Maharashtra Dept Questions Cipco Back-Up Pact

The state finance department has expressed dissent over the Maharashtra governments decision to provide a separate back-up agreement to the proposed Nippon Denro Ispat coal joint venture near Nagpur.

Additional chief secretary (finance) Venkat Chary is reported to have questioned the need for the state government to give guarantees to the coal company in the garb of a back-up agreement. Charys statement was noted in the minutes of the state cabinets meeting.

The back-up agreement is in addition to the power purchase agreement and government guarantees given to Central India Power Company (Cipco). The company is setting up a 1,082 mega watts (mw) power plant at Bhadrawati. The draft PPA of the project has already been submitted to the Centre for clearance.

 

Ispat Gas has tied up with GEC of the UK and EDF of France to produce power through Cipco. Australian company RTZ has also taken an equity stake in the project.

Cipco has also promoted a joint venture to sell coal to it. The joint venture, called Central India Coal Company (Cicco), proposes to obtain coal from captive mines allotted near the project site by the state government to the company.

Venkat Chary is believed to have expressed his displeasure at the take or pay stand taken by Cicco to supply coal to Cipco. Under this, if state government policies cause a stoppage in Cipcos operations, then the Maharashtra State Electricity Board will step in to buy coal from Cicco.

Chary reportedly pointed out that the state government or the state electricity board could source the coal from any other company without bending backwards and accommodating Cicco with a back-up agreement.

It was also argued that it would not be possible for the state government to implement similar projects in future if it began taking the entire financial onus of infrastructure projects.

However, when Business Standard contacted Venkat Chary, he dismissed the matter, saying secretaries are in the habit of adding notes of caution to every project. Energy department secretary Ashok Basak defended the government, saying the agreement was necessary for lenders to put money into the coal company. This is not the lone controversy dogging the Bhadrawati power project. Cicco is also facing litigation regarding the location of three captive mines.

The collector of Nagpur and ordnance factory authorities have protested against the coal mines being located within the 25 km restricted zone surrounding the factory.

Sources point out that even aeroplanes are barred from flying over an ammunition factory as a security measure. But Cicco has been allowed to blast mines within the security-risk area.