Power sector issues-I: CIL failure to keep pace with demand forces India to import more

Jan 26: One of the several issues that came up during a recent meeting conducted by the PM to review the performance of the power sector, was the inability of state-run Coal India to keep pace with the coal demands of the sector. The coal major is under fire for not being able to deliver on its fuel supply commitments, and not without good reason.
 8Over the last two years, the growth in coal supply by the monolith has been miserably short of the growth in linked installed capacity. This has forced the country to import more, something that in turn has had its own consequences, some of which include higher costs for producers, boiler limitations etc.
 8Specifically, while coal supply has grown by 1%, the growth in CIL linked capacity has been of the order of 9-10%.
 8Moreover, during the previous year (up to December, 2011), the coal despatch by CIL to power utilities was only 0.1% more than the despatch during April - December, 2010.
 8CIL`s sub-par performance has, as a consequence, resulted in the quantum of coal import having risen from about 4.5 million tonnes (MT) in 2004-05 to about 21 MT in 2010-11.
 8The period from April to December, 2011 alone witnessed the import of a substantial 21.6 MT of coal for blending purposes.
 8However, such heavy import of coal is not desirable. Apart from the obvious cost increases that the rise in coal prices over the past few months has brought, there are other limitations with respect to an increase in import of coal beyond a certain quantity.
 8For instance, use of imported coal is restricted to anywhere 10% to 15% in case of Indian power plants because of boiler design considerations and its impact on the cost of generation. These cost increases, in turn result in non-utilization of available capacity, as discoms are reluctant to purchase costly power.
 8While there may be several reasons for CIL`s dismal performance, the coal major has no option but to step up its act, and increase coal production.
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Power sector issues-II: Beleaguered UMPPs struggle with environment clearance, land and water troubles

Jan 26: Ultra Mega Power Plants (UMPPs) in the country are an unhappy lot. Even after the rise in coal prices rendered some of them unviable, there have been other issues that the upcoming plants have had to contend with. Some of these issues have stunted the pace of development at these plants, and need to be addressed urgently. A few of the most pressing concerns facing the UMPPs are given as follows:
 8Resistance from the local populace - There has been considerable delay in site finalization, land acquisition and site-specific studies due to resistance from the local populace that is against land acquisition.
 8Environment and forest related issues, particularly those of `go` and `no-go` clearances - Due to MoEF`s `No Go` classification, the last date for submission of RfQ for the Orissa and Chhattisgarh UMPPs was extended six and nine times respectively. This has resulted in the Orissa UMPP being pushed back by over a year. Whereas, the coal blocks of Chhattisgarh UMPP, which have already been delayed by more than a year and a half, have still not been cleared.
 8Environment and forest clearances take a long time to come through, and this delays the bidding process and implementation of projects.
 8There has been enormous delay in obtaining water linkage for domestic coal based projects. Water linkage for Orissa and Chhattisgarh UMPPs for instance, was obtained after a delay of over one and a half years.
 8Due to non-availability of water, sites for additional UMPPs in Orissa are being identified at coastal locations so that sea water can be used for the project.
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Power sector issues-III: Power ministry asks for 12.13 mmscmd of gas for 4,143.5 MW capacity carried over from 11th plan

Jan 26: The power ministry has requested the petroleum ministry to assure at least 12.13 mmscmd of gas for the 4,134.5 MW of gas based capacity that it expects will be added early in the 12th plan. These are the projects that will be carried over from the 11th plan.
 8However, the total gas based capacity, as per the power ministry, will total 25,000 MW for which it has requested for 90 mmscmd of gas to be made available to the power sector.
 8As per CEA estimates, the gas requirement for 11th plan projects has been pegged at 21.80 mmscmd at 70/75% PLF for 5,386 MW of capacity. It has been observed that if these projects are not allotted gas at the earliest, they will become `stranded assets`.
 8In addition to this, the ministry has also sought assurance for 28.52 mmscmd of gas for central and state sector projects so that they can proceed ahead for investment approval by the board as per DPE guidelines and execute these projects.
 8Therefore, the total projected gas demand for the power sector is 62.45 mmscmd at the moment.
 8Further, in addition to projects that are already under construction, applications for allocation of gas for projects totaling to about 1,30,000 MW have been received by CEA. The total requirement of gas for these projects at 70% PLF works out to about 486 mmscmd. Some of these projects, it is noted, can be commissioned in 12th Plan if gas availability is assured.
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Power sector issues-IV: Power ministry calls for greater gas allocation to core sector

Jan 26: As existing and upcoming gas based power plants grapple for scarce domestic gas, the power ministry it seems has taken up the cudgels on these plants` behalf. The ministry has called for a greater allocation of domestic gas to the core sector so that upcoming power plants may be fed the cheap, domestic gas.
 8Specifically, the ministry has asked for the diversion of roughly 13 mmscmd of gas from the non-priority sector, which has currently been allotted 18.4 mmscmd.
 8The ministry, in this regard, cited the recommendations of the Inter-Ministerial Committee on price pooling where it was suggested that preferential allocation of most domestic gas to the fertilizer and power sectors should be done on top priority. The committee also recommended that domestic gas allocation to City Gas Distribution (CGD) should be capped at a level of 6 mmscmd.
 8In order to further shore up its case, the ministry also observed that the Association of Power Producers (APP) had a similar viewpoint where it too had suggested the diversion of gas to the core sector.
 8However, in spite of the backing of the Inter-Ministerial Committee which had recommended the diversion of 10 mmscmd of gas, the power ministry may not even get this reduced amount as suggested by the committee. This is because the petroleum ministry has said that it can only spare 5 mmscmd of gas as against the committee recommendation of 10 mmscmd.
 8This is likely to come as disappointing news for the power ministry. However, no final call in this regard has been taken and it remains to be seen what the future course of action will be.
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Power sector issues-V: Status of captive coal blocks

Jan 26: As far as the development of captive coal blocks in the country is concerned, the ministry of power has made the following observations:
 8New coal blocks earmarked for power projects should be allocated only to central or state utilities under a tariff based competitive bidding procedure for power procurement.
 8Ministry of Coal has framed a draft policy directives on disposal of surplus coal, by-products and rejects from captive blocks. However, there is no provision of incentive for surplus coal production.
 8The Group of Ministers (GoM) has decided to do away with the the Go-No Go concept and MoEF has agreed for FAC clearance on merits of all projects even in No-Go area. MoEF, in this regard, has granted forest clearance to 8 coal blocks, which are-- Dulanga (NTPC), Tara Central (IIFCO), Manoharpur and Dipside of Manoharpur (OPGC), Parsa East & Kanta Basan (RRVUNL), Parsa (CSEB) and Meenakshi (UMPP).
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Power sector issues-VI: MoP, PC step up to save discoms from mounting losses

Jan 26: For a country riddled with massive Aggregate Technical and Commercial (AT&C) losses, the Ministry of Power (MoP) and the Planning commission (PC) have undertaken counter active measures have been outlined to ensure that the distribution sector no longer suffers the same fate as it has in the preceding years.
 8In an effort to overcome financial barriers, one of the key initiatives, namely the National Electricity Fund (NEF), has recently been given the go-ahead by the Cabinet. The NEP aims at facilitating investment in the distribution sector by providing reform linked interest subsidy to the utilities against loans for upgrading and augmenting distribution infrastructure.
 8With regard to short term loans, distribution companies (discoms) may soon find themselves relieved of the financial burden as Power Financing Corporation (PFC) and Rural Electrification Corporation (REC) have formulated conditions that will help streamline provision of short term borrowings and induce discipline in the sector.
8Further, the report incorporating the Shunglu committee`s findings on the poor financial health of the discoms has been submitted to the PC and is currently under consideration. As a part of this detailed document, the committee has recommended formation of a special purpose vehicle (SPV), along with transfer of current loans of utilities to the SPV, as a remedial step. 
8To smoothen out the process of lending to the sector, the power ministry is on the verge of devising an integrated rating methodology to facilitate banks and financial institutions in evaluating the performance of utilities and enabling them to take a considered decision while granting loans to these utilities.
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Power sector issues-VII: MoF to direct banks for additional 5% exposure limits at sector level

Jan 26: To increase funding for the debt requirement of the power sector, the representatives of the Ministry of Finance (MoF), on the Boards of Public Sector Banks, have been asked to notify the individual commercial banks to increase the exposure limit at sector level by minimum 5%.
 8This move has come at a time when the power industry is in dire need of funding and has been left with no other option but to increase the exposure limits as per the sub committee`s recommendations highlighted in the final report.
 8According to the existing practice, the power sector limits are decided by individual commercial banks with the approval of their respective boards. However, for banks and non banking financial companies-infrastructure finance companies (NBFC-IFCs), the Reserve Bank of India (RBI) is responsible for deducing the applicable exposure limits.
 8As per RBI prudential norms, banks may take credit exposure up to 15% and 40% of bank's capital funds in case of individual and group of borrowers, respectively.
 8However, banks may take further additional exposure of 5% of capital funds with the board`s approval in exceptional cases, subject to borrowers consenting to the bank making appropriate disclosure in its annual report.
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Power sector issues-VIII: Special dispensation proposed for UMPPs to overcome funding constraints

Jan 26: With funding for the Ultra Mega Power Projects (UMPPs) having been a long standing constraint for the developers, which have already been burdened with solving contractual woes and equipment hurdles for implementation of their projects, it has been proposed that dispensation for exposure limits may be considered for lending or investment.
 8During the course of the meeting, it has been highlighted that dispensation may be considered for UMPPs, such that the funds should not be constrained once it has been established, after due diligence, that the project is viable.
 8In view of the current state of affairs, it has been further recommended that dispensation should be considered as applicable at the time of transferring SPV when all clearances are available, escrow account is opened in favor of developers and power purchase agreements (PPAs) are signed.
 8Considering the standard debt equity ratio of 75:25 for a project, it has been estimated that the sector`s debt requirement will be equivalent to Rs 15,000 crore for the forthcoming 12th plan period.
 8Apart from this, some of the independent power producers (IPPs), which are targeting capacity addition of 3,000 MW/5,000 MW by the end of the ongoing 11th plan, are also likely to have funding problems as a group for projects during the 12th plan.
 8For the relaxed lending exposure norms valid for PFC, it has been decided that the company should continue to lend to state or central entities for power sector projects beyond the period ending March 31, 2012. Till now, PFC has been following exposure norms, with the approval of the MoP, ranging from 75% to 150% of its owned funds.
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Power sector issues-IX: Nod given for exemption of withholding tax on ECBs

Jan 26: In what can be described as a welcome change for the companies involved in external commercial borrowings (ECBs), it has been decided that such companies will be provided expemption from withholding tax for their long term foreign currency borrowing.
 8Alongside this, it has been urged that no such deduction may be made in respect of any interest or other payments, provided that these are payable by power infrastructure companies, SPVs or public financial institutions such as PFC and REC.
 8With all interest payments on ECBs attracting tax payments, it is of utmost importance that the companies are not forced to endure higher borrowing costs since the foreign companies, or lenders, have refused to absorb any payment on account of tax withholding in India.
 8At present, withholding tax rates can be as high as 20%, depending upon the lender's domicile. Apart from adding to the borrowing costs, the current market practice results in an increase in the per unit cost of power.
  (Click on our 'Reports' section for more information)

Power sector issues-X: Cumulative exposure of investment firms to be governed by credit ratings

Jan 26: In an effort to relax the restrictive regulations faced by the insurance companies in India, the IRDA guidelines have been re-visited, as a result of which it has been proposed that the exposure of insurance company should be governed and determined by the credit ratings of the investee company.
 8Currently, the insurance company's debt exposure to a single investee company, at any point of time, cannot exceed 10% of the sum of subscribed share capital, free reserves and debentures or 10% of fund size, whichever is lower, taken as per the audited balance sheet, not more than one year old, of the investee company.
 8The credit ratings, as per two rating agencies, for insurance company taking exposure in the NBFCs, which are on-lending to infrastructure sector like PFC & REC, and the respective exposure limits, as a percentage of capital employed, have been listed below:
 --AAA - 20%
 --AA - 15%
 --A - 10%
 --BBB - 5%
 --Below BBB or unrated - 0%
 8Pertinently, the capital employed for the purpose includes equity share capital, preference share capital, debentures, long/ medium/short term loans, free reserves but excluding revaluation reserve of the investee company as per last audited balance sheet.
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Chhetinad Power invites bids for BTG package for 1,320 MW TPP: Part I

Jan 26: Chettinad Power Corporation Private Limited (CPCPL) has invited bidders to bid on `Lump sum fixed price` basis for the BTG (Boiler, Turbine, Generator and associated equipment/auxiliaries) Package on EPC basis (without civil works) for its proposed 1,320 MW coal fired super-critical thermal power project in the state of Tamil Nadu.
8The 2x660 MW power plant will consist of two pulverized coal fired boiler units and two steam turbine units and the auxiliaries.
8The proposed power plant will be installed at the coastal villages of Kaliyappanallur, Sattankudi, Erukkattancherri, Manikkappangu in Tharangambadi Taluka, Nagapattinam District of Tamilnadu.
8The scope of work for the project shall include design, engineering, procurement, manufacture, fabrication, shop inspection and testing, packing, transportation and comprehensive insurance upto handing over, erection, testing of the BTG package.
8All the EPC contractor/ subcontractor’s detailed engineering drawings and documents will be reviewed and approved by the Owner /Owner’s Engineer (Consultant) and the EPC contractor shall adhere to the suggestions and improvements made by the Owner’s Engineer ( Consultant ) given in writing.
8Further the EPC Contractor shall be responsible for overall management of the project including contract scheduling, planning monitoring, expediting the subcontractor’s work etc., to ensure the overall project schedule is maintained at all times.
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Chhetinad Power invites bids for BTG package for 1,320 MW TPP: Part II

Jan 26: The NIT (notice inviting tender) document delineates the following major aspects:
8Commercial & general conditions of contract
8Technical specification
8Bid proposal sheets (technical part)
8Technical specifications
8Lead specification
8Specifications for steam generator & auxiliaries
8Specifications for turbine-generator, auxiliaries & other feed cycle equipment
8Specifications for power cycle & other piping, valves & specialties
8Specifications for controls & instrumentation
8Specifications for electrical equipment & accessories
8Specifications for elevators
8Specifications for main, auxiliary & closed circuit cooling water systems & accessories & miscellaneous systems
8Flue gas desulphurisation (FGD)
8Tender drawings
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Teesta low dam-IV continues to flounder as HM, E&M works hit standstill

Jan 26: There has been no progress at NHPC's Teesta low dam stage-IV hydro electric project (HEP) with regards to its hydro mechanical (HM) as well as electro-mechanical (E&M) works during the month of December, when compared with the progress during the previous month.
8Om Metals Limited, which showed commendable progress during the month of November, has failed to perform during December 2011. No additional work was done on the HM front last month.
8Looking at the civil works, only 321 cum of power house works, as opposed to the target of 4,700 cum, could be concluded during the month of December. The contractor's dismal performance is further reflected in the zero progress made on concreting around the penstock, even though the target was achievable at 1,300 cum.
8The Teesta Low Dam Stage-IV HEP is a run-of-river scheme proposed to utilize the hydel potential of the river Teesta. The project envisages the construction of a 45 m high concrete dam across the Teesta river, a surface power house on the left bank of the river, with four turbine units of 40 MW capacity, each, and four pressure shafts of 7 m diameter.
8The project would afford an annual energy generation of 720 million units (MU), assuming 90% performance.
  (Click on Details for more information)   Details

NHPC strives hard to catch up to commissioning schedule of Parbati-III HEP

Jan 26: State-run NHPC is unlikely to stick to its January deadline for commissioning the 520 MW Parbati-III hydro-electric project (HEP), with the developer failing to meet most of its targets for the month.
8It is of utmost importance that the crucial activities are fast-tracked to avoid any further revision to the schedule as per the Memorandum of Understanding (MoU).
8NHPC has been unfortunate on the electro-mechanical (E&M) works front, wherein the activities had suffered a major backlog on account of seepage in the power house (PH) due to incessant rainfall during the month of November. Currently, the erection of turbine in units 1 and 2 are in progress.
8With respect to PH works, the balance works of surge chamber concreting have been moving ahead at an excruciatingly slow pace for the past three months, with the contractor unable to complete the required work on the remaining 1,620 cum of the target set for December. Of this total, only 500 cum of concreting was done during the said month.
8The 520 MW Parbati Stage III HEP, located in Kullu district of Himachal Pradesh, is a run-of-the-river scheme envisaging the diversion of the tail race releases of Stage-II power house as well as inflows from river Sainj through a 7.8 km ling headrace tunnel for generation of power in an underground powerhouse, near village Bihali.
  (Click on Details for more information)   Details

No additional progress in E&M works of Subansiri Lower HEP during Dec'11

Jan 26: NHPC's Subansiri Lower hydroelectric power project (HEP) has not seen any incremental progress with regards to its electro-mechanical (E&M) works during the month of December, in comparison to the previous month.  
 8Even more worrisome is the fact that economic blockade by different pressure groups is continuing against construction of the HEP since December 16, 2011. Also, there has been no progress at the site due to shortage of diesel.
 8The issues pertaining to the downstream impact studies and demand for stoppage of dam works by anti-dam activities, along with signing of MoU with the state government of Assam, are yet to be taken up at the Ministry level, a trend continuing from the previous month.
 8As far as the hydro-mechanical (HM) works are concerned, 7% of the erection of diversion tunnel gate and 2% of the erection of intake unit-V have been completed.
 8The 2,000 MW HEP, with 8 units of 250 MW each, is a run-of-river scheme, on the river Subansiri. Apart from a 116 m dam, the project involves construction of eight 1,168 m horseshoe-shaped HRTs of 9.5 diameter, eight pressure shafts, a surface power house to accommodate 8 Francis turbines, along with a 206 m long tail race tunnel (TRT).
  (Click on Details for more information)   Details

MoC pulls up BSIL for shortcomings in MCP of Macherkunda coal block

Jan 26: The Ministry of Coal (MoC) has directed Bihar Sponge Iron Limited to address the inadequacies in the Mine Closure Plan (MCP), with regards to the company's Macherkunda coal block located in the state of Jharkhand.
 8The ministry has asserted that the company has to incorporate a copy of the approval for setting up the end-use plant along with its location, capacity, coal requirement and calculation for coal requirement. Also, a copy of the plan from the geological report showing the boundary of the block must also be included.
 8In addition, BSIL's MCP lacks bar-chart showing the schedule of implementation of the project, year wise coal requirement and source of supply in a tabular form, report on hydrological studies. In addition, reasons for considering only 8.7 MT of reserves for mining, out of the 23.8 MT reserves must also be specified.
 8To note, the coal block, located in Latehar district of Jharkhand, was allocated to BSIL for captive use. The block has total geological reserves of 23.86 MT and corresponding extractable reserves of 5.441 MT through underground (UG) mining. The total life of the mine is 25 years, including the construction period.
  (Click on Details for more information)   Details

KERC reprimands Thrissur Corp for non-compliance of directions & regulations

Jan 26: The Karnataka Electricity Regulatory Commission (KERC) has censured Thrissur Corporation, a deemed licensee of the state commission, for non-compliance of the authority's directions and provisions of electricity regulations.
 8This is in view of the fact that the annual revenue requirement and expected revenue from charges (ARR&ERC) petition of the licensee for the years 2010-11 and 2011-12 and truing up petition for 2006-07 to 2009-10 were not in order, along with being riddled with various defects.
 8Despite repeated reminders from KERC, the corporation was unable to cure these defects on time and subsequently delayed filing of these by 40 days, instead of the allowed 15 day period.
 8Following issuance of a number of show cause notices to the company, Thrissur Corporation claimed that the said delay was due to reasons beyond its control. However, the commission was totally unsatisfied with the reasons as regulatory compliance is mandatory for all licensees and Thrissur Corporation is no exception.
 8In addition, KERC pointed out that there is no dearth of funds for the corporation and it must have a permanent arrangement for regulatory compliance. The commission has called this a continuous contravention of its directions, also keeping in mind that the licensee has not yet filed the ARR&ERC petition for the year 2012-13.
 8Therefore, the state electricity regulatory has slapped a fine of Rs 25,000 on the deemed licensee although this decision is appealable under the Electricity Act, 2003 before the Appellate Tribunal of Electricity.
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News Briefs

Jan 26: 8Power Grid Corporation of India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on January 23, 2012, have approved the following investment approvals:
 --`Transmission System for establishment of 400/220kV GIS Substation at Magarwada in UT DD` at an estimated cost of Rs 259.28 Crore with a commissioning schedule of 24 months from the date of investment approval.
 --`System Strengthening in Raipur-Wardha Corridor for IPP Projects in Chhattisgarh` at an estimated cost of Rs 1,422.85 Crore with a commissioning schedule of 36 months from the date of investment approval.
8The Minister of State for Power, K.C. Venugopal has called for finding ways and means to address the issues concerning power distribution sector and contain its mounting financial losses. He was addressing the session on Emerging Opportunities and Challenges in Power Distribution at the India Energy Congress, 2012 on Tuesday.
 --The Minister underlined the need for reducing high level of Aggregate Technical and Commercial (AT&C) losses. He said the Government first launched the APDRP and later a Restructured-APDRP scheme in 2008 with a focus on actual, demonstrable performance in terms of sustained loss reduction.
 --He added that the need of the hour is to create a base line data for different types of customers and segregation of agricultural & rural connections with the help of information technology. He said these issues are getting addressed during implementation of R-APDRP scheme. The Minister said that to reap the benefits of R-APDRP, Ministry of Power is finalising eight smart grid pilots worth Rs 500 Crore with a focus on building a distribution business that is smart grid compatible and connects the proposed smart grid to the end consumer through smart metering and related technological interventions.

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