KSEBOA - KSEB Officers' Association

Friday
Jul 28th
Text size
  • Increase font size
  • Default font size
  • Decrease font size
Home News Power Sector News Experts sceptical over bailing out ailing power projects

Experts sceptical over bailing out ailing power projects

PDF
Hits smaller text tool iconmedium text tool iconlarger text tool icon

Power projectsTata Power became the second company after Adani Power Ltd (APL) to propose that State power procurers take control of its ailing imported coal-based power project.

Apart from Tata's 4,000-MW Mundra Ultra Mega Power Project (UMPP), two other large power plants in Gujarat, namely Adani's 4,620-MW Mundra Power Generating Business Undertaking and Essar Power's 1200-MW Thermal Power Plant at Salaya, have been facing issues after the changes in Indonesian regulation in 2010 led to an increase in the price of coal, making operations of the power plants, according to existing power purchase agreements, financially unviable.

Earlier this month, the board of Adani Power announced plans for a slump sale of its power generating plant at Mundra in Gujarat to its own subsidiary, Adani Power (Mundra) Ltd, while Gujarat Urja Vikas Nigam Ltd (GUVNL) was proposed to pick up a controlling stake in the project.

"Consequent to the outcome of the Supreme Court judgment, we have engaged with the stakeholders, including GUVNL, for possible remedial measures for long-term sustainability of the Mundra plant and various options are being explored," Adani Power spokesperson told BusinessLine earlier this month. A top source in GUVNL did not confirm the likelihood of picking up a stake in Adani's Mundra Power Project. However, the official, not willing to be quoted, did not rule out the possibility either. Essar Power, according to sources, has been also exploring similar options.

"This issue has been running since 2010, and now all the legal options have been availed of. The other option for all these companies having imported coal-based power projects is to call (file for) bankruptcy or something of this sort. Of course, it carries a bad name for the company in the market, so they are choosing not to do so, instead, trying to get out with the issue through the route which is very ad-hoc and seems very difficult to get through," an analyst with a leading brokerage told this newspaper.

"In case Gujarat accepts this, all three private players, of course, will be benefited, but I don't really see it happening both for legal, economic and political reasons".

"Such proposal effectively means that accumulated losses, outstanding loans and future losses are being passed on to the consumers of the States, which are procuring power from such projects," said another analyst.

Adani Power and Tata Power had approached power regulator Central Electricity Regulatory Commission (CERC) for compensation and CERC had ruled that such change cannot be classified as change in law or force majeure under the PPAs but allowed compensatory tariff under exercise of regulatory power.

The companies then approached the Appellate Tribunal for Electricity that ruled that the case qualifies under force majeure clause and asked the CERC to reconsider the quantum of compensation. However, in April the Supreme Court denied the companies the right to charge compensatory tariff for their power plants setting aside an earlier decision of the Central Appellate Tribunal for Electricity.

According to Kuljit Singh, Transactions Partner (Infrastructure), EY, in the present environment, especially after the Supreme Court order, there is hardly any major possibility for any changes in the PPAs. At the same time, the entire industry sees coal scarcity creeping back.

"In case of imported coal-based projects, part of the imported coal requirement can be replaced with domestic coal by blending, but technical specs of the equipment should allow them to do so, which in practice may not be feasible beyond a certain extent," Singh adds. "Also, several such projects have been set up on the coast, so it is not clear whether any significant cost benefits could be generated after adding the transportation costs".

When asked about the way forward for the imported coal-based projects, the expert says the fundamental question is whether the government should step in and bail out the projects set up by developers wherein the developers on their own have committed to unviable tariffs in PPAs. "I believe, one has to approach this issue by asking whether the economy, the power sector, or the banking system is going to collapse, or would there be any hardship to the public if the government doesn't bail out these projects. If the answer is yes, then a bail out may be justified," Singh said.

Source - The Hindu

 

Add comment


Security code
Refresh

Random Videos

You need Flash player 6+ and JavaScript enabled to view this video.
Title: Power Quiz 2015 Final - Part-1

Latest Comments

Banner

Reference Book

 

Reference Book on Power

Electrical Engineering-- D' 1/4 Size Hard bound-- 1424 Pages-- Just Rs.1000/- only &n...

Visitors Counter

mod_vvisit_countermod_vvisit_countermod_vvisit_countermod_vvisit_countermod_vvisit_countermod_vvisit_countermod_vvisit_countermod_vvisit_counter
mod_vvisit_counterToday71
mod_vvisit_counterYesterday4541
mod_vvisit_counterThis Month148941
mod_vvisit_counterLast Month153396

Online Visitors: 64
IP: 54.92.180.46
,
Time: 00 : 21 : 49