Government’s Plan Of Setting Up Five Ultra-Mega Power Projects In Limbo?
Two years on, five ultra-mega power projects fail to take off.
The government’s plan to set up five ultra-mega power projects on a plug-and-play model attracting an investment of about Rs 1 lakh crore remains only on paper two years after the announcement. And that’s largely due to a mismatch in capacity and demand.
“One round of bidding was done and nobody participated. Those bidding documents are under review,” Power Secretary Ajay Kumar Bhalla told BloombergQuint. The power plants had been planned in Karnataka, Odisha, Andhra Pradesh, Chhattisgarh and Maharashtra.
The government is currently eyeing ultra-mega power plants at Bedabahal in Odisha, Banka in Bihar and Cheyyur in Tamil Nadu, he added. UMPPs are a series of 4,000 MW and above power plants planned by the government aimed at creating an additional capacity of at least 100,000 MW by 2022.
Finance Minister Arun Jaitley had announced the plug-and-play model for big-ticket infrastructure projects in his Budget speech in February 2015. Under this model, winners of such infrastructure contracts can start implementing their projects immediately, with the government putting in place all regulatory clearances.
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A senior power ministry official said a power plant of 4,000 MW capacity requires an investment of Rs 25,000 crore. Banks are unlikely to finance these projects and there may be no takers for them at the moment, the official added. Banks could questions why there are no PPAs (power purchase agreements) when there is so much stranded capacity, he said.
India’s power plants are forecast to produce 8.8 percent more electricity than its distributors will demand during the year to March, a Bloomberg report had said in June citing the Central Electricity Authority.
In its latest annual report (2016-17), the power ministry said that nine UMPPs were proposed to be set up in different states. Six more plants have been requested by some states. Of these, only Sasan power plant in Madhya Pradesh and Mundra in Gujarat are operational.
Debashish Mishra, partner at Deloittee Touche Tohmatsu, told BloombergQuint that when UMPP was thought of, India had a massive power sector deficit in demand and supply.
Subsequently, in first seven years, the capacity has far exceeded demand. Today, we have maximum amount of capacity which is ready but not being contracted. The existing contracted capacity is not properly utilised. It’s good that only two UMPPs were utilised otherwise there would have been more stranded power projects.Debashish Mishra, Partner, Deloittee Touche Tohmatsu
He added that it is unlikely that any lender will lend to the sector till the entire capacity gets absorbed in the system.
Vinay Rustagi, managing director, Bridge to India Energy Pvt. Ltd., said the policy has been suffering from both poor execution and irrational bidding by the private sector.
Apart from various delays, the policy has been prone to many disputes. The private sector has not been happy with tender conditions and risk allocation between the developers and state agencies, he said. “Nonetheless, when UMPPs started bidding back in 2006-07, we saw crazy competition resulting in unrealistic tariffs meaning that the projects were unviable from the start.”
