Getting past UMPP fiasco PDF Print E-mail
Saturday, 10 January 2015 00:00
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Faulty bid documents aren't the real issue


Private sector power producers should feel happy that, unlike in the UPA years, they finally have a government that listens to them, and one which cancelled the bids for two ultra mega power projects (UMPPs) just because they said the bidding documents had critical flaws. The most often cited ones concern the 27 items of default on the part of the developer versus just 3 events on the part of the utility buying the power and the fact that, since the ownership of the project did not vest with the developer, raising finance was not easy. It is not clear how much of this is exaggerated since those who developed the new documents have their own set of counter arguments. The biggest problem was that, they argue, it was not possible to get promoters to exit a project even if they failed to develop it on time under the old set of bidding parameters; as for mortgaging the land to raise finance, the new documents are supposed to have a provision for doing this jointly along with the government. But ignore this since both sides are expected to defend their case vigorously.

What’s more important is to see whether things will be better in the absence of the new documents. Given that 2 of the 4 UMPPs already bid out are not anywhere near even starting 5-7 years after they were awarded, it is obvious the older documents were not much better either—it is also curious that, with no progress for all these years, the projects have not been cancelled and bid out again. The third UMPP is fighting it out for compensatory tariffs in a court of law and, unless this is given, may be forced to slow production. Indeed, most competitively-bid power projects of the private sector are in trouble over tariff levels, and are fighting this out in one forum or another. While there can be a debate over whether or not a relief package is called for, and if so, of what kind, it is also debatable whether, even under the perfect set of bid documents, the heavily over-leveraged private power sector developers have the ability to invest R50,000 crore, which is roughly what the two UMPPs that have just been cancelled will cost. With private sector balance sheets being as stretched as they are, and while there is a clamour for increasing both government and PSU capital expenditures to kickstart the investment cycle, it has to be ironic that the government goes and cancels two big investment projects for NTPC. With cash reserves of over R17,500 crore, NTPC’s balance sheet is clearly strong enough to finance projects the private sector does not think are financeable. In such a situation, even if the bid documents are faulty, it would have made more sense to allow NTPC to go ahead with these two UMPPs and then, after fixing the problems with the current and the previous set of bid documents, a fresh round of bids could have been called for new projects. Unlike in the case of projects bid under the old set of documents, had NTPC failed to deliver on time, the new bid documents make it pretty easy to forfeit NTPC’s deposits and rebid the UMPPs.


Last Updated ( Sunday, 11 January 2015 05:12 )

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