More pains for UMPPs

When Anil Sardana, managing director of Tata Power, the country's biggest private power developer, said on February 5 that the company's 4,000 MW coal-fired project at Mundra, Gujarat, could become a non-performing asset, it did not come as a huge surprise though the scrip dropped 4.36 per cent on Monday. The company had written to the power ministry in August 2011 calling the project unviable if the tariffs for the power produced there were not revised.

Things came to such a pass after the Indonesian government decided to benchmark coal exported from the country to international prices. Since the Mundra plant is to be run on Indonesian coal, analysts have pegged the annual operating losses for the project due to pricier coal at Rs 500-600 crore.

The Mundra project is one of four ultra mega power projects (UMPPs) awarded by the government so far. The other three, at Sasan (Madhya Pradesh), Tilaiya (Jharkhand) and Krishnapatnam (Andhra Pradesh), are being developed by Reliance Power. Mundra is not the only UMPP going through a rough patch. The Comptroller and Auditor General (CAG) has probed an Empowered Group of Ministers' (EGoM) decision to allow Reliance Power to divert surplus coal from its Sasan coal blocks to its other project at Chitrangi, also in Madhya Pradesh, which Tata Power, one of the losing bidders for Sasan, is contesting in the Supreme Court.

The Krishnapatnam project, which has also been impacted by the Indonesian regulation, has been put on hold for the last seven months or so. While the company says it is awaiting clarity on the issue of tariff revision, there have been reports of land acquisition issues and the condition of the soil at the project site being unsuited to installing boilers.

What began as an idea to overcome part of India's power woes through 16 large thermal projects now faces serious challenges to its implementation. While India needs large capacity additions to tackle the peak hour deficit of 12 per cent, projects of the scale of the UMPPs will also invite environmental scrutiny. The UMPPs in Orissa, Tamil Nadu and Chattisgarh have been hanging fire for a long time now.

In case of the 12 UMPPs that are yet to be awarded, especially the ones dependent on imported coal, the government and the developers have to arrive at policies and a business model that can absorb unexpected shocks like the Indonesian regulation.

Also crucial to India adding the proposed 1,00,000 MW in the next five years is the government bringing in more private sector participation in coal mining which will help ramp-up production and take some pressure off Coal India.