NTPC extracts firm closure deadlines from Russian firms

NTPC extracts firm closure deadlines from Russian firms

New Delhi: In a renewed attempt to complete the ill-fated Barh and Sipat thermal power projects, state-owned NTPC Ltd has extracted firm completion deadlines from Russia’s Technoprom Exports (TPE) and Power Machines, the vendors supplying equipment for the projects.

“These firm deadlines were agreed upon after a top team from NTPC visited Russia last month," said a senior company executive, who did not want to be identified.

Both the projects have been delayed by around three years, hampering the plans of India’s largest power generation utility to expand capacity by 3,960 megawatts (MW)—sufficient to meet the average demand of a city such as Delhi.

The Sipat project located in Chhattisgarh has a total planned capacity of 2,980MW. Of this, while the second stage of the project having a capacity of 1,000MW is operational, the first-stage 1,980MW capacity has been delayed due to Power Machines seeking more time to deliver the equipment and an upward revision in price, citing rising input costs.

Power Machines was also not releasing payments on time to its sub-vendors, leading to delays. The original order, for Rs1,150 crore, was placed with a consortium headed by Power Machines on 6 February 2004.

The Barh project located in Bihar has a total planned capacity of 3,300MW. Of this, the second stage of the project with a capacity of 1,320MW is being constructed by state-owned Bharat Heavy Electricals Ltd and is expected to be fully operational by September 2014.

However, the first phase of 1,980MW has been embroiled in a controversy after India’s Central Bureau of Investigation (CBI) concluded that TPE breached its contract to supply boilers for the three units of 660MW each for Rs2,066 crore.

The government, in the interests of India’s relationship with Russia, brokered a compromise between NTPC and TPE, with the cabinet committee on infrastructure allowing NTPC to go ahead with its deal with TPE in May 2010.

“According to the earlier schedule, while Sipat has been delayed by 37 months, Barh has been delayed by 36 months. We had agreed to these schedules around two years back. While the TPE issue was a strategic one, funding was a problem with Power Machines," said another NTPC executive who also requested anonymity. The executive was referring to the Russian government’s efforts to lobby for the deal with TPE even as India seeks to strengthen its commercial and defence relations with its long-term ally.

Russia’s Prime Minister Vladimir Putin had helped hammer out a deal with India to resolve the five-year-old dispute over the TPE contract.

A timely completion of these projects will be a boost for NTPC, which plans to increase its installed capacity from 34,194MW now to 75,000MW by 2017 and 128,000MW by 2032.

“According to the original schedule, the total 1,980MW capacity at Sipat was to be fully commissioned by September 2008, with the similar capacity at Barh slated to be operational by November 2010," said the second NTPC executive cited above.

According to the new deadlines, while Barh will be fully commissioned by August 2014, the three units at Sipat will be operational by October this year.

A TPE representative in India didn’t comment and asked Mint to contact the company’s office in Russia. While questions emailed to TPE bounced back, those posted on the company’s website remained unanswered at the time of filing the story. Queries emailed to Power Machines also remained unanswered at the time of filing the story.

The genesis of the TPE controversy dates back to February 2005, when the Russian firm won a contract to supply boilers to NTPC’s 1,980MW Barh project in Bihar. But work on the project stalled soon, with TPE demanding more money for the equipment, citing higher steel prices. The Russian firm wanted extension and removal of the 20% cap on price escalation.

“The cap has been removed with a formula based on indices in both countries agreed upon on making further payments to TPE," said the first NTPC executive.

The dispute had become a test of India’s ability to balance commercial and diplomatic interests, while ensuring that ties with Russia weren’t jeopardized.