8 OCT, 2012, SARITA C SINGH, ET BUREAU
NEW DELHI: India's ambitious plan to build giant power plants to meet growing energy needs has hit a roadblock as financial institutions ( FIs) have refused to fund future projects, saying the new norms make them unviable.
The proposed new norms for ultra mega power projects (UMPPs) say the projects will be owned by power distribution utilities, and the qualified bidders will be mere contractors to build the project and collect fee through tariffs for 30 years. The utilities would own the land, denying power firms the option to mortgage land to raise funds.
The plants are proposed to be transferred to distribution utilities at the end of the concession period for a price, similar to the case of other infrastructure projects in road and port sectors, but bankers and industry officials say that in financial matters, cash-starved utilities are fundamentally different from strong organisations such as the National Highways Authority of India (NHAI).
A power ministry official said the change has been proposed as existing UMPP developers are facing problems in land acquisition. "The concept has been well thought out and is being discussed with stakeholders. Final guidelines will be ready in a month," he said.
"Power plants are amenable to the previous built, operate and own model than the design, build, finance, operate and transfer basis. There is a significant difference between roads and power projects since the NHAI is an AAA-rated utility unlike the power distribution utilities," SBI Capital VP Mukul Modi said.
Modi said funding new UMPPs would be more risky since the companies setting up the projects will not own the land unlike the previous cases. He said the new guidelines do not provide sufficient security for lenders. SBI Caps will express its concerns to the power ministry within a week, Modi said on the sidelines of an Assocham conference.
The Association of Power Producers director-general Ashok Khurana told ET that banks and financial institutions have said, "Certain risks in the proposed framework are not amenable to being priced and consequently are non-financeable. Similarly, even if certain risks are reflected in tariffs, this would result in very high bids, defeating the objective of competitive bidding."
Lenders and power producers have questioned the capability of state distribution utilities to purchase land, pay electricity bills and buy back the UMPPs after the concession period. The accumulated losses of state power distribution companies are estimated at 1.9 lakh crore and the Center has recently approved a bailout package for them.
Jindal Power managing director R S Sharma said the draft documents were loaded in favour of electricity distribution companies. He said even in case of non-payment of electricity bills by distribution companies, the concessionaire would terminate the contract and project assets will be transferred to the distribution utilities that will pay the power company.
The proposed documents also provide for appointment of independent engineers by state power distribution utilities for supervision of construction, operation and maintenance of the UMPPs. Half of the cost of the engineers would be borne by companies setting up the projects.
"I will not work at any project to be supervised by an independent engineer who will be like a super boss at all levels. Such provision will give overriding powers to distribution companies leading to delays without adding any significant value to the project," Sharma said at an Assocham conference.
Khurana said power plants already comply with various statutory requirements and are also subjected to review by engineers appointed by lenders' for substantial part of their operating life. "The concept of independent engineer should be deleted from the documents," he said.
The proposed bidding documents also do not provide for procurement of environmental and forest clearances, fuel and water supply before a project is auctioned. The qualified bidder will also have to set up transmission facilities within the project against present regulations that require Power Grid to construct the transmission system.
NEW DELHI: India's ambitious plan to build giant power plants to meet growing energy needs has hit a roadblock as financial institutions ( FIs) have refused to fund future projects, saying the new norms make them unviable.
The proposed new norms for ultra mega power projects (UMPPs) say the projects will be owned by power distribution utilities, and the qualified bidders will be mere contractors to build the project and collect fee through tariffs for 30 years. The utilities would own the land, denying power firms the option to mortgage land to raise funds.
The plants are proposed to be transferred to distribution utilities at the end of the concession period for a price, similar to the case of other infrastructure projects in road and port sectors, but bankers and industry officials say that in financial matters, cash-starved utilities are fundamentally different from strong organisations such as the National Highways Authority of India (NHAI).
A power ministry official said the change has been proposed as existing UMPP developers are facing problems in land acquisition. "The concept has been well thought out and is being discussed with stakeholders. Final guidelines will be ready in a month," he said.
"Power plants are amenable to the previous built, operate and own model than the design, build, finance, operate and transfer basis. There is a significant difference between roads and power projects since the NHAI is an AAA-rated utility unlike the power distribution utilities," SBI Capital VP Mukul Modi said.
Modi said funding new UMPPs would be more risky since the companies setting up the projects will not own the land unlike the previous cases. He said the new guidelines do not provide sufficient security for lenders. SBI Caps will express its concerns to the power ministry within a week, Modi said on the sidelines of an Assocham conference.
The Association of Power Producers director-general Ashok Khurana told ET that banks and financial institutions have said, "Certain risks in the proposed framework are not amenable to being priced and consequently are non-financeable. Similarly, even if certain risks are reflected in tariffs, this would result in very high bids, defeating the objective of competitive bidding."
Lenders and power producers have questioned the capability of state distribution utilities to purchase land, pay electricity bills and buy back the UMPPs after the concession period. The accumulated losses of state power distribution companies are estimated at 1.9 lakh crore and the Center has recently approved a bailout package for them.
Jindal Power managing director R S Sharma said the draft documents were loaded in favour of electricity distribution companies. He said even in case of non-payment of electricity bills by distribution companies, the concessionaire would terminate the contract and project assets will be transferred to the distribution utilities that will pay the power company.
The proposed documents also provide for appointment of independent engineers by state power distribution utilities for supervision of construction, operation and maintenance of the UMPPs. Half of the cost of the engineers would be borne by companies setting up the projects.
"I will not work at any project to be supervised by an independent engineer who will be like a super boss at all levels. Such provision will give overriding powers to distribution companies leading to delays without adding any significant value to the project," Sharma said at an Assocham conference.
Khurana said power plants already comply with various statutory requirements and are also subjected to review by engineers appointed by lenders' for substantial part of their operating life. "The concept of independent engineer should be deleted from the documents," he said.
The proposed bidding documents also do not provide for procurement of environmental and forest clearances, fuel and water supply before a project is auctioned. The qualified bidder will also have to set up transmission facilities within the project against present regulations that require Power Grid to construct the transmission system.
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