Initiated in 2005-06, the ultra mega power project (UMPP) initiative is a big step forward in India's power generation segment. This special story by Mrinalini Prasad gives a comprehensive update on the progress so far, analyses the challenges and prognosticates the way forward for India's UMPP ambitions.

To meet the growing gap of demand and supply of power in the country, a need was felt to develop large capacity projects at the national level to meet the power requirements a number of states through tariff-based competitive bidding. Keeping this larger canvas in mind, the power ministry launched an initiative in 2005-06 to facilitate the development of ultra mega power projects (UMPPs) each having an indicative capacity of 4,000 mw, at both the coal pithead and coastal locations. It was also proposed to deploy fuel-efficient and environment-friendly supercritical technology in the UMPP series.

Pithead projects are envisaged to utilize the indigenous coal whereas coastal projects would depend on imported coal. This initiative, aims at delivering power at competitive cost to consumers by achieving economies of the scale. The Central Government has accordingly taken the initiative for facilitating the development of UMPPs under tariff based competitive bidding route on build, own and operate (BOO) basis. Central Electricity Authority (CEA) is the technical partner and Power Finance Corporation (PFC) is acting as the nodal agency.

UMPPS AWARDED*
Name of UMPP	State	Type	Developer	Transfer	Tariff
				Date	(Rs/kwh)
Mundra	GUJ	Coastal	Tata Power Ltd	23-Apr-07	2.264
Sasan	MP	Pithead	Reliance Power Ltd	07-Aug-07	1.196
Krishnapatnam	AP	Coastal	Reliance Power Ltd	29-Jan-08	2.333
Tilaiya	JHA	Pithead	Reliance Power Ltd	07-Aug-09	1.770
*As of May 31, 2012

UMPPS AWARDED
Four UMPPs namely Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand have already been transferred to the respective successful bidders so far.

1. MUNDRA UMPP
The Mundra UMPP in Gujarat is the first UMPP project of the country. The project is also the first in the country to use high-efficiency 800-mw supercritical technology. The import coal-based project, with five units of 800-mw each, was awarded to Tata Power after it quoted lowest levelized tariff of Rs.2.26 per kwh. The special purpose vehicle for the project—Coastal Gujarat Power Ltd—was transferred to Tata Power in April 2007. The project site is located in the Kutch district of Gujarat.

Mundra power project received financial closure in April 2008. The total cost of the project has been estimated at Rs.17,000 crore. The contract for boiler island scope has been placed with Doosan Heavy Industries & Construction Company, Korea on EPC basis. The steam turbine generator supply contract has been placed with Toshiba Corporation. The power from the project will be supplied to Gujarat, Maharashtra, Rajasthan, Haryana and Punjab.

Current Status
The first unit of the Mundra UMPP was commissioned in March 2012 and the second unit is expected to be commissioned in August 2012. According to the company, all the units of the power project are likely to be commissioned by March 2013, around 17 months ahead of its schedule.

Fuel:
Mundra UMPP is based on imported coal, entirely sourced from Indonesia. As such, the recent change the pricing policy of coal by the Indonesian government has had an adverse impact on the cost dynamics of the project. Last year, Indonesia government decided to benchmark coal prices for exports in accordance to the international prices as against the "negotiated route" previously decided. This has had a negative impact on the cost structure and also power tariffs of imported-coal based power projects in the country. Tata Power has been in talks with the government to find a solution to the matter. Meanwhile, the company is blending low-grade coal to the imported coal to bring down the fuel cost.

Transmission: Power Grid Corporation of India (PGCIL) commissioned the transmission system for two units of Mundra UMPP on September 29, 2011. The commissioned system includes Mundra-Bachau- Ranchodpura 400kV double circuit line and 630MVA Bachau 400/220kV substation. The work on the remaining system is under progress. PGCIL is implementing the transmission system for the project, at a total estimated cost of Rs.5,000 crore.


2. SASAN UMPP

Sasan project, based in Madhya Pradesh, is being developed by Reliance Power through its subsidiary Sasan Power Ltd. The project was transferred to Reliance Power in August 2007 after the company emerged as the lowest competitive bidder. The project is spread over 2,000 acres of land in Singrauli district, Madhya Pradesh.

Sasan power project received financial closure in April 2009. The total cost of the project has been estimated at Rs.19,400 crore and the tariff from the project has been worked at Rs.1.196 per unit. Reliance Infrastructure Ltd is the EPC contractor with Shanghai Electric of China has been appointed as main plant equipment supplier.

 Sasan UMPP is being developed at a pithead site and has been allotted three captive coal mines by the coal ministry. These mines, Moher, Moher Amlori extension and Chhatrasal, are estimated to hold total reserves of around 750 million tonnes. Power from the project will be supplied to seven states-Delhi, Punjab, Haryana, Madhya Pradesh, Rajasthan, Uttar Pradesh and Uttarakhand.

Current Status
Reliance Power has revised the CODs from those given in the power purchase agreements. According to the PPA, the first unit of the project was expected to be commissioned by May 2013. However, the first 660-mw unit of the project is now expected to be commissioned in January 2013. The remaining five units will be progressively commissioned by June 2014. A recent CEA review however pointed out delays in project execution. Boiler erection for Unit II, slow progress in case of land conveyor and switchyard erection are some of the works found to be lagging. The developer has agreed to review the progress on the second and subsequent units and deploy additional resources, if needed, to achieve milestones.

Fuel: Though Moher and Moher Amlori extension coal mines allotted to Sasan UMPP received environmental and forest clearances, Reliance Power is still awaiting transfer of land from Northern Coalfields Ltd that will enable the company to extract coal from these blocks. At the recent joint monitoring committee meeting, the developer informed that they are still awaiting handover of land by Northern Coalfields Ltd for coal block. SPL informed CEA that with the available land they will be able to meet the targeted coal production for commissioning of first unit but they will need the remaining land at the earliest for ramping up the coal production. Meanwhile, the company is awaiting the environment clearance for the Chhtrasal coal block.

Transmission: PGCIL is developing the transmission line for Sasan UMPP with an investment of about Rs.7,031 crore. At the monitoring committee meeting, PGCIL informed that 274-km 765kV S/C Satna-Bina Line-I and 311-km 765 KV S/C Bina-lndore Line (311 km) have been completed and test-charged. However, forest clearance for Stage-I was awaited for Sasan-Satna Line-1, in which 34 km line and 46 locations are in forest area.



UMPPS IN THE PIPELINE*
Name of SPV	State	Type
Tatiya Andhra Mega Power Ltd	AP	Coastal
Chhattisgarh Surguja Power Ltd	CHH	Pithead
Deoghar Mega Power Ltd	JHA	Pithead
Coastal Karnataka Power Ltd	KAR	Coastal
Coastal Maharashtra Mega Power Ltd	MAH	Coastal
Orissa Integrated Power Ltd	ORI	Pithead
Sakhigopal Integrated Power Company Ltd	ORI	Pithead
Ghogarpalli Integrated Power Company Ltd	ORI	Pithead
Coastal Integrated Power Ltd	TN	Coastal
*List may not be exhaustive



3. KRISHNAPATNAM UMPP

Krishnapatnam UMPP is the second UMPP won by Reliance Power. The SPV for the project—Coastal Andhra Power Ltd—was transferred to the company in November 2007. Being a coastal project, the project will use imported coal as fuel. Reliance Power will sell the power at levelized tariff of Rs.2.33 per kwh. Power from the project will be sold to four states- Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra.

The Krishnapatnam UMPP achieved financial closure in July 2009. The total cost of the project has been estimated at Rs.17,450 crore. The EPC contract for the project has been placed on Reliance Infrastructure and Shanghai Electric Corporation is the main equipment supplier.

Current Status
Krishnapatnam UMPP, much like the Mundra project, is contending with a deadlock due to the change in price of imported coal from Indonesia. All the units of the projects were scheduled for commissioning by October 2015, as per the power purchase agreement. However, with the works at the project stalled, the government is considering to drop it out of the capacity programme for the XII Plan period.

Fuel: Reliance Power had acquired three coal mines in Indonesia to source coal for its Krishnapatnam power project. However, the change in coal pricing policy by the Indonesia government last year adversely affected the project cost structure. According to the company, the project is not feasible anymore as the price of coal has shot up to $60 per tonne from $24 per tonne at the time of bidding. In view of this, the company has expressed its inability to go ahead with the implementation of the power project. In view of the works coming to a standstill, the power procurers slapped a notice for penalty of Rs.400 crore on Reliance Power. However, the company has got a stay from the Delhi High Court against the notice.

Reliance Power has asked the Central government to intervene in the matter. It has also taken up the issue with the Indonesia government and requested them to exempt the fuel supply agreements that were executed before the regulation so that the projects can be executed as per the power purchase agreements. The company has also requested the Centre to endorse this proposal to the Indonesia government.

Transmission: For ease of implementation, the transmission project for the Krishnapatnam UMPP was taken up in three phases. Part A and Part C of the transmission project comprised of elements that were associated with direct off-take of power from the units, while Part B comprised of elements needs for interconnections between the regions. In view of the project deadlock, Part B of the project has been de-linked from the Krishnapatnam UMPP. Meanwhile, some elements of Part C of the transmission project have been deferred till the time things become clearer on the project development front.


4. TILAIYA UMPP
The 3,960-mw Tilaiya UMPP is the third ultra mega power project bagged by Reliance Power. The project is a pithead project that envisages construction of six units of 660-mw each. The project is being developed by Reliance Power through the SPV Jharkhand Integrated Power Ltd, which is now a wholly owned subsidiary of the company. The SPV was transferred to the Company in August 2009. The project is coming up in Hazaribagh district of Jharkhand.

The project has been allocated two captive coal mine blocks,Kerandari 'B' and 'C', with combined reserves of almost 1.3 billion tonnes. The mine plans for development of these mines have been prepared and are currently under government approval. The mine plan envisages annual production of almost 40 million tonnes of coal.

The total cost of the project has been estimated at Rs.24,000 crore, including the coal mine development, and the tariff from the project has been worked at Rs.1.77 per kwh. Power from the project will be supplied to ten states in northern and eastern India. According to the PPA, the first unit of the project will commission in May 2015 and the entire project will be commissioned by May 2017.

Current Status
Delay in land acquisition is pushing the project away from its schedule and even the pre-construction activities are not picking up pace. Further, JIPL has been facing R&R issues. Before the bidding of the project, total R&R was estimated to be Rs.481 crore. However, post bids, the R&R expenditure shot up manifold to Rs.3,612 crore, which is likely to have a serious impact on the project cost and the corresponding tariff. Meanwhile, financing for the project is in progress.

Fuel: The Kerandari 'B' and 'C' coal blocks allocated to the project have drawn a lot of attention from the industry. The blocks are estimated to produce about 30 million tonnes of coal per year whereas the annual requirement of the project is only about 18 million tonnes. The coal ministry has allowed the company to use the excess coal in its other coal-based projects. However, the empowered group of ministers has decided to review their decision and let the excess coal usage from the blocks be governed by the new policy on this subject which is being formulated by the coal ministry.

Transmission: The associated transmission system for the Tilaiya UMPP is being developed by PGCIL in accordance with its completion schedule.

Learning Curve

The Sasan project, which marks the first of the UMPP series, was a huge learning experience for the government. The award of the project was mired in intense controversy and succeeded in rattling the UMPP experiment. However, it was due to this episode that the UMPP policy framework was strengthened, resulting in the subsequent projects being processed and awarded in a smooth manner. It may be recalled that the Sasan project was originally awarded to a consortium of Globeleq Singapore Pte Ltd (70 per cent) and Lanco Infratech (30 per cent), in July 2007. Interestingly, the winning duo had quoted a levelised power tariff of Rs.1.196 per kwh, which by itself, had surprised industry circles. Soon after Lanco-Globeleq consortium was declared as the winning bidder, problems began as Globeleq exited the project. Globeleq's 70 per cent stake in the project was acquired by Lanco Infratech and Jindal Steel & Power. Lanco assured that it would honour the power tariff irrespective of the change in ownership. Since the winning consortium was no longer in its original form, losing bidders insisted that nodal agency Power Finance Corporation disqualify the bid. Further, it was also discovered that Globeleq had misrepresented financial and technical details while bidding for the project. In view of this, Lanco was disqualified and Reliance Power was awarded the project after it matched the winning bid— a judgement that took over six months in deliverance.

UMPPS IN PIPELINE
RfQ for Chhattisgarh UMPP was issued on March 15, 2010 and for Orissa Integrated UMPP on June 11, 2010. However, due to categorization of coal blocks of these two UMPPs in 'No Go' area by environment ministry, the last dates of RfQ bid submission were extended several times leading to a considerable delay. The matter was taken up with the environment ministry at different levels and after receiving the clearance for coal blocks of Orissa UMPP, the response to RfQ were opened on August 01, 2011. Total of 20 bidders responded against the RfQ of Orissa UMPP. The evaluation of the response is underway. However, the coal blocks of Chhattisgarh UMPP, which are in Hasdeo-Arand coal fields, have not yet been cleared and therefore, the RfQ submission dates have been successively extended. Most of the prerequisites for issuing RfQ for coastal UMPP at Cheyyur in Tamil Nadu have been completed and it is expected to be issued shortly after the finalization of revised standard bidding documents.

TRANSMISSION FOR UPCOMING UMPPS
Transmission systems for the Orissa Integrated UMPP and Chhattisgarh UMPP have been identified. However, the proposal will only be finalized after the bidding processes of the projects have been completed. Transmission system for the other projects will be firmed up in the course of their implementation process.

CHALLENGES IN UMPP IMPLEMENTATION
Indonesian coal policy: The change in regulations with regard to coal pricing in Indonesia has had an impact on all imported coal-based projects in India. Last year, Indonesia government decided to benchmark coal prices in accordance to the international prices as against previously negotiated prices. With respect to the awarded UMPPs, two are imported coal based - Tata Power's Mundra UMPP and Reliance Power's Krishnapatnam UMPP. Since both the developers placed their bids considering the earlier coal policy of the Indonesia government, the project is becoming unviable at the projected tariff. While Tata Power has been mitigating the price escalation by blending imported coal with low-grade coal, Reliance Power has stopped work at Krishnapatnam UMPP.

Local populace: There has been considerable delay in site finalisation, land acquisition and conducting sitespecific studies due to resistance from local populace. Opposition from locals has delayed implementation of Maharashtra, Karnataka UMPPs and second UMPP in Andhra Pradesh.

Environment and forest issues: The environment and forests issues particularly 'go' and 'no-go' issue of coal blocks have been hampering the progress of several UMPPs. Due to this, the last date for submission of RfQ for the Orissa and Chhattisgarh UMPPs were extended as many as six and nine times respectively. This issue effectively delays the Orissa UMPP by over one year, whereas the coal blocks of Chhattisgarh UMPP, which is already delayed by more than two years, have not yet been cleared.

Besides, generally long time is taken for obtaining environment and forest clearance for the projects which delays the bidding process and implementation of the projects. For the four awarded UMPPs time taken for environment and forest clearance is given in Table 3.

Water linkage: There has been enormous delay in obtaining water linkage for domestic coal-based projects. Water linkage for Orissa and Chhattisgarh UMPPs were obtained after delay of over one and a half years. Due 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.

CLEARANCE LEAD-TIME*
UMPP	Environ.	Forest
Sasan	169	931
Mundra	249	1,096
Krishnapatnam	351	NA
Tilaiya	448	1,208
*No of days from approval date

Revision of SBDs: As per decision of Empowered Group of Ministers (EGoM), legal vetting of the Standard Bidding Documents was carried out by an international law firm along with an Indian law firm as interface. The proposed modifications were discussed in the EGoM meeting held in January 2010. Power ministry is in the process of further revising the SBDs on the basis of references received from various stakeholders. A committee has been formed by the power ministry to examine all references from stakeholders for review of 'Case-1' and 'Case-2' SBDs and to make appropriate recommendations.

Forest land: As concerns regarding depletion of forest area use are gaining prominence, all efforts are being made during the site selection for UMPPs that forest land is avoided as far as possible. Further, power ministry is taking up the forest related issues regarding 'Go' 'No-Go' area in coal blocks allocated to Chhattisgarh UMPP with the environment ministry.

THE WAY FORWARD
The UMPP initiative is a big achievement for the Indian power sector, mainly the generation side. Each UMPP is envisaged to have installed capacity of around 4,000 mw by which economies of scale are ensured. However, the UMPP endeavour is poised to do much more than merely create large-scale power generation capacity. The UMPP series is structured on tariff-based bidding, which means that the project will be awarded to the most competitive tariff quoted. This is in the ultimate interest of the consumer. Tariff-based bidding also creates an equalizing effect between public and private sector entities. In this regime, public power generation utilities come at par with private entities in bidding for projects. Although the public sector has so far not been very forthcoming in bidding for UMPPs, the scenario might change in future.

The UMPP series has seen the advent of supercritical power generation equipment that is far more efficient and environment-friendly than conventional gear. It can thus be assumed that some environmental concerns associated with coal-fired power plants could be assuaged by the use of supercritical equipment. It is heartening to note that supercritical-grade equipment is coming to be the norm for all new power generation projects. In the XII Plan period, over 60 per cent of the new coal-based power generation will come from supercritical technology, which in the XIII Plan (2017-22), the corresponding metric will be 100 per cent.

What is striking about the UMPP endeavour is that it can be a biggest expression of public-private partnership. While it is very evident that government agencies need to gradually move out of the power sector and let private enterprise take over, the government will still enact the role of a facilitator. In the UMPP series, the government is mandated to assist the developer in pre-project activities like land acquisition, securing clearances, water linkages, etc. If the government commits itself to the cause of just two factors—land acquisition and environment clearance—developers will have lesser encumbrances to deal with as the project progresses. So far, the government has not been at its efficient best in terms of pre-project facilitation. Land acquisition, the first step towards any project, poses to be an insuperable hurdle, resulting in delays in awarding UMPPs, or even bringing them close to the bidding stage. Several UMPPs in the pipeline are struggling to overcome the first hurdle—land.

Cap on bidders

The UMPP endeavour, much like any other PPP initiative, seeks broad-based participation of the private sector. In this reckoning, the UMPP episode has not done too well, at least thus far. Out of the four UMPPs awarded, three have gone to a single bidder, Reliance Power. The other was clinched by Tata Power. With a view to ensuring that UMPPs get wider private sector participation, and do not get clustered around a single bidder, the power ministry recently came up with a guideline that the number of UMPPs awarded to a single bidder will be limited to three. It has also been observed that there has been a decline in the number of UMPP aspirants. In the Sasan UMPP, the first project to be bid out, there were nine bidders in the fray. However, this petered down to three by the Tilaiya project, the fourth in the series, was awarded. The new directive of limiting the number of UMPPs may restrict the number of projects for a developer, but there needs to be a wider proactive participation by bidders— something that cannot be manoeuvered by policy directives.

The role of the government as a facilitator is critical to the success of the UMPP series. If the government does not expedite matters and fails to create a ready shelf of UMPPs for award, interest from developers is bound to wane. Just four UMPPs awarded in over five years so far is not an enviable track record by any yardstick.

Going by its sheer size, a UMPP carries tremendous inherent risk that is borne entirely by the developer. To be able to honour the tariff quoted over the entire duration of the power purchase agreement—usually 25 years—is a big challenge. UMPPs are bound to contend with challenges and unwelcome eventualities not just during the construction phase, but also during regular operation. One such unforeseen difficulty has surfaced and is threatening the viability of two projects—Mundra and Krishnapatnam—both designed to run on imported coal. The developers of these projects had entered into longterm agreement with Indonesian coal suppliers for purchasing coal at discounted rates. In fact, these relatively-low fuel rates were responsible for the competitive winning tariffs quoted. It so happens that the Indonesian government recently proscribed export of coal at less than market prices, jeopardizing the project economics. Though the UMPP developers in question have approached the power ministry with their predicament, the matter is still pending resolution.

As of now, the success of the UMPP series depends more on the government's ability to do justice to its role as facilitator. The private sector, at least based on the four projects awarded, appears to be doing its part. Despite the delays in awarding, the Sasan and Mundra projects have made up for lost time and are now ahead of schedule. Project construction and operation is well within the efficient realms of the private sector, it is only the government's ability to score well on the policy front that will determine the future of the UMPP dream. There are at least nine UMPPs on the drawing board, presenting a big opportunity for the government to better its past performance.