GMR pays record upfront fee for Himachal project

After years of wooing the private sector to invest in power, the government is in the happy position of being wooed by the private sector for rights to build power plants "� especially hydro power plants.

The latest example of this is the bids received for the construction of hydro power plants in Himachal Pradesh. GMR Energy set a new record by bidding around Rs 1 crore per megawatt as "upfront premium" to bag the right to build the 180-Mw run-of-the-river plant at Bajoli Holi. This translates into an extra payment of around Rs 180 crore.

"GMR has emerged as the highest bidder. It has bid over 90 lakh per megawatt as upfront fee," said a state government official. The highest upfront fee paid so far is Rs 50 lakh per megawatt by DS Constructions for the 260-Mw Kutehr project in the state.

"This is the largest upfront payment ever made in the country for a hydroelectric project," says the company on its website. It received the letter-of-intent for the project in January this year.

The fee will add 15-20 per cent to the cost of this build-own-operate-transfer (BOOT) project. According to the terms of the contract, this payment "shall not form part of the project cost in the DPR (detailed project report) and financial closure."

The operation period of the project is 40 years, during which the developers shall provide free power to the state, whose share will start with 12 per cent and go up to 30 per cent in the last ten years of the project.

Others in the fray for the Bajoli Holi project included Reliance Energy, JaiPrakash Hydro, Malana Power, Larsen & Toubro and Lanco. The upfront fee bid for the three other projects, Bara Bangal (200 Mw), Chattu (108 Mw) and Chango Young Thong (140 Mw), ranges from Rs 40-60 lakh per Mw.

Industry officials said the "almost Rs 1 crore" mark did not necessarily mean an increase in the reserve price, which in this case was Rs 10 lakh per megawatt.

"This case has distinct dynamics," said one official. It is seen as a low-risk project which can yield assured power for GMR's airport in Delhi. GMR officials declined comment.

Other state governments have been also been using upfront fee, free power, equity stake on offer to them and commitments on local area development to choose the developers for hydro power projects, since these are not suited for tariff-based competitive bidding on the lines of the ultra mega power projects.

"In hydro projects, tariff cannot be predicted upfront," explained an industry official. These projects are generally perceived to be riskier than their thermal counterparts "� there are geological risks, environmental issues and rehabilitation issues.