Global power majors drop plans of going it alone

Several foreign players have revised their plans of going it alone in the Indian power sector, particularly with regard to the ultra mega power projects.

While some players like South Korean power major Doosan (with Tata Power), the Hong Kong-based China Light Power (GMR group), and the Canadian SNC Lavlin have announced tie-ups with Indian players, others are said to be scouting for suitable partners.

Global power majors had initially expressed an interest in the ultra mega power projects, but doubts about their financial viability might hold up their participation in these projects.

According to sources close to the development, several of these foreign players might now back out, or bid only in collaboration with an Indian partner to reduce their own exposure to risk. At least two of these companies confirmed to Business Standard that they were dropping plans to go it alone in India.

Others that continue to be in the fray are said to be considering a power purchase agreement (PPA) that includes a clause for revising tariffs at shorter intervals, sources said.

In addition, the sources pointed out, a higher risk perception could translate into a higher tariff, which, in turn, would make the foreign bids uneconomical compared to those of Indian companies.

Among the 22 companies and consortia that have been short-listed for request for qualification so far, there are global giants like Hong Kong-based China Light and Power (CLP), US-based AES and Khanji, Japan's Sumitomo, and Singapore-based Globeq. Others in the fray include SNC Lavlin, GMH, TXU and Suez Energy.

At the stage of expression of interest, there were AES and Khanjee Holdings from the US; Sumitomo, Itochu, and Mitsui from Japan; Korea Electric Power Co (South Korea); China Line Power (China); Tronoh Alco Combine from Malaysia; Duncan Machneil (UK); and Electricte De France (France).

When the ultra mega power projects were announced in October 2005, it was expected that their sheer scale (4000 Mw scaleable to 8000 Mw) would attract major global players.

While a virtual who's who of the global power industry turned up at the road shows organised by the government in the US, Europe and Hong Kong, and also at the individual project bidders' conferences, doubts about the projects' viability have been creeping in since that time.

The biggest hurdle continues to be the government's refusal to provide a sovereign guarantee. The government has categorically refused to provide a sovereign guarantee, suggesting instead that an escrow facility, where the SEBs deposit the payable amount, be used.

It has also said that the generator would be allowed to sell directly to HT users in case of defaults by SEBs.

The government has also ruled out a tripartite agreement structure involving the RBI, as in the case of NTPC's agreements with the SEBs, where the money devolves directly from the RBI to NTPC in case of a default.

However, analysts pointed out that considering the fact that the largest customers, industrial users, in the case of most SEBs were moving to captive generation, and the component of subsidised power for agricultural use was on its way up, the capacity of the SEBs to absorb the burden of paying for additional 4000 Mw of power was doubtful, given their already weakened state.

"Many of the foreign players feel that a single mega project like Sasan should be broken up into 1000 Mw units, with different developers being allowed to develop the units, so as to spread out the risk," said an analyst.

These factors are expected to push up the bidders tariff from an expected Rs 1.80 per unit to above Rs 2 per unit, making the power from these projects expensive compared to other generating units like Simhadri in AP, which has been taken as a benchmark for pricing coal-based power (Simhadri supplies power at Rs 1.60 per unit).

On imported-coal projects, analysts pointed out that the risk of ensuring continued fuel supply would add to the cost of power.

The projects, which are expected to cost around Rs 15,000 crore, will have a 26 per cent (Rs 3,000 crore) equity component, which cannot be forex-linked. The ministry is yet to clarify on issues such as fuel indexation, coal prices, and forex linkages.