New Delhi: In an attempt to ensure that big electricity projects achieve financial closure, the Union power ministry plans to cap the number of so-called ultra mega power projects (UMPPs), each with a capacity of 4,000MW, that can be awarded to a single developer.

Power cap: Union power secretary H.S. Brahma. PIB

Any such cap may affect the ability of Reliance-Anil Dhirubhai Ambani Group’s Reliance Power Ltd, which has been the most successful company in terms of securing UMPPs, to win future projects. Reliance Power has been awarded three of the four UMPPs bid out by the government—in Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiaya (Jharkhand). The fourth UMPP, at Mundra in Gujarat, has been awarded to Tata Power Co. Ltd.

The power ministry believes that such a cap is necessary because each UMPP requires an investment of as much as Rs20,000 crore, making finances for such projects difficult to raise. The government has planned a total of nine UMPPs, with four projects at pitheads and five in coastal locations.

“This matter of limiting the number of UMPPs per developer will be taken to the eGoM shortly. We have already discussed the issue with the power minister," said Union power secretary H.S. Brahma.

Union power minister Sushil Kumar Shinde did not respond to calls made on his cellphone and to a message left with an assistant. Questions emailed to the spokesperson of R-Adag and Tata Power on Friday remained unanswered at the time of filing this story.

Analysts aren’t in favour of such caps, which have for long been a subject of debate.

“It has been very encouraging to see the interest levels and commitment demonstrated by some of the best industrial houses in India while bidding for UMPPs and the government of India has been extremely proactive in promoting entrepreneurship in the power sector..," said Monish Chatrath, executive director at consultancy firm Mazars India.

“Though such processes have had their share of problems, it is important to recognize the success factors based on recent experiences, while identifying and managing key inherent risks associated with concentration of service providers for UMPP in a positive manner. This is a tricky issue and the best answer may not lie in capping participation alone," he added.

The funding ability of Indian institutions is restricted by caps enforced by the central bank on how much they can lend to each sector or business group.

“The sectoral caps as well as group caps limit the funding institutions to lend to these large power projects. If they fund one such UMPP, the cap is reached as a single project requires an investment of around Rs20,000 crore," said a senior official at the Central Electricity Authority, India’s apex power sector planning body.

“With the Reserve Bank of India not willing to relax the cap, in such a scenario, the recommendation of limiting the number of UMPPs to a developer has been made," he added.

The decisions taken by such ministerial groups do not need to be ratified by the cabinet.

UMPPs are critical to the Congress-led United Progressive Alliance government’s efforts to enhance the country’s power generation capacity to meet the needs of an expanding economy. India has a power generation capacity of 153,000MW and expects to add 62,000MW by 2012.

UMPPs follow a competitive tariff-based bidding process in which a special purpose vehicle (SPV) is set up to reduce risk perceptions and increase investor confidence. This SPV takes care of regulatory requirements such as land acquisition and environmental clearances and transfers these to the winning bidder.

Some of the other firms interested in developing UMPPs include state-owned NTPC Ltd, Sterlite Industries Ltd, Jindal Steel and Power Ltd, Essar Power Ltd and GVK Power and Infrastructure Ltd.

Even the Planning Commission, India’s apex power sector planning body, is in favour of limiting the number of UMPPs that should be awarded to a developer.

“The ability of the promoter to implement a project is a major component. The eGoM will take a view on this, when the new UMPPs come up for bids," said Planning Commission member B.K. Chaturvedi.

The next batch of UMPPs to be awarded include Cheyyur (Tamil Nadu), Bedabahal (Orissa) and Akaltara (Chhattisgarh).