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Centre drafts imported coal-based UMPP guidelines

To revive the private sector’s interest in power generation projects, the Ministry of Power released draft guidelines for awarding imported coal-based 4,000- megawatt (Mw) Ultra Mega Power Projects (UMPPs). The guidelines propose passing-through variations in input cost to the final consumer.

Also, to cushion buyers from fluctuating coal prices, the draft bid document suggests blending domestic with imported coal. For this purpose, the central government would facilitate coal supply for five years.

The UMPPs would be awarded under the plug-&-play model, i.e, the government would facilitate land, environment clearances and evacuation. The developer would set up the project, arrange imported coal and sell power (build-own-operate). The National Democratic Alliance government, in its maiden Budget in 2014, announced that it would auction four new UMPPs as plug & play projects.

The draft guidelines and bid document, prepared by a committee headed by Pratyush Sinha, former chief vigilance commissioner, are open for public comments till January 15, 2016.

The option of blending cheap domestic coal would be facilitated only when the cost of imported coal escalates by 10 per cent over the price quoted during bidding. To bring down fuel cost, blending of up to 30 per cent would be allowed.

Operators would be allowed to pass through costs in case of both reduction and escalation in variables — which are major cost components such as fuel cost, change of law in international coal markets and related issues.

“Learning from past instances of confusion on pass through of cost, such a provision has been made. Also, in the event of imported coal cost shooting up, domestic coal would act as a cushion for power procurers. Power plants can blend domestic coal and bring down the final cost,” a member of the UMPP committee said.

The Tata Power Mundra UMPP and the Adani Power plant in Mundra, which are based on imported coal, are entangled in long-drawn battles with the government over pass through of cost escalation because of a change in the law in the imported coal market and subsequent increase in price.

The case is being heard by the Appellate Tribunal of Electricity.

"We welcome the changes suggested in the guidelines and bid document. Most of the suggestions of the private sector have been incorporated. Now we are very sure that the next bidding for UMPP would garner adequate interest from private players," said A K Khurana, director general, Association of Power Producers, the representative body of private developers.

The UMPP bidding for Odisha and Tamil Nadu last year witnessed a pull out by all key private developers. As a result, in January 2015, the government decided to revise the UMPP bid document and guidelines. No UMPP has been auctioned since then.

Of the 16 UMPPs the previous central government planned to set up, four have been awarded — three are operated by Reliance Power (in Sasan, Tilaiya and Krishnapatnam) and one by Tata Power (Mundra). These projects had been awarded on a competitive tariff-based bidding and executed by a special purpose vehicle. They were based on the design, build, finance, operate, and transfer (DBFOT) model, on which private players had raised concerns.

Tata Mundra and Reliance Krishnapatnam are imported coal based. Reliance has asked to exit the Tilaiya project because of regulatory delays and procurers of Krishnapatnam are looking for cancelling the power purchase agreement (PPA) because of inordinate delay in the commencement of the project.

The bidding process, according to the guidelines, would take at least 300 days from announcement of final guidelines.

Source: Business Standard