At Mundra - an imported coal-based power project - tariffs have been quoted over the Rs 2-mark, yet, the fairly wide gap between the first and second bids has confounded observers. To Tata Powers Rs 2.26 per unit, Reliance Energy had Rs 2.66 per unit, while third bidder Adani was Rs 2.70 per unit. Tata Power managing director Prasad Menon argues that the company did factor in the project cost, funding requirements and cost of coal - three very important parameters for a bidding process of this nature. He maintains that his companys bid is in line with similar projects such as the 1000-megawatt, imported-coal-based plant in Jamnagar, Gujarat, which was awarded to Essar Power on the back of its Rs 2.40 tariff per unit proposal. Interestingly, for this project, Tata Power was the second-lowest bidder at Rs 2.92 per unit, while Torrent Power was third at Rs 2.97 per unit.
Analysts opine that though tariffs for imported coal-based power plants are influenced to a great extent by the transportation of coal from the colliery to the power station, yet, the fair tariff for a competitively bid ultra mega power project would be under the Rs 2.8-mark. Says an executive with a power company based in Mumbai, Under Rs 2.80 per unit is a good tariff. If you come down to Rs 2.40 per unit, however, the project will be a little difficult to execute and below Rs 2.20 is suicidal.
Tata Power, according to observers, has assumed a fuel cost of Re 1 in its Rs 2.26 per unit bid. The company has tied up with South Korean supplier Doosan for super critical boilers, while offers for turbines have come from Japanese companies. Lanco, by contrast, is sourcing equipment from Chinese suppliers, notably, Dong Feng Electric. Says Navin Wadhwani, director, NM Rothschild & Sons India, By 2009-2010, China will have surplus capacity on the equipment manufacturing side. It would want to offload its products into a market like India, and that too at a discounted price.
Says P Ramesh, managing director and head of the energy practice at infrastructure advisory Feedback Ventures, Savings derived from procuring equipment from Chinese vendors besides cross-subsidies derived from its experience in construction and mining has led to an aggressive bid by Lanco.
Typically, for large power plants over 50% of the capital cost is on equipment alone. This includes boilers, turbines, generators etc. Another 15-18% goes into civil construction, while the balance is on ancillary products such as cooling systems, pollution control mechanisms etc.
Ultra mega power projects have been conceived to help achieve the target of 1lakh megawatts of power by 2012
Despite the doubts, Lanco chief financial officer J Suresh Kumar maintains that the company is serious about executing the project. What we have quoted is a levelised tariff over the length of the project, which is 25 years. The tariff in the initial period will be higher than the Rs 1.196 put forth by us, he says.
He reiterates that the tariff quoted does not actually capture upsides on account of higher capacity utilisation of the power plant (to derive benefits, capacity utilisation should be over 85%; Lanco has talked of 80% instead), carbon credits due to use of super critical technology and sale of fly ash. Our bid could have been even more competitive if these factors were included, says Kumar. The total cost of each ultra mega power project nine in numberis around Rs 16,000 crore in other words, Rs 4 crore per unit. But analysts maintain that Lancos aggressive bidding is based on a projected cost of Rs 3.5 crore per unit. Its to be seen how they achieve this, says an industry source.
Conceived to help meet the Power Ministrys target of 1 lakh megawatts in additional capacity by 2012 (total power capacity in the country is 1.27 lakh megawatts at the moment), the ultra mega power projects have been hailed as a radical step. The idea of a competitive bidding process for power tariffs as opposed to a fixed two-part tariff structure, which is the norm with most projects in the sector, implies that power will be available at a cheaper rate to consumers. Also, the mega size of the projects imply that developers will be able derive the benefits of economies of scale. There are other advantages too like the developer can supply power to multiple buyers, not one buyer. This reduces his risk in case there are defaults in payments by some procurers, says Wadhwani of Rothschild. Allowing for captive coal mining by the developer is also a big step because it reduces the overall cost of production of power, says Sameer Ranade, senior analyst at the Mumbai-based Pinc Research. Because UMPPs are competitively bid for, approvals from the Central Electricity Regulatory Commission (CERC), is not required. Allied clearances for the projects have been given as well reducing precious development time.
Nonetheless, challenges exist. A big one is whether developers can eventually supply power at the tariffs quoted. Also, it is highly unlikely that all the ultra mega power projects will be up by 2012. Says Kumar of Lanco, By the end of the calendar year 2012, the Sasan and Mundra plants will be up. That is only 8,000 megawatts of capacity. The other projects will come up post 2013. For the record, the development time of the ultra mega power projects is about 54 months. The first phase of 660 units will take about three years to be completed, while the balance will be concluded in the next two years.