Govt. dithering on cost-effective power project

By S.K. Ramoo

BANGALORE, SEPT. 14. It is inevitable that sooner or later power consumers in Karnataka will be subjected to both scheduled and unscheduled power cuts owing to the depletion of water levels in the hydel reservoirs.

Incidentally, the Cabinet on Thursday merely postponed the inevitable. The precarious situation has come about due to the large gap between the availability of power and the galloping demand. Interestingly, the Government has admitted that the State requires an additional 2,500 MW to 3,000 MW of power during the next to three to four years for bridging the gap between the availability and the demand.

In the current scenario of severe power shortage, where the Government is forced to purchase power from Maharashtra at a considerable cost, it is dragging its feet on approving the PPA signed with the KPTCL for the proposed 1,015 MW mega, coal-based thermal power project promoted by the Nagarjuna Power Corporation Ltd. at an estimated cost of Rs. 5,500 crores (to be located in Udupi District). This is notwithstanding the avowed policy of the Government to promote private sector participation in power generation.

The Karnataka High Court, has made acerbic observations against the Government, and directed it to complete, within eight weeks, the proceedings for implementing the project. These include approving the PPA with the provision of escrow cover, and signing the State Support and Guarantee Agreement for the project. The court has noted with dismay that issues relating to the project were not brought before the Cabinet by successive governments, including the present one.

Like the promoters of the Tannir Bhavi barge-mounted power project (who secured escrow cover following a direction from the High Court), the Nagarjuna Power Corporation Ltd. has obtained a favourable order from the High Court, admonishing the Government for the ``tardy'' manner in which it has dealt with the power generation policy relating to an independent power producer (IPP).

Significantly, the proposed project to be implemented by the Nagarjuna Power Corporation Ltd. is reported to be highly cost- effective, next only to hydel generation, as its projected tariff for 2005-2006 is Rs. 3.65 per unit, which is the lowest compared to the power tariffs proposed by other IPPs, according to a CRISIL report. Sources in the company say that it is making efforts to peg the tariff at Rs. 3.25 per unit.

The Government's attempt to ``wriggle out'' of the proposed project on the ground that the Deepak Parekh Committee has opposed sanctioning of escrow cover to power projects in the private sector, has been held untenable by the High Court. The court has noted that the objections cited by the Government for not approving the PPA are ``unsustainable, unreasonable, arbitrary, and based on irrelevant considerations''. It has questioned why the deemed generation clause incorporated in the PPA is unacceptable to the Government all of a sudden. The Government has failed to take a prudent decision not to encourage naphtha- or liquid-fuel-based or barge-mounted power projects.

The project promoters are in the process of acquiring the land required -- about 800 acres. The final notification and fixing of land prices in consultation with the land-owners have been completed.

The promoters have obtained numerous time-consuming statutory and non-statutory approvals and sanctions from the Union and State governments and their agencies. These include pollution and environmental clearance, techno-economic clearance from the Central Electricity Authority (CEA), and approval under the Central Electricity (Supply) Act, 1948. Interestingly, both the Finance and Energy departments, which were involved in the process of signing the PPA with the KPTCL, have not raised any objections at any stage.

According to the project promoters, both the Government and the KPTCL were involved at the time of securing various sanctions and clearances. Sometime ago, the Karnataka State Pollution Control Board cleared the project after imposing certain conditions. The CEA also cleared the project, declaring that it had no objection to import of coal. The New Mangalore Port cleared construction of a port jetty, and the Konkan Railway Corporation agreed to transportation of imported coal to the project site from the Mangalore Port.

According to the project promoters, an expenditure of about Rs. 80 crores has been incurred in conducting studies and obtaining sanctions. They are all set to enter into long-term agreements for import of coal from South African and Australian firms. A company spokesman claims that utilisation of good quality imported coal is cost-effective compared with use of domestic coal. However, the plant will be so designed as to make it possible to use indigenous coal, if required.

Power-starved Karnataka should ensure early completion of the project in the wake of the shelving of the Cogentrix Project. According to power planners, the annual power generation should grow at a minimum of 10 per cent for ensuring a healthy growth of GDP.

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