Leading private power producers such as Reliance Power, Tata Power, Jindal Power, Adani and GMR have urged the government to soon activate an institutional set-up in the form of an empowered group of ministers (EGoM) to revisit their contracts under the competitive bidding mechanism framework.
In a letter to Planning Commission deputy chairman Montek Singh Ahluwalia, the power companies under the aegis of the Association of Power Producers (APP) have said that they would start defaulting on project obligations, unless the government made changes in existing regulations. There is a need to amend laws to insulate developers from the risks that have become real given the change in sector dynamics, they said.
The competitive bidding mechanism (both Case I and Case II) does not protect the developers from any changes in fuel cost arising from shortages or regulatory changes. The tariff arrived under this framework is normally fixed for a period of 25 years thereby putting developers at huge risk in an event of unforeseen changes in market dynamics.
Ever since the introduction of the competitive bidding framework in India, power projects with aggregate capacity of 42,065 mw have been awarded with over 30 cases of case I and case II bid conducted successfully. All these projects are facing problems such as reduced supply of domestic coal, delay in environmental clearance for captive mining projects and expected escalation in cost of imported coal from prime markets such as Indonesia and Australia.
?Signals of plants defaulting from their current obligation are already being seen in the sector primarily due to fuel and environmental issues. Going forward the situation is expected to worsen with 80% of plants likely to default?,? APP secretary general Ashok Khurana has said in his letter to Ahluwalia.
?The impact of default by the developers will not be contained to the power sector alone and with a lag it will engulf the financial sector as well,? Khurana added.
The power producers want that rather than change the entire competitive bidding mechanism, the government should carefully evolve the principles and mechanisms to revisit the contracts, duly holding the developers accountable for aspects in their control but finding practical ways for treating aspects that are not.
The developers concern have also been forwarded by the power ministry. In a recent presentation to the Planning Commission the ministry highlighted that power projects were facing acute shortage of coal. Power secretary P Uma Shankar informed the member (energy) Planning Commission that coal shortages would result in lower plant load factor (PLF) for plants commissioned in 2009-10 and render all projects commissioned in 2010-11 non-operational.
One of the main concerns of the power developers is changes in regulations in sourcing coal markets such as Indonesia and Australia. While the new mining law in Indonesia prevents exports of coal at prices lower than reference prices that will be linked to market prices, Australia has also recently introduced a draft law that plans to levy taxes to generate additional revenue from exports of coal and iron ore.
Close to 18,500 mw worth of competitively bid capacity faces problem of short supply of domestic coal rendering them incapable of running plants at a load factor of 85% . Similarly, over 14,200 mw of capacity based on imported coal will face the heat from unstable global environment. India?s current installed capacity of power generation is close to 1, 70,000 mw and a majority of this capacity is thermal.