Home / Industry / Energy /  Damodar Valley Corp scraps plan to sell plant to NLC India joint venture

Kolkata: A bitter political spat involving the Centre and the states of West Bengal and Jharkhand has forced power utility Damodar Valley Corp. (DVC) to abandon its plan to sell a 1,200-megawatt (mw) plant to a proposed joint venture with NLC India Ltd (formerly Neyveli Lignite Corp.), putting at risk Rs21,000 crore of long-term loans that it is struggling to repay.

DVC, a pubic sector enterprise jointly owned by the Centre, West Bengal and Jharkhand, had two years ago reached an agreement with NLC to transfer the Raghunathpur thermal power station to a joint venture. NLC was to hold 74% in it and DVC, 26%. As stakeholders, the Centre and Jharkhand gave their consent, but West Bengal did not.

The DVC management has decided not to sell the unit, said Andrew W.K. Langstieh, the company’s outgoing chairman. “If the current rates hold, it may not be a bad idea for DVC to run the Raghunathpur unit and sell power through exchanges," he said.

Langstieh, an officer from the Union audit and accounts service, has resigned after helming DVC for a little over three years.

For years, West Bengal withheld its consent to the proposed sale of the Raghunathpur unit as a pressure tactic—in return, it wanted the Centre and Jharkhand to conclude all formalities for West Bengal to start extracting coal from the Deocha-Pachami mine, billed to have the biggest coal reserve in India.

Earlier this year, officers in West Bengal’s power department almost managed to convince their political bosses to give clearance to DVC’s proposed sale of the Raghunathpur plant, but their efforts went in vain as the Centre and Jharkhand were seen to be reluctant to give West Bengal clearances to mine coal at Deocha-Pachami.

None of the three stakeholders have gained from the impasse, but because of sharp political differences between them, no solution could be found, said two power department officers in Kolkata, who asked not to be identified.

To be sure, West Bengal cited DVC’s dispute with its workers over compensation as the reason for not granting clearance.

The sale of the Raghunathpur plant to the proposed joint venture with NLC would have helped reduce DVC’s long term debt of Rs21,000 crore.

It was expected to generate around Rs5,000 crore in cash for DVC to repay immediately. DVC is still able to service its debt from its cash flow, but the stress is intensifying, said officials at the corporation, who too asked not to be named.

DVC has an installed capacity to generate 7,500MW. But its plant load factor—a measure of capacity utilization—is at 52% despite improvement by around five percentage points over the past three years.

DVC needs to operate at 55% to break even, said the unnamed company officials cited above. The key problem facing the corporation is flagging sales—even states that have signed long-term contracts to buy power are refusing to buy, added these officials. The commissioning of the Raghunathpur power station was delayed by at least four years resulting in huge cost overrun.

Worse still, it has committed takers for only 250MW. The corporation is now trying to get Tamil Nadu to buy power from Raghunathpur under a long-term contract, officials said, adding that selling through exchanges may be profitable now but there is no guarantee that prices won’t head south.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout