The Jaypee Group, which won a contract to build a 1,320-MW power plant at Karchana in Uttar Pradesh for R7,000 crore in February 2009, is now unwilling to execute the project, a state government official told FE. The company has unofficially conveyed its unwillingness and is looking at ways to recover its investment, the official added.
The company, he said, has blamed difficulties in land acquisition, though uncertainty over the outcome of state elections ?probably has a lot to do with the decision?. Jaypee is perceived to be close to the ruling Bahujan Samaj Party in UP, which goes to polls in a fortnight.
However, when contacted, the district magistrate of Allahabad ? under which Karchana falls ? as well as a source in Uttar Pradesh Power Corporation (UPPCL) denied Jaypee had pulled out. Meanwhile, the standoff continues between the Karchana tehsil administration and the villagers over land acquisition for the project.
If the Jaypee Group leaves Karchana, it will be the company?s second exit from a major infrastructure project in the state in the space of two weeks: On January 13, Jaypee said it is abandoning the 1,047-km Ganga Expressway project which was to be built at a cost of R40,000 crore.
Allahabad district magistrate Alok Kumar denied the project had been shelved, saying almost 98% of the required land was acquired. ?Farmers are now demanding greater compensation and are not allowing the administration to take possession of the land even after signing the sale deeds,? he said. A UPPCL source alleged that some political parties were fuelling the farmers? agitation.
If Jaypee indeed leaves Karchana, it will be a setback for the state which had set a target for adding 10,000 MW power capacity during the Eleventh Five Year Plan.
In April 2008, Lanco Infratech had quoted the lowest bid for the Karchana project at Rs 2.83 a unit, but the government scrapped the tender, saying the figure could be lower. In the second round of bidding in June, 2009, Reliance Energy quoted the lowest figure at Rs 2.60 unit. This tender too was scrapped.
The government decided to review the entire process and offer more incentives so investors could make lower bids without feeling the pinch. The state’s new energy policy, touted as ?conducive to investment by private power developers? gave private investors a free hand to increase capacity from the sanctioned one and sell as much as 80% power generated through the additional units in the open market. Notwithstanding the sweeteners, the lowest quote in the next round in November came from Jaypee at Rs 2.97, higher than the lowest quotes in both previous rounds. The Mayawati government announced the winner late at night on February 19, 2009 in a cabinet-by-circulation.
According to power sector experts, awarding the project at an extra 37 paise (from the lowest previous bid) was financially unwise. ?Had the project been awarded to Reliance, the government would have saved Rs 8,000 crore over 25 years. Additional 37 paise per unit would amount to the people of the state paying Rs 320 crore more per year for the next 25 years,? said Shailendra Dubey, former chief engineer at UPPCL, adding the pretext under which the government had scrapped the earlier bids too falls flat, reinforcing the assumption that the group was favoured.
Finding itself in a spot, the government repeatedly postponed the final decision on the project award, trying to coax the group into lowering the quote in the meantime. And when it failed, it tried to sell the higher rate as a necessity given the general economic downtrend.
At around the same time, Reliance Power won the 4,000-MW Tilaiya ultra mega power project in Jharkhand quoting Rs 1.77 a unit. According to insiders, the state government had delayed the Karchana announcement, hoping the Tilaiya bids would turn out to be higher, providing it an excuse for its choice. After Tilaiya, the government tried to cover up its embarrassment saying it could not be compared with Karchchana as Tilaiya is a coal pithead project, while for Karchchana, coal linkages would drive up costs. ?However, by no given premise can the government justify a difference of Rs 1.20 between Tilaiya and Karchchana projects. Nowhere in the country do coal linkages entail such a huge cost,? said Shailendra Dubey.