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Coal Controversy | MMTC loses Chhattisgarh power project

Coal Controversy | MMTC loses Chhattisgarh power project
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First Published: Mon, Aug 24 2009. 01 00 AM IST

Updated: Mon, Aug 24 2009. 01 00 AM IST
New Delhi: The Chhattisgarh government has decided to scrap a controversial proposal to award a 1,350MW power project and a coal mine to state-owned mineral trading company MMTC Ltd, which had sought to partner with a private sector firm to develop the project.
The proposal had triggered charges that the state government had not followed due and transparent procedure, and even officials associated with the process raised concerns that awarding it to MMTC would allow a private firm access to the coal, a commodity that is increasingly becoming scarce.
Mint had reported on 13 October that the Chhattisgarh government was pushing for the project to be awarded to MMTC although it doesn’t have much experience in either power generation or mining.
The deal was being finalized by sidestepping a sealed financial tender and based on a simple presentation by certain invited companies, the report said.
Power projects in India are usually awarded through a bidding contest, with companies quoting the lowest cost of generation per unit typically winning the contracts.
The proposal “is now abandoned”, said N. Baijendra Kumar, Chhattisgarh’s principal secretary for public relations, the spokesperson for the state government.
Kumar added: “The Chhattisgarh Mineral Development Corp. (CMDC) is now processing for a fresh tender.”
“We feel that we will get a better deal if we go for a fresh tender,” he added when asked why the proposal had been scrapped.
A senior MMTC executive, who did not want to be identified because of the sensitive nature of the issue, said the state-owned company had never been officially told by the Chhattisgarh government that it was being awarded the project.
“We are unaware about a fresh tender being considered as we are yet to receive an official communication,” the executive said. “We participated in the process and gave our presentation. Beyond that we are not aware of anything.”
MMTC had plans to execute the project through a public-private partnership route and had sought a so-called expression of interest, or EoI, to form a joint venture.
Seven companies, including the Indiabulls Group, Adani Group, Tata Power Ltd and Larsen and Toubro Ltd (L&T), were shortlisted.
“With this (Chhattisgarh government) decision, we have now dropped the plans,” said the MMTC executive.
Indiabulls Group, Adani Group, Tata Power and L&T could not be contacted for comment over the weekend.
India has 256 billion tonnes of coal reserves, of which around 455 million tonnes (mt) per annum is mined. The country currently imports around 40 mt of coal.
One of the concerns that was being raised was that the coal mine reserves were more than adequate to generate 3,500MW of power and the excess coal could be traded commercially.
“The opaque transactions and complex structures are manifestations of deficient coal allocation policies tilted in favour of captive users that may not have either expertise to mine coal or (the) financial resources to invest in coal mining and power generation,” said Dipesh Dipu, principal consultant, mining, at audit and consulting firm PricewaterhouseCoopers.
“Essentially, the work of coal production is done by specialist coal miners or contractors, but the captive mining regulations force creation of several layers,” Dipu said. “A vibrant market with large number of market participants, prudent eligibility constraints for entry and information symmetry may be part of the answer to the problem at hand.”
Around 40 public sector firms, including Bharat Heavy Electricals Ltd and MMTC, responded to an EoI tender from the state government for setting up the 1,350MW power project and developing the coal mine at a combined cost of around Rs7,000 crore.
According to the project proposal, the selected company was to form two separate joint ventures with the Chhattisgarh State Electricity Board (CSEB) and CMDC, respectively.
In the first instance, CSEB would hold a 26% stake in the joint venture, while in the second, CMDC would hold 51% in the firm in keeping with government laws that mandate coal can be mined by any venture in which the government has at least a 51% stake.
liz.m@livemint.com
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First Published: Mon, Aug 24 2009. 01 00 AM IST