New Delhi: NTPC Ltd has blamed mismanagement at JSC Technopromexport’s (TPE) for the delay in supply of key equipment for the construction of the state-run power producer’s Barh project in Bihar, refuting the Russian company’s claim that there is a financing shortfall.

The issue, which could lead to a diplomatic standoff between India and Russia, relates to TPE’s claims that it entered into a “loss-making contract", and that it is facing a shortfall of $570 million which needs to be filled before it can execute the contract.

According to documents reviewed by Mint, NTPC says there is no financial gap. “TPE would be paid an amount equivalent to INR 3,340 crore (approx) and for the project in the same location being executed by Bhel (Bharat Heavy Electricals Ltd), Bhel would be paid an amount equivalent to INR 3,300 crore (approx)....there is no financial gap and it is absolutely mismanagement of the Russian company which has not only put NTPC but the country as a whole in this precarious situation."

The Barh project has a total planned capacity of 3,300 megawatt (MW), with TPE constructing the first phase (1,980 MW capacity) and state-owned Bhel constructing the second phase (1,320 MW). The second stage is expected to be fully operational by September 2014.

The first phase of the project became embroiled in a controversy after the Central Bureau of Investigation (CBI) concluded that TPE breached its contract to supply boilers for the three units of 660 MW for 2,066 crore each. The government, in the interest of India’s relationship with Russia, had then brokered a compromise between NTPC and TPE. NTPC has already paid TPE about 894 crore.

Mint had reported on 9 June that NTPC wanted India’s foreign ministry to impress upon the Russian government for extending the $570 million fiscal support to TPE.

While an NTPC spokesperson confirmed the utility’s position, spokespersons for TPE didn’t respond to Mint’s query emailed on 30 June.

According to an earlier set of documents reviewed by Mint, in June TPE had “expressed its lack of spare internal funds and inability to arrange the same". TPE had requested the Russian government to provide fiscal support of $570 million and “had linked ordering of bought out items with additional financing from Government of Russia and informed that they had stopped negotiations/ordering with their sub vendors due to non-availability of funds". NTPC has been unable to restart work on the first phase of the Barh project even as the issue has been raised with the chief executive of Russian conglomerate Rostec, which is the holding firm of TPE. India had also taken up the issue with Russia’s deputy prime minister Dmitry Olegovich Rogozin on his visit to India in February and with Russian deputy foreign minister Igor V. Morgulov in April.

The case is now being compared to India’s delayed acquisition of refurbished ex-Soviet aircraft carrier Admiral Sergey Gorshkov, rechristened as INS Vikramaditya in November 2013, which tested India’s commercial and diplomatic interests with Russia.

The TPE controversy dates back to February 2005 when the Russian firm won a contract to supply boilers to NTPC’s 1,980MW, first phase of Barh project. But work on the project soon stalled, with TPE demanding more money for the equipment citing higher steel prices. The Russian firm wanted an extension and removal of the 20% cap on price escalation. TPE had allegedly violated the terms of the contract by engaging an agent, Raveena Associates. Interestingly, NTPC’s board was ready to terminate the contract. It was only after a presidential directive that a compromise was reached after Russian President Vladimir Putin and Prime Minister Dmitry Medvedev had helped hammer out a deal with the Indian government.

Even as India’s largest power generation firm extracted revised deadlines in 2011 from TPE, work on the project has stopped due to lack of supplies from the Russian vendor. This will affect the commissioning of the first stage of the project. According to the revised timelines, the first unit of 660MW was to be commissioned by September 2013, the second 660 MW unit by March 2014 and the third by July 2016.