CIL steps up power plan

By: | Published: November 19, 2014 1:21 AM

Board approves pithead Sundergarh plant in Odisha

After about four years of delay, Coal India Ltd’s (CILs) first proposed pithead thermal power plant at Sundergarh district in Odisha got the board’s nod. This gave Sambalpur-based Mahanadi Coalfields Ltd (MCL) the right to diversify into power generation.

CIL’s entry into power generation was mooted back in 2009 when it was planning the IPO. There was a debate then whether a mining company should at all enter power generation. The issue was put on the back burner for some time but came up for discussion again when a pressing need for more coal was felt considering the power capacity addition the country was looking at.

MCL has mines in Sundergarh, which can produce up to 40 million tonne per annum of coal but that cannot be evacuated. So setting up a 2×800 MW super-critical thermal power project would be the best solution to make use of this huge reserves lying unutilised, it was felt.

The in-principle approval for this came from CIL when S Narsing Rao took charge as chairman and managing director. He told this correspondent that CIL would set up a number of pithead power plants in days to come since such projects could generate cheaper power by saving on transportation cost. Sundergarh project was to be first off the table, but the approval process lingered on, until the MCL board on September 17 ratified the proposal and forwarded it to the CIL board for clearance.

MCL chairman and managing director AN Sahay feared that CIL would take a long time in clearing the project since there were no independent directors on the CIL board. But on November 10, the CIL board cleared the proposal and now MCL has to apply to the Centre for land use change. The Odisha government has already given its nod to the project through its State Level Single Window Clearances Authority.

Around 859 acres in Sundergarh’s Gopalpur, Saradega and Tiklipara areas, marked for the 1,600 MW project, was originally acquired for mining. For the power project to come up, 275 families of Tikilipara and 77 families of Saradega village will have to be displaced. This is facing local resistance. MCL officials say the districts authorities are not coordinating with the company to work out a compensation package for the project-affected people. “They (locals) are mainly demanding jobs, along with rehabilitation and compensation. If this is not properly addressed, the project may once again become uncertain”, an MCL official said.

When the project was first planned, the estimated cost was R8,000 crore, which later jumped to R9,000 crore and then to R10,000 crore. Now the CIL board has cleared a detailed project report entailing an investment of R11,000 crore. So with further delay, the cost of implementing the project would become higher.

Once land conversion is done, MCL will have to seek environmental and forest clearances. For forest clearance a detailed reconciliation, as prescribed under the Forest Rights Act, has to be done and this is time-consuming. This will mean it would take MCL at least 18 months to enter the construction phase, if appointment of project contractors gets finalised without any litigation coming in the way. Around  7-8 million tonnes of annual fuel requirement will be sourced from the nearby mines. The Odisha government has offered 50,000 cusec (cubic ft per second) water for the project.

The state is ready to pick up 50% of the power generated. This is over and above the state quota of 15% supplied on a variable cost basis. MCL will use 5% of the generated power and the rest is yet to be tied up. Power Finance Corporation is the project consultant.

A special purpose vehicle, Mahanadi Basin Power Ltd, was formed to implement the project with a joint venture partner, having experience in project implementation. Though initially MCL wanted to offer 74% stake to the JV partner, it was tempered to 51% over time. It is now looking to run the project on a management contract basis.

When it floated the RFQ (request for quotation), MCL proposed a tariff-based international competitive bidding, with bidders having a net worth of at least R2,000 crore and annual turnover of R1,920 crore. It said the SPV will be dismantled once the JV was formed. However, the modalities of the revenue sharing were not decided, one of which could have been the JV partner being allowed to produce power and take its profit, and in the other the JV partner allowed to sell power in the commercial market and share the profits with MCL.

The RFQ document said MCL will have the right of nominating and appointing two nominee directors on the SPV board, of which one would be chairman. The JV partner will have two nominee directors, with one as managing director.

The RFQ had 41 respondents, including CESC, Tata Power, Essar Power and Nalco. But with MCL now looking to operate the plant on a management contract basis, schemes are likely to change. The board is also not likely to be as it was proposed in
the RFQ.

Although MCL has surplus funds, the project may be funded with a mix of debt and equity. If all goes well, miner CIL will have the glory of doubling up as a power producer as well.

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