There were many disbelievers of the government’s ultra mega power project policy which envisaged the setting up of 4,000 mw projects — gigantic by Indian standards — by the private sector using the latest supercritical technology. Once the list of eligible bidders was in for the first two projects at Sasan and Mundra — for the award of the project was to be on the basis of tariff-based competitive bidding by pre-qualified bidders — there were doubts about how many would actually bid. And once the shock of the low-tariffs which came through a fairly competitive bidding process was over, there were doubts about the ability of private sector companies which had bagged the projects to ratchet up the Rs 16,000-18,000 crore required for each project.
Tata Power’s ultra mega power project on the Mundra coast was the first to cross all these humps and announce financial closure earlier this year. Even as the other two projects at Sasan and Krishnapatnam straddle along towards financial closure, the fourth ultra mega power project has gone under under the hammer — the Tilaiya project in Jharkhand. Even in these challenging times, the pithead coal-based project has managed to attract bids from five of the nine eligible bidders — NTPC, Reliance Power, Lanco, Sterlite and Jindal. Since the price bids will only be opened a fortnight later, the name of the company which has actually bagged the project will only be known then. What is known now is that companies like Tata Power and Larsen & Toubro, which had qualified to bid, opted out of the race for the project. Even with these high-profile deletions, the turnout of the bidders can only be described as impressive in the backdrop of the current economic and liquidity situation.
There were many notable firsts to these ultra mega power projects despite the controversies which broke out over the eligibility of the successful bidder in the case of Sasan. This was the first time that projects of this scale were being attempted in the power sector. It was a giant attack on a giant problem of generation deficiency. A significant amount of pre-project work was done by the special purpose vehicles set up to pilot these projects under the Power Finance Corporation. They interfaced with other government agencies for various clearances, identified fuel and water linkages and even signed preliminary power purchase agreements.
There has, however, been a slackening of the pace of work on these ultra mega projects since the first flush of Sasan and Mundra. The shell companies for these two projects were set up in early 2006 and the projects were awarded to the private sector developers by mid-2007. The third ultra mega project at Krishnapatnam was handed over to the private sector developer (Reliance Power) in January 2008. But progress has been slow on the other ten-odd projects for which shell companies have already been floated.
The situation has also been aggravated by the general economic slowdown and the funds crunch, though the average power deficit of over 10 per cent and peak deficit of almost 14 per cent make it obvious that power will continue to be a sellers market for some time to come. Tilaiya itself is a year and half behind its original schedule under which the bidding should have been completed by July 2007. It is now useless to say that we should have pushed more of these projects when the going was good. What is required now is a modification of the ultra mega power project policy so that smaller projects — 2,000 mw or even 1,000 mw — can be accommodated under it, without disturbing the ongoing pre-project work on the sites already identified for the larger 4,000 mw projects. Smaller projects would be quicker to get off the ground in a slowdown environment where liquidity is strained.
Additionally, we should do more than talk about the urgent need to tackle the problem of transmission and distribution losses if we are to avoid pumping a significant amount of new power generated into a black hole yielding zero revenue. There is a revised central sector programme (Restructured Accelerated Power Development and Reform Programme) to attack the problem so that we can have “actual demonstrable performance in terms of sustained loss reduction” but we are still talking about establishing baseline data on losses, verified by an independent agency. The target for states having losses of over 30 per cent is a reduction of 3 per cent per year while those with lower losses will be committed to reduce losses by 1.5 per cent per year to be eligible for loans-convertible-to-grants from the programme. Obviously, we are still not moving aggressively enough in tackling what has been identified as one of the biggest problems facing the power sector, in addition to inadequate generation!