Active Stocks
Thu Mar 28 2024 14:39:26
  1. Tata Steel share price
  2. 156.40 2.32%
  1. HDFC Bank share price
  2. 1,457.95 1.20%
  1. ITC share price
  2. 431.35 0.78%
  1. Power Grid Corporation Of India share price
  2. 279.00 2.93%
  1. State Bank Of India share price
  2. 758.75 3.36%
Business News/ Politics / Electricity authority wants smaller projects
BackBack

Electricity authority wants smaller projects

Electricity authority wants smaller projects

Regulatory limit: Properties marked to be acquired for the Sasan project in Madhya Pradesh. The ability of institutions to fund is restricted by caps on lending to sectors as well as corporate groups Premium

Regulatory limit: Properties marked to be acquired for the Sasan project in Madhya Pradesh. The ability of institutions to fund is restricted by caps on lending to sectors as well as corporate groups

New Delhi: The Central Electricity Authority, or CEA, India’s apex power sector planning body, wants the government to slash the size of ultra mega power projects (UMPPs) to as low as 2,000MW from the current 4,000MW that qualifies plants for the special status.

The smaller size will make the projects easier to fund, according to a senior CEA official who did not want to be identified. The current capacity requirement calls for an investment of as much as Rs20,000 crore, making finances for such projects difficult to raise.

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.

Regulatory limit: Properties marked to be acquired for the Sasan project in Madhya Pradesh. The ability of institutions to fund is restricted by caps on lending to sectors as well as corporate groups by the central bank.

The projects 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 differ from regular projects in that they 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. The SPV takes care of regulatory requirements such as land acquisition and environmental clearances, transferring these to the winning bidder.

The government has planned a total of nine UMPPs, with four projects at pit heads and five in coastal locations. Of the four UMPPs awarded, Tata Power Co. Ltd has won the Mundra project in Gujarat and Reliance-Anil Dhirubhai Ambani Group’s Reliance Power Ltd (RPL) the projects at Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand.

The empowered group of ministers on UMPPs has already limited the number of such projects to be awarded to a single developer by capping it at three to ensure easy financing as Mint had reported on 4 January.

CEA chairman Rakesh Nath declined to comment on the issue.

Satnam Singh, chairman and managing director of Power Finance Corp. Ltd, the agency responsible for the award of all UMPPs, said he was unaware about any such plans.

A senior power ministry official said that there was no “immediate" plan to reduce the size of the projects.

State-owned NTPC Ltd, India’s largest power generation utility, said the scale was something it could cope with.

But “4,000MW is certainly too big a size from the point of view of requirement of capital and land", said R.S. Sharma, NTPC chairman and managing director. “While we are comfortable with this size, there might be other companies who might be comfortable with a smaller size."

Further, the higher cash requirement makes it difficult for lenders to balance their spending.

“The sectoral caps as well as group caps limit the funding institutions to lend to these large power projects," said the CEA official cited above. “If the size of the projects are reduced, it will be easier for developers to achieve financial closure."

Any decision on reducing the size of the UMPPs will have to be taken by the ministerial group.

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

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

The government would be right to reduce the project size, an analyst said.

“How many players have the capacity to develop a 4,000MW project?" asked Madanagopal R., an equity research analyst at Mumbai-based Centrum Broking Pvt. Ltd. “A reduced project size combined with the UMPP award model would bring a lot more players to bid."

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 25 Jan 2010, 09:45 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App