UMPP coal usage rules may be revised

UMPP coal usage rules may be revised

New Delhi: The government may amend the rules governing bids for ultra mega power projects (UMPPs), where the usage of excess coal from captive mines meant for these large-sized plants may have to be clearly specified upfront.

This is being done to usher in transparency and, hence, avoid any potential controversy.

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The move to amend the standard bid documents (SBD) for future UMPPs comes in the backdrop of a legal challenge by Tata Power Co. Ltd. It has appealed to the Supreme Court against a decision by a so-called empowered group of ministers (eGoM) in 2008, to allow the winning bidder, Reliance Power Ltd, to use excess coal from captive mines allotted to it for the 4,000 megawatts (MW) Sasan power project for another project it has. Earlier, the Delhi high court had upheld the government’s decision.

“This issue has been raised. Whenever coal reserves are worked out, they are estimated quantities. To assume that there will be a matching quantity is wrong. If it is more, then what is to be done with the coal? It can be used for other projects that have been awarded through the competitive bidding route. There have been discussions. In such a situation some decision should be taken," said an official associated with the UMPP award process, who did not want to be identified. “Such a condition may be incorporated in the SBD in the next set of projects, which?will be awarded after the ones in Chhattisgarh and Orissa," the same official added.

“We are looking at it," said a senior power ministry official, who also requested anonymity due to the sensitive nature of the issue.

To be sure, the eGoM had in November 2010, after the decision allowing usage of excess coal from the captive mines at the Sasan UMPP for another project, moved to make this the rule. Accordingly, it asked the coal ministry to issue necessary instructions after getting it legally vetted; however, this is yet to happen.

The UMPP programme has had its share of problems, weighed by ecological concerns and local resistance. Developers, procurers of power—the states —and bankers met on 19 July to discuss changes that need to be made in the SBD. Such a move will also generate greater developer interest in future UMPPs and also bring tariffs down.

“Any such move which enables availability of additional coal resources would certainly help the sector. It is only important that such conditions should be transparently known to every participating developer. Therefore, making resources available will definitely be a welcome move. Once the terms and conditions are transparent and it’s a fair play, the developers would consider such availability to generate extra power and sell at market rates, which is not part of bid quantity and, hence, developers may be in a position to reduce tariff for the bid quantity of power," said a Tata Power spokesperson.

“Based on the eGoM decision, ministry of coal has granted its approval for utilizing the incremental coal from the captive coal mines allocated for Sasan in the other project of the company, with certain stipulations," said a Reliance Power spokesperson.

Reliance Power has been the most successful company in terms of UMPPs. Of the four UMPPs awarded till date, it has been the successful bidder for coal pithead projects at Sasan and Tilaiya in Jharkhand, and the imported coal-based project at Krishnapatnam in Andhra Pradesh. The imported coal-based project at Mundra in Gujarat was won by Tata Power.

Expert opinion over the move was mixed.

“For a competitively bid coal mine or integrated coal mine and power project, it appears prudent to allow optimal utilization of coal, particularly in light of the growing gap in demand and supply of coal, as it will allow unlocking of value of scarce resources and may lead to further aggressive tariff bids," said Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd.

However, Anish De, chief executive at Mercados EMI Asia, an energy consulting firm, argued: “It is a fairly difficult decision to take because it could result in inadequate supplies to the power projects in the latter part of their operating life. Since the reserves are not precisely known at the time of award of project, any decision in this regard will be based on imperfect information, which could later backfire."

The government wants to set up 16 UMPPs to meet the needs of the world’s second fastest-growing major economy after China. India has a power generation capacity of 180,000MW and expects to add 62,374MW by 2012.

Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May front-page story in Mint that it disputed. HT Media is contesting the case.