping of private players in the power sector. “All of us want competitive and sustainable price discovery. This was not possible under the proposed documents. We are looking forward to the new bid document.”

Rupesh Agarwal, vice-president, Ernst & Young, however, adds a cautionary note. “Any fresh round of bidding would require to be prepared and agreed upon upfront not interim,” he says. “There needs to be clarity on coal price pass-through and power-purchase agreements. The sector cannot afford a bid document that is standardised every now and then.”

The earlier bidders in are anxiously waiting for the government to signal a reform in the UMPP model. “There should be an umbrella policy covering both public sector companies and the private sector that allows any delay and change in regulation leading to increased or decreased cost of power production to be passed on,” says an executive of one of the UMPP potential bidders.

Beset with problems
However, it is not solely the bid provisions that have the power producers worried. “Under-preparedness in the case of Tamil Nadu and Odisha UMPPs also led to several issues. Apart from the bid document, there were issues regarding land in Tamil Nadu and coal reserve assessment in Odisha,” says a power sector expert.

Of the 16 UMPPs that the earlier government had planned to set up, four were awarded. The projects at Sasan in Madhya Pradesh, Tilaiya in Jharkhand and Krishnapatnam in Andhra Pradesh are operated by Reliance Power. The Mundra UMPP in Gujarat is run by Tata Power. These projects were awarded on competitive tariff-based bidding and executed through special purpose vehicles.

The project at Mundra is engaged in legal battles regarding compensatory tariff from its buyers in five states. The plant uses imported coal and because the price of coal has gone up, the plant has moved the sector watchdog, Central Electricity Regulatory Commission, for permission to revise its power rate from the contracted Rs 2.26 per unit to Rs 3. At the current power price, the project would face losses of around Rs 1,800 crore per year. The projects at Tilaiya and Krishnapatnam are embroiled in issues of land and other clearances from the respective state governments.

The private players complain that while the public sector companies enjoy good returns and tariff changes when a project is delayed, the private companies don’t get the same benefits. “On the one hand, the government wants investment from the private sector but provides no level playing field,” says an executive of a power company. “Hopefully, the revised bid document will take into consideration the interests of not just public sector or private players, but also of the entire power sector, which awaits fresh capital investment.”

For the Cheyyur UMPP, the private players in the fray had been Adani Power, CLP India, Jindal Steel & power, JSW Energy, Sterlite Energy and Tata Power. Of these, only four bought the “request for proposal” document but none decided to go further in the bidding process. State-owned NTPC submitted a bid, which, however, wasn’t opened on December 26, the last day of submission as the regulations required at least three quotations for completing the process to choose the final winner.

Similarly for Bedabahal, there were nine interested bidders initially, with Adani Power, CLP India, GMR Energy, Jindal Steel & Power, JSW Energy and Sterlite Energy among the private companies. When they pulled out, only NTPC and NHPC were left in the fray. The bidding thus had to be terminated. In the process, the country’s largest power generator, NTPC, lost its chance to its first UMPP.

First Published: Tue, January 13 2015. 22:30 IST
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