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Time has come to reduce UMPP plant size: Frm Power Secy

India’s power crisis seems to be going from bad to worse. Reliance Power Tuesday, scrapped its plans to build a 3,950 megawatt ultra mega power plant (UMPP) in Jharkhand citing land acquisition troubles as a reason for pulling the plug.

The company said even after 5 and half years and over 25 meetings with the state government, nothing has been done so far.

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Meanwhile, in a bid to tackle the land acquisition issues the government is planning to set up UMPPs on sites of existing plants that are either inefficient or old.

Discussing the above issue, Anil Razdan Former Secretary, Power in an interview to CNBC-TV18 said maybe the time has come to contract the size of the plants, so that land requirement is reduced to minimum  because land is crucial input for any power plant. According to him land assessment was easier when UMPP was first conceptualised.

He also stated that there is a need to distinguish between domestic and imported coal based UMPPs. Also emphasis should be on locating UMPPs at pit-heads of coal mines, so that the logistics of transporting huge amounts of coal with high ash is tackled efficiently.

Below is the transcript of his interview on CNBC-TV18 with Shereen Bhan

Q: We have just heard from Reliance Power, they are pulling out of the Tilaiya project, and the Krishnapatnam project for them is also in trouble. The company has actually approached the tribunal because of the hike in import costs of coal. We have seen what has happened as far as the bids for the Tamil Nadu and Orissa UMPPs are concerned. The government is now going back to the drawing board as far as the bid document. What has gone wrong with the UMPP idea to your mind?

A: In the first instance we must be able to distinguish between the domestic coal UMPP projects and the imported coal projects. When we are talking of Tilaiya and Krishnapatnam, they are two different projects. The whole concept of the UMPP was that you provide the land, water and the other inputs like fuel allocation and then go in for competitive bidding with all these clearances, also so that you get the least tariff.

In this particular case the tariff was below Rs 2 a unit. It would have been extremely good if this project had come up in good time. Land of course is a very crucial input for any power project and if you are not going to provide the land for it you are not going to be able to setup any project.

When we had first embarked on the UMPP land assessment was a little liberal. Maybe the time has come to contract the size of the plants and the land requirement so that land requirement is reduced to a minimum. There was one such exercise in 2008 and I think that exercise did reduce some of the land requirement. I think it needs to be reduced even further because we should take lessons from Korea and Japan as to how to minimise the size of the plants particularly the coal handling plant – how to reduce the area.

Q: You have pre-empted my question. That is exactly what I was going to ask you. In terms of the land requirements and the challenges that we are facing with land acquisitions at this point in time, do you think that it would be appropriate for the government to scale down significantly as opposed to 4,000 megawatts, maybe 2,000 megawatts? What would be the right size?

A: You see, it was thought that size should be able to bring down the tariff. So, that was the kind of optimal, optimisation there. I heard your assessment on looking at the older sites where there are older plants which are inefficient. Of course, I have a definite view that where the plants are inefficient they ought to be taken off immediately or an inefficiency tax be imposed on these plants because they are consuming more fuel and probably polluting more than they need to.

However, I do not think that in many of those sites, which may be located in areas that are inhabited and populated, and the towns have expanded – whether we can set up say even 2,000 megawatt plants.

The other point that I wish to make that is given the logistics of transportation of coal from the mine heads to the power plants. The future emphasis should be on locating power plants at pit-head and transmitting the power so that the logistics of transporting huge amounts of coal particularly coal with high ash is tackled.

So I do not know how far the older locations are going to work. In any case, as I said that wherever the plants are inefficient, you need to introduce an inefficiency tax. Now, that does not apply only for coal, it also applies to wind power projects and other such projects. We have got to set efficiency benchmarks.

Q: We are getting some information from official government sources at this point in time, finally a reaction coming in to Reliance Power’s decision to pull out of Tilaiya. We are given to understand that a Joint Monetary Committee met on this matter on the April 17 at Ranchi. It was attended by officials of the CEA, the state government and the developer in which specific time-bound commitments for handing over the land were made by the state government and our sources now go on to say that since this is a unilateral decision that has been taken by Reliance Power, the procurer states will examine this and take necessary action. What do you make of Reliance Power’s decision to pull out of Tilaiya specifically in the light of what seems to be government sources telling us that specific time-bound commitments on handing over land were made?

A: The best is to get the reaction from the government but what I can see is that so much time has elapsed, the question remains whether what was promised as a delivered cost of power, given a certain timeframe whether passage of the timeframe allows the project to deliver power at the same cost. And now particularly with the increase of mining costs etc, some royalties, those are all issues which would have to be examined legally. But the major loser in this is going to be the state of Jharkhand which was going to be the prime lifter of the power and I wish Jharkhand had capitalised on this opportunity, acquired the land, it would have become surplus in power or at least become a ready base for setting up new industry there because no new industry can come up without power and sitting on coal.

I personally am a little disappointed that things had come to such a pass but of course the legal issues will have to be examined because termination notice would have been given, I do not think you can terminate unilaterally.

Q: What we are given to understand is that the notice was not given, at least that is the information that we are picking up from sources. The decision was taken unilaterally by Reliance Power is what our government sources tell us. The standard bidding document overhaul a review has been on for a while now. Power producers want the build operate own model whereas the current document is based on the design build finance operate transfer model. I understand that the committee that is looking at rehauling or reworking the document will submit its report on May 15. What is it that would be most feasible given the current scenario?

A: From the straws that one is picking up in the wind, obviously the developers want to go back to the earlier model, they are not interested in handing back the assets and probably they would be looking at a return to the earlier scheme of things or at least a departure from the last one which was attempted when a bid was given out and I think we did not have very many developers left in the fray.

So, it is interesting to watch because I think any investor looks at a longer profile but we will have to wait for the reactions. One thing is clear that I will be a very happy man if the project is bid out again and the bid tariff comes out lower than what it was earlier.



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