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Reliance Power draws utilities' fire as 4 states slap Rs 400-crore fine on Krishnapatnam project delay

Four states have slapped a fine of Rs 400 crore on the Reliance Power entity setting up one of India's largest power projects.

, ET Bureau|
Updated: Mar 21, 2012, 05.50 AM IST
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HYDERABAD: Four states have slapped a fine of Rs 400 crore on the Reliance Power entity setting up one of India’s largest power projects, worsening troubles for a prestigious venture which has been in a limbo for about nine months.

Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra, which have agreements to buy electricity from the 4,000-mw project, have also threatened to encash bank guarantees, terminate power purchase agreements and recover the land allotted for the coal-fired project.

The stoppage of the project has caused irreparable loss to the electricity procurers, which would ultimately be detrimental to end-consumers of the four beneficiary states, said K Vidya Sagar Reddy, CMD of AP Southern Power Distribution Company, which served the notice on behalf of 11 utilities in the four states on March 15.

The project is being implemented by Coastal Andhra Power, a special purpose entity set up by Reliance Power. On Tuesday, Reliance Power, a part of the Anil Dhirubhai Ambani Group, moved the Delhi High Court and obtained a stay on the notice to invoke bank guarantees of Rs 300 crore and terminate the power purchase agreements.

The project in Krishnapatnam in coastal Andhra Pradesh is one of four ultra mega power projects that have been awarded to ease the acute electricity shortage in the country using the advantages of efficiencies of scale and advanced technologies.

Similar to Tata’s Gujarat UMPP

Reliance Power won three of the bids for projects in Andhra Pradesh, Jharkhand and Madhya Pradesh, but only the project in the southern state relied on imported coal. Similarly, Tata Power, which won the bid to build a 4,000-mw project in Gujarat with imported coal as fuel, has also been struggling.

A proposal by the Tatas to increase power tariff citing costly Indonesian coal has been turned down by the Gujarat government. It has advised Tata Power, which has already commissioned the first unit of 800 mw, to approach the central government for remedy.

Reliance Power, too, has been pleading for an increase in power tariff saying its project will become unviable if the rate of Rs 2.33 per unit agreed in 2007 is not changed. The main reason, it says, is that Indonesia, from where it imports coal, has changed rules to benchmark the export price to that prevailing in the international market.

Andhra Pradesh was to get a 40% share of the electricity while the three other states would share 20% each. The project cost is estimated at about Rs 17,500 crore.

When Reliance Power stopped work at Krishnapatnam, among the reasons it cited were the Indonesian rule change, the delay in handing over of land by the Andhra Pradesh government and poor soil quality. It has also argued that the Indonesian rule change was beyond its control and could not have been envisaged when it bid for the project.

“The change in regulations in Indonesia has impacted all imported coalbased projects in India. Reliance Power is committed to the Krishnapatnam project and favours amicable solution to this issue through mutual discussions as provided in the provisions of the PPAs signed with procurers,” a spokesman for Reliance Power said.

The buyers in the four states, on the other hand, say Reliance Power has not adhered to the timelines prescribed for financial closure, fuel supply agreements, awarding contracts, submission of additional bank guarantees and resuming work at Krishnapatnam.

"We will initiate action against them under the provisions in the power purchase agreement," said Ajay Jain, CMD of AP Power Transmission Corporation.

The Reliance entity has taken refuge under the force majeure clause saying events beyond its control led to an increase in coal costs but the utilities counter that the agreements do not allow for a rate increase influenced by changes in policies by foreign governments. They have also told Reliance Power that fuel and consumables for the project were excluded from the force majeure clause.

Kameswara Rao, an executive director specialising in energy, utilities and mining at consultancy PwC, said that power producers cannot be left in a limbo because of factors beyond their control and suggested a balanced approach.

"We have to recognise the realities of global commodity markets and that we cannot guarantee that other countries, including Indonesia, will not change their regulations in future. So both power consumers and developers must take account of political and commercial risk in their calculations," he observed.

Also Read

Reliance Power arm seeks to revive Krishnapatnam Project

Krishnapatnam project bids to take time

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