PowerLine

Volume 1 •No.3 Decem ber 1996

I N D I A ’S F I R S T POWER MAGAZINE

1996-12 Point of View Private Power Risk by

Mr. Vishvjeet Kanwarpal CEO GIS-ACG
Global InfraSys - Asia Consulting Group

COST OF
Published: December 1996 by Power Line

POWER
SHORTAGE 25

10 Is wind power for real?

13 An SEB that makes money
23 Best power plants
28 Interview with John Baker
30Increasing PLF to 70 per cen t
39C ogentrix’
s Ron Som ers
 IN T H I S I S S U E

News Briefs_________ Project Watch______

Summ ary o f national and
international news developm ents
Cost of power shortages: New Projects:
5 View points from experts 26 R ecently announced o r awarded 44
Summ ary o f p rop osed projects 45
Interview with John Baker: Coal Power:
Candid views from chairman o f
N ational P ow er 28

Special Stories______ Increasing the PLF:

Wind power: Is it for real? 10 Goals, strategies and tactics 30

Captive power: G overnm en t and Private power risk: Oversupply, Tenders

SEB policies deter grow th 12 P P A , fuel and policy risks 32 Bids invited for I0 0 M W naphtha-
fired com bin ed cycle plant in U P
MSEB: by an Indo-U S join t venture 49
H o w d oes an SEB make m oney? 13
Finance____________
Exim Banks:
C heap credit, with condition s 35 Recruitment________
Bechtel look in g for engineers
Companies_________ for projects in Saudi Arabia 50
CEPAjs new
Southern ow ner 15
Electric: ABB look in g for
Power Grid:
Increasingly im portant role 16
Agencies _____ pow er professionals 51

USAID: D irectory o f products

Rolls Royce: M o re a catalyst than a lender 37 and services 52
N ew thrust areas 18

Indian Oil:
P rodu cin g pow er to sell 19

D L F Power: People ____________ Power Data_________

B ig plans with small projects 20
C ogen trix ’
s R on Som ers 39 W orld’
s Biggest projects:
1,000 M W and above 53
M eS E B ’
s V S Jafa 41
IPP Demand by Countiy:
C R IS IL ’
s H em ant Joshi 41 from H agler Bailly C on su ltin g 54
Score Board________ Pacific E lectric’
s R onald Paul 42 South and South-East Asia:
Deadbeat SEBs: Installed capacity, current
Birla Parsons’
Julian Archer 42
D u es ow ed to C en tre22 estimates, future projection s 55
Best pow er plants in the country 23 TN SEB’
s O m Kumar 43
Power Generation:
M on th ly trends 56
M itsui B abcock’
s R M ac D on ald 43
Forum_____________
P ow er L ine projection s 25
Cost of power shortages:

P O W E R L I N E • D e c e m b e r 1996
POWER FORUIW

Point of View
Private pow er risk
rivate Power in India resembles an

P epic struggle for power between four

main factions: the growing economy,
the politicians, the bureaucrats and the IPPs.
The fundamental differences in the objec­
o f power sector evolution. They are in the
unenviable situation o f simultaneously expe­
riencing greater “ corporatisation”and
restructuring, withdrawal o f state and central
FSA Risk (Coal): W hile theoretically India
has coal reserves for over 200 years, Asia
Consulting Group projects that production
tives o f the four has resulted in a tug-of-war subsidy, demands to pay arrears to central will begin falling beyond the decade. Almost
that spells the familiar and dreaded phe agencies, as well as raising the rate o f return. 70 per cent o f Indian coal production is via
nomenon for IPPs: Risk! open cast mines which will be depleted in
the next two decades. Underground mines
The Indian power market is highly complex, The sustainability o f PPAs and therefore the are unlikely to offset the shortfall. M oreo­
dynamically evolving and fraught with risk profile o f IPPs is a function o f accurate ver, this will lead to increased coal prices
Catch-22s. Steering the course to IPP returnsforecasting o f policy implications and SEB beyond the decade.
in India will test the best at every stage revenue streams and liabilities. The com po
o f project development. India represents a sition o f demand projections by customer Given the high ash content and lower calo­
system where policy, demand, supply, struc category (industrial, agriculture, commer rific value o f Indian coal, transportation
ture, fuel, transport, transmission and tariff cial and domestic) and the resultant revenue limitations and costs, transportation loss,
are all in a state o f flux. streams for SEBs are more important than reduced import duty and increasing prices,
aggregate projections o f M W s “ needed.” imported coal may be a better option for
In such an environment, forecasting returns some plants. For coastal power plants,
based on “ air-tight”PPAs, FSAs and IAs Encouraged by the recent policy incentives, domestic and international coal price differ­
without conducting integrated econom ic industrial customers plan to set up substan entials are in the region o f 15-20 per cent
due diligence at the project, competition, tial captive capacity. SEB initiatives to today. The primary bottleneck for imported
SEB and national level can be risky. Where increase industrial tariff to meet required coal is port capacity constraints and forex
traditional matrix and probability-based risk returns and payment obligations will further limitations with regard to imported fuel.
evaluation techniques are invalid, lenders increase the impetus towards captive power.
and investors will seek greater substantiation This is likely to produce a counter-intuitive Issues in coal transportation are crucial as
o f project feasibility - particularly under fu­ phenomenon o f relatively reduced SEB rev­ well. Coal wagons in India are already over­
ture potential scenarios. enue stream. Agriculture demand, which is loaded and the railways are losing wagons
a key component o f demand projections, is through ageing and attrition. Many IPPs are
Demand & Oversupply Risk: The original demandhighly unlikely to either accept the required examining own, lease, pre-pay options with
projection o f 142 GW" has mercifully tariff increased or pay its dues. the railways to ensure fuel supply. However
been revised downwards in the 15th Electric track capacity constraints in certain sectors
Power Survey. Asia Consulting Group Historical industrial consumption figures may pose a serious challenge. Clearly, pit-
projects a demand o f 80-90 GW" in the next are often “ adjusted” by allocating theft, head based power-plants or coastal power-
ten years. Inflated demand projections have faulty meter reading and collections fraud to plants using imported coal may offer the
two primary negative impacts. the safe haven o f the agriculture sector. greatest risk mitigation.
Ironically, in the event o f distribution priva­
tization this offers an upside in revenue col­ Policy Risk: Guaranteed offtake and deemed
First, in anticipation o f gigantic demand lection potential! generation clauses in PPAs are in conflict
more power is under development than required. with merit order dispatch policy being for­
Second, based on exaggerated pro Furthermore as wheeling is permitted to mulated by MoP. Such a change o f law will
jected demand, SEBs may undertake a industrial sites to ensure IPP viability, the have a two-fold impact. First, it will make
greater PPA obligation than they can realis IPPs that have signed PPAs with SEBs may IRR on projects more unpredictable (with
tically sustain. In a possible future o f simul­ be put to greater risk. Additionally, SEBs are revenue streams tied to do dispatch) and will
taneous over-supply and under ­ looking to issue bonds to raise much needed create a substantial operational challenge for
sustainability o f projects, increased revisions funds. These are likely to take first charge on Lord Dispatch Centres. Second, it will place
in PPAs and price competition among IPPs SEB revenues and thus impact the the industry in a state o f continuous compe­
are highly likely. sustainability o f PPAs further. All these fac­ tition, as opposed to the relatively secure
tors increase the medium and long-term risk returns that could be expected after a hard
PPA Risk: SEBs are caught in the cross-fire exposure o f a PPA. fought and hopefully bankable PPA.
32 P O W E R L I N E * D e c e m b e r 1996
— V I S H V J E E T K A N W A R P A L , Asia Consulting Group