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Friday, September 9, 2011

Mega roadblocks

The ministry of power estimates that in order to meet the needs of the economy, which should grow at 8% in the near future, and the government's goal of making power accessible to all, the generation capacity would need to double every 10 years for the next three decades. Reckoning this, the government has decided to develop large capacity projects at the national level. Guided by the national tariff policy, which stipulates that all future requirements would have to be met through competitive bidding, the government decided to award nine ultra-mega power projects, with a capacity of 4000 MW each, to private players through a tariff-based bidding process.
These ultra-mega projects, which would be developed either at coal pitheads or on a coastal location to facilitate coal imports, would have to use super-critical steam technology to save on fuel (about 10% less coal consumption) and greenhouse gas emissions. To reduce project risk, it was decided that special purpose vehicle (SPV) would be set up, which would carry out key pre-project development activities, including land acquisition, ensuring allocation of coal mines for pit-head plants, securing water linkage, obtaining various approvals and clearances while also taking on the responsibility for doing the environmental impact assessment (EIA).
Out of the initially planned nine UMPPs, four were to be located at pithead plant sites and the rest on coasts. The scheme's scope has been expanded to 16 projects, of which SPVs have been formed for 12. Of these, four were awarded to private parties, amongst which three were won by the same bidder.
Fuel linkages for the UMPPs have become a point of contention, with coastal UMPPs being affected by the changes in Indonesian coal-related policies. The firms which made the most competitive bids for the Mundra and Krishnapatnam UMPPs, banking on their backward linkages with owned coal mines in Indonesia, have been affected by the policy changes in Indonesia that made discount-based long-term contracts null and void. The Indonesian government has decided to benchmark its coal prices to international indices, sending the cost economics of both the projects haywire.
Rules governing usage of excess coal from allocated captive mines might also have to be revisited in the light of a Sasan UMPP bidder challenging the diversion of excess coal to the developer’s other projects. The matter is with the Supreme Court.
Land procurement is another major hurdle for the UMPPs. The Sasan project is delayed by 15 months, basically on land acquisition problems. The developer could acquire only 90% of the required land in the last four years. In Krishnapatnam, after initial difficulties faced in land acquisition, the project developer has managed to acquire 97% of the 2,626 acres required. The status of the Tilaiya UMPP is also bleak, as hardly 20% of the required 2,408 acres is acquired. The proposed UMPPs at Tadri (Karnataka) and Girye (Maharashtra) had to be relocated over land issues.
After the notification of go and no-go forest areas for coal blocks, environmental clearances have not been forthcoming, as certain coal blocks planned for UMPPs fall in the “no-go” areas demarcated by the ministry of environment and forests (MoEF). The recent environmental clearance given to the UMPP at Bedabahal (Orissa) has come with “stringent conditions'' for coal mining, including the scrapping of another proposed power project in the vicinity and denying approval for a coal mining block allotted to the same firm.
Developing evacuation systems in sync with the project is also becoming an issue, with the only project that was ahead of schedule, the Mundra UMPP, being delayed over the issue. The 400 KV Mandra-Bachahau-Ranchodpuraline D/C power evacuation line is unlikely to be commissioned soon, owing to delays in right-of-way (RoW) and forest clearances.
The absence of a firm water linkage is also hampering the Sasan power project, with the developer’s request for allowing water usage from the Singrauli power station's open discharge channel pending approval. The developer had requested for this as an interim arrangement till permanent water delivery channels from the Rihand reservoir, located 7 km away, is constructed.
Though a few good measures like incorporating clauses to prevent a single bidder from winning all UMPP bids have been put in place, further changes to the bidding documents might be required to clarify usage of excess coal from allocated coal blocks, so that all bidders can be on the same platform. It remains to been seen whether the problems faced by UMPPs in land acquisition can be sufficiently addressed by the new National Land Acquisition and Rehabilitation & Resettlement Bill, 2011, which is expected to be tabled in the monsoon session of Parliament.
Given that cost-effective fuel linkages remain the primary driver of competitive bids in the UMPP space, the government would need to ensure that coal blocks allocated to the UMPPs are pre-cleared by the MoEF. An alternate approach could be that the selection of the site for future UMPPs be based on coal availability from “go-areas” along with land availability. The government needs to work out a solution to pass through the fuel cost increase of imported coal-based plants, as otherwise these plants would be rendered unviable, affecting investor interest in all future coastal UMPPs.

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