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‘Pass through’ test begins with Odisha, Cheyyur UMPPs

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SummaryThe project award process, starting with the pre-application conference today, can revitalise the power sector

The power sector is suddenly brimming with newfound energy with the government clearing bidding norms that allow ‘pass through’ of the rise in fuel costs.

The process for awarding ultra mega power projects (UMPPs) is starting today with a pre-application conference for two projects of 4,000 MW each, in Odisha and Cheyyur, Tamil Nadu. According to the schedule fixed by the government, the projected dates for signing of power purchase agreements (PPAs) are March 27, 2014 for Odisha and March 28 for Cheyyur. The evaluation of the bids and the award of both the projects will be completed in February. If all goes as scheduled, the total number of UMPPs awarded would become six—four projects have been awarded since the UMPP initiative began in 2005-06.

However, the ground reality is that all four UMPPs awarded earlier—Reliance Power has three and Tata Power has one—are facing problems due to the escalation in fuel and other costs. The question here is what has changed now, giving the government the confidence to go ahead and start the bidding process for two new UMPPs.

Going by the power ministry officials, currently, the biggest bottleneck faced in the running of plants is ‘pass through’ of the additional fuel costs. However, this is now resolved with the empowered group of ministers (EGoM) clearing the new bidding framework for the projects in which the state governments provide land and fuel linkages to the power producers (termed case-2 projects which include UMPPs). Odisha and Cheyyur UMPPs are the first two projects bid under the new norms and ‘pass through’ would be possible here for both domestic and imported fuel.

Additionally, the level of preparation before the actual award is also much higher as compared to the earlier projects (2006-07). Under the framework for setting up UMPPs in the country, the Power Finance Corporation (PFC) incorporates special purpose vehicles (SPVs) for each project to undertake the bidding process on behalf of the power-procuring states. The role of the SPV is to enhance investors’ confidence, reduce risk perception and get good response to competitive bidding.

Besides carrying out the bid process management, it also obtains various clearances and consents for the projects which can be transferred to the successful bidder along with the SPV. This process is already at an advanced stage for the two new UMPPs.

The Cheyyur UMPP is a coastal power project based on imported coal with a captive port

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