New Delhi: India and Russia have set the stage for settling a controversy over a nine-year-old deal by signing a protocol that allows power producer NTPC Ltd to terminate a 2,066 crore equipment order that it placed with the Russian state-owned firm JSC Technoprom Export (TPE) if a resolution is not found by 1 December.

This comes ahead of a summit meeting that Prime Minister Narendra Modi and Russian President Vladimir Putin are to hold in early December.

“The issue has been raised by India’s ministry of external affairs (MEA) with the Russian government. A protocol has been signed between the two governments which states if the issue is not resolved by 1 December, NTPC is free to proceed with its course of action," said a senior Indian government official on condition of anonymity.

The protocol was signed during a meeting of the working group on outstanding issues under India-Russia Inter-Governmental Commission held in New Delhi between foreign secretary Sujatha Singh and the Russian Federation’s deputy minister of economic development Alexei Likhachev on 28 October.

“This is a tricky issue given Russia’s sensitivities. NTPC is ready to proceed on its own," said a person aware of the development, who didn’t wish to be identified.

The TPE controversy dates back to February 2005 when the Russian firm won a contract to supply boilers to the NTPC’s 1,980 MW first phase of the Barh project in Bihar.

Work on the project soon stalled, with TPE demanding more money for the equipment, citing higher steel prices. The Russian firm wanted an extension of time and removal of a 20% cap on price escalation. The project was also embroiled in a controversy after India’s Central Bureau of Investigation (CBI) concluded that TPE, a unit of the Russian conglomerate Rostec Corp., breached its contract to supply boilers for the three units of 660 MW by hiring an agent to facilitate the deal.

TPE has now linked the completion of the project subject to financial support by the Russian government.

The ill-fated Barh project has been compared with India’s delayed acquisition of the refurbished ex-Soviet aircraft carrier Admiral Gorshkov, rechristened INS Vikramaditya in November 2013. India took up the issue with Russia’s deputy prime minister Dmitry Olegovich Rogozin during his visit to India in February and with Russian deputy foreign minister Igor V. Morgulov in April.

According to the protocol agreement reviewed by Mint, “The Indian side stated that if a satisfactory timetable for completion of work is not agreed between the two sides by December 1, 2014, NTPC will proceed according to the terms of the contract."

The contract, which has generated a fair share of controversy and diplomatic heartburn, allows NTPC to cancel it.

NTPC has blamed mismanagement at TPE for the delay in supply of key equipment and has refuted the Russian company’s claim that there is a financing shortfall of $570 million. The government, in the interest of India’s relationship with Russia, had earlier brokered a compromise between NTPC and TPE.

“The contract allows for cancellation. How long can it wait? With this protocol being signed, NTPC can go ahead if the issue doesn’t gets resolved by then," added the person quoted above.

Interestingly, NTPC’s board was ready to terminate the contract earlier, but a compromise was reached after Russian President Putin and Prime Minister Dmitry Medvedev had helped hammer out a deal with the Indian government.

An NTPC spokesperson said in an emailed response, “The Indian side expressed concern about inordinate delay and non-fulfilment of contract obligations by TPE in respect of Barh project (stage-I) of NTPC. It has also been stated that if a satisfactory timetable for completion of work is not agreed between the two sides by Dec. 1, 2014, NTPC will proceed according to terms of the contract. NTPC is awaiting response of TPE on project completion schedule."

Mint reported on 2 September about India’s largest power generation utility seeking approval from the government to terminate the contract, as the issue had the potential of becoming a diplomatic embarrassment that could test India’s commercial and diplomatic ties with Russia.

The queries emailed to the spokespersons of India’s ministries of power and external affairs, TPE and the Russian Federation embassy in New Delhi on 18 November remained unanswered till press time.

NTPC plans to build the 1,980 MW project on its own; it has already paid TPE about 894 crore. Even after India’s largest power generation firm extracted revised deadlines in 2011 from TPE, work on the project stopped due to lack of supplies from the Russian vendor.

The Barh project has a total planned capacity of 3,300 MW, with TPE constructing the first phase (1,980 MW capacity) and state-owned Bharat Heavy Electricals Ltd (BHEL) constructing the second phase (1,320 MW). The first unit of the second stage started commercial operations on 15 November.

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