New Delhi: State-run power utility NTPC Ltd’s first overseas project, a 500MW plant to be built in Sri Lanka, has been delayed by at least four years due to financial disagreements with its foreign partner and Tamil separatist strife in the island nation that ended last year.
The $500 million (Rs2,220 crore) power project is to be set up as an equal joint venture between NTPC and Sri Lanka’s Ceylon Electricity Board (CEB) on a build, operate, own and transfer basis and a debt to equity ratio of 70:30.
NTPC signed an agreement with CEB and the Sri Lankan government in December 2006, but a slew of other agreements, such as a joint venture agreement and a power purchase agreement, are yet to be inked.
These agreements were expected to take a year to be finalized. After that, constructing the plant and setting up related infrastructure was to take about three years. So the project was initially expected to be commissioned and start generating power in 2011.
The power purchase agreement, negotiated six months ago, is yet to be signed, according to a person aware of the development who did not wish to be identified.
The reason, he said, is CEB’s demand that the Indian government offer a guarantee for the funds it has sought, as well as provide a return on equity during construction.
A senior NTPC executive confirmed the delay. “There are all sorts of problems with the project,” he said on condition of anonymity. “Sri Lanka is looking for funding with the government of India guarantee. We are trying to resolve the issue.”
Other pacts to be signed include the agreement between board of investment of Sri Lanka and the joint venture company, as well as implementation and coal supply agreements.
The plant will use around 2.5 million tonnes of coal a year, which may be sourced from Australia and Indonesia.
CEB could not be contacted despite repeated attempts. Palitha Ganegoda, Sri Lanka’s deputy high commissioner to India, admitted there was a “little bit of tussle” over the project, but put the delay down to recent elections in his country.
“The project is coming through. The issue of guarantee is being negotiated. In order for the agreements to be signed, it needs to be put before the cabinet, which is being appointed this week,” Ganegoda said. “We expect the agreements to be signed within one or two months and expect the project to be commissioned by 2015.”
The plant will boost power supply in Sri Lanka, which suffers from an acute shortage. The country has a power generation capacity of 2,500MW, compared with India’s 157,000MW.
For NTPC, the project is important to demonstrate its ability to set up power plants abroad. It is also India’s attempt to engage Sri Lanka politically and economically at a time when China is becoming increasingly influential in that country.
The government had asked NTPC to hasten the process of building a power plant in Sri Lanka after the latter awarded a 300MW coal-fired plant in 2006 to the China National Machinery and Equipment Import and Export Corp.
Vishnu Prakash, spokesman for India’s foreign ministry, did not reply to emailed questions.
Ganegoda denied Chinese interference was delaying the project. “There should be no concern with reference to Chinese interference.”
Analysts are not too optimistic about the project. “This is the first project that NTPC is setting up overseas,” said Rupesh Sankhe, equity research analyst at Angel Broking Ltd. “Elections certainly seems to have delayed the project. However, it looks very difficult to execute and will get delayed.”