Low tariff, high cost kept cos from AP power project

No tie-ups for imported coal, rising cost of coal, high project cost and cut-throat competition on tariffs "" these are some of the reasons put forward by companies which did not bid for the 4,000 Mw Krishnapatnam ultra mega power project (UMPP) in Andhra Pradesh though they were eligible to do so.

Of the nine qualified bidders, three "" Sterlite Industries, Reliance Power and Larsen & Toubro "" submitted price bids for the Rs 16,000-crore imported coal-based project.

Those who stayed out were Japan's Sumitomo Corporation, the GMR-China Light and Power (CLP) combine, Israel Electric Company (with DS Construction), Tata Power, Essar Power and NTPC Ltd.

"Our plate is full and we don't need such large projects where competition brings tariffs so low that they become unviable," said a senior executive of Essar Power, a prominent private player in the domestic power sector.

Incidentally, Essar has a 1,200-Mw imported coal-based project being constructed at Jamnagar in Gujarat, which it won through competitive bidding.

It was expected that Krishnapatnam would attract foreign developers as they would have seen the first two 4,000-Mw UMPPs, at Sasan (Madhya Pradesh) and Mundra (Gujarat), get off the ground. But it did not happen.

A Delhi-based power analyst said Krishnapatnam was a tough project because of the kind of tie-ups a developer would need.

Along with the requirement of owning coal mines abroad with a minimum capacity of 14 million tonnes, transportation and shipping costs, coupled with escalating coal prices, make the project expensive, he says.

In addition, the developers would have to look for super-critical equipment due to the project's magnitude, which was not easy in these supply-constrained times, said a sector expert.

NTPC pulled out as it could not secure imported coal for the project.

According to power ministry officials, some bidders also sought more time, but given the delays, the ministry decided against an extension. The date of request-for-proposal (RFP) submission was postponed five times.

Some experts say the government is not serious about these mega power projects. "I feel there is a diminished enthusiasm for these projects from the government side," said a power consultant in Delhi.

Krishnapatnam is comparable with Mundra since both are coastal projects, but the former is considered tougher.

Tata Power, which won the Mundra project through tariff-based competitive bidding by quoting Rs 2.26 per unit, decided to stay out of the race for Krishnapatnam. The tariff for Krishnapatnam was likely to be over Rs 2.50 per unit, said a consultant.

"Krishnapatnam would have been a burden for Tata Power because it is already under pressure because of the Mundra project and a 2,400-Mw project in Mumbai, both of which require imported coal. It can't afford to have a portfolio of such high-cost power projects," said the Delhi based analyst.

After the successful transfer of the Sasan and Mundra projects to Reliance Power and Tata Power, respectively, Krishnapatnam is the third UMPP in line.

The idea of such projects was floated to fast-track capacity addition under the public-private partnership route. At last count, the government was planning 10 such projects across the country.

The bids for Krishnapatnam would be opened on November 13.