May 4, 1998

By Shefali Rekhi

Frustrating power cuts, low voltage, frequent fluctuations. Nothing new, except that the situation may well get worse this year. The government did promise many more power plants. But flawed thinking and bureaucracy has short-circuited those intentions. Of the eight fast-track projects selected in 1992 -- and to be completed by '96 -- only two are now generating power. A third, Enron's Dabhol, will get commissioned by this December. The rest haven't even started civil work yet.

The three projects that are on will add to the country's power capacity by just one-fifth of what was originally intended. A basic flaw in the privatisation policy delayed the projects. Private entrepreneurs will not bite till they are certain about profits. In this case, the power producers had to sell the power to the state electricity boards (SEBs), but 18 of the 19 SEBs are in the red with total losses in excess of Rs 10,000 crore. The SEBs made losses because they were not allowed to charge a reasonable rate for power sold to consumers -- in fact, in some states like and Punjab, power is given free to farmers. The states did promise to compensate for the losses, but it was never adequate. Finally, the Centre came forward to announce counter-guarantees.

But these counter-guarantees fall flat against future risks. Two years after the government made its promise, international prices of power project equipment plummeted by a sharp 20 per cent. It was something even the private players did not anticipate. But it led to a new debate about whether the projects were heavily padded on the cost front. In Orissa, the state Government prevailed upon the promoters of the IB Valley project to submit a new bid, with the revised rates. At one point there was even talk of cancelling the Enron project in Maharashtra for which guarantees had been extended.

Overnight, the Ministry of Finance (MOF) turned cautious, asserting that it would independently examine power purchase agreements (PPAs) negotiated between the producers and the SEBs. Till date, PPAs have not been cleared for the remaining five projects. Many other issues have cropped up alongside to cripple progress. And the way things are at the moment, it's going to be a really hot summer ahead. New Minister for Power Rangarajan Kumaramangalam has promised radical reforms, but it's easier said than done. Here's a report on where the five projects are stuck:

Orissa:IB VALLEY THERMAL POWER PROJECT
Capacity: 420 MW, now hiked to 500 MW
Cost: Rs 1,993 crore (for 420 MW)
Promoters: AES Transpower of USA
MoU: December 9, 1992

IB Valley was the first company to sign the PPA as early as in 1993 and was to begin construction soon after. But when international prices of power project equipment fell in 1995, the Orissa Government prevailed upon the promoters to rebid. In the proces, the company slashed its capital cost by 20 per cent, on a cost per MW basis, but at the same time managed to push for higher capacity from 420 MW to 500 MW for economies of scale.This meant going through the red tape all over again.

The revised report was submitted in August 1997 but IB Valley is yet to get the techno-economic clearance from the CEA. Hamsa Shadakasharappa, director, AES India, believes: "Everyone underestimated the complexities of privatising the power sector."

The CEA certified the project in July 1996. But its PPA has run into a technical snag. According to a cabinet decision of 1994, SEBs going in for such agreements should have a rate of return of 3 per cent. But here it is a negative 14 per cent. Chief Minister N. Chandrababu Naidu has requested for a waiver, which the Union Cabinet has to consider. Fuel supply is also a problem. The company has to transport its coal over 600 km from Mahanadi coalfields, for which it has to sign an agreement. Precedents do not exist and both parties are worried about the risks involved. "There are guidelines," points out A. Gavisidappa, managing director, "but there is a problem about the interpretation of the written word." Till then, pockets in Andhra Pradesh will continue to suffer power cuts.

Andhra Pradesh: VISHAKHAPATNAM THERMAL POWER PROJECT
Capacity: 1,000 MW
Cost: Rs 4,253 crore
Promoters: Cogentrix Inc, USA and China Light and Power International
MoU: July 30, 1992

Apart from a review of the PPA and the tariff schedules by different wings of the Government, there is another technical issue that is affecting progress. A transmission system to absorb the power that will be produced by this project does not exist. The state Government wants to set this up through a joint-sector company for which it has lined up a private producer who has no stake in the generation project. As per law, only private producers with a stake in generation can be permitted to participate in a transmission joint venture. The Karnataka Government has sought an exemption from the Centre and an ordinance to be issued for amending the relevant provision in the Electricity Supply Act. The project is also grounded because of the court cases against it, involving damage to the environment and allegations that bribes were paid to state officials. At one stage, the Karnataka High Court even directed the CBI to file a criminal case. But this has now been stayed by the Supreme Court.

Karnataka: MANAGALORE THERMAL POWER PROJECT
Capacity: 250 MW
Cost: Rs 1,325 crore
Promoters: ST-CMS Electric Company, USA
MoU: August 8, 1992

In the '80s, the public sector Neyveli Lignite Corporation (NLC) was operating a power unit with a capacity of 2070 MW based on the lignite mined in the area. It proposed to set up a 210 MW plant to utilise the surplus lignite. The project was appraised by the CEA and given a techno-economic clearance in August 1988. But owing to a resource crunch, NLC was unable to pursue the project.

With the advent of privatisation, the government decided to hand it to the private sector and an MoU was signed with the new promoters. The project size was subsequently increased to the internationally accepted 250 MW. This meant clearances all over again. The PPA and the tariff schedule are being examined by the ministries of power and finance. The deadline set for the signing of a fuel supply agreement with the Ministry of Coal was January 28 this year, but the document is still not in place. The way things stand now, the government's counter-guarantee is still a long way off.

Tamil Nadu: NEYVELI THERMAL POWER PROJECT
Capacity: 1,082 MW
Cost: Rs 5,187 crore
Promoters: Ispat Group with GEC of UK and EDF of France
MoU: June 18, 1993

The difference between Bhadravati and the other projects is that the company wants its own captive coal-mining unit. But this is also the root cause of all its troubles as it has had to float a new company for the captive unit. The logic behind this was that the promoters for the captive unit were different from the ones for the generating plant. But this has got the bureaucracy all knotted up as it wants to know whether the new company can technically qualify to be called a captive power unit. And would guidelines be violated if it got the privileges given to captive units.

There are other objections too. The new captive unit will produce coal in excess of demand, which the SEB has agreed to buy. But government officials are trying to ensure that it will violate no law, policy or guideline by doing so. There is also the problem of location close to an ordinance factory. The Ministry of Defence's response is still awaited. Meanwhile, a petition is pending against the company on the issue of location and the Nagpur High Court has stayed land acquisition for the coal mine till the Department of Defence Production takes a final view on the issue.

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