Money & Banking

RPower halts work on mega AP project citing costlier imported coal

Anil Sasi New Delhi | Updated on March 12, 2018



Sees cash flow taking a hit by Indonesia's minimum price rule

Reliance Power-arm, Coastal Andhra Power Ltd. (CAPL), has stopped work at its Krishnapatnam Ultra Mega Power Project. Reason: A hike in the cost of Indonesian coal that the project is to run on.

A team comprising officials of the Ministry of Power, the Central Electricity Authority and the Andhra Pradesh Power Generation Corporation discovered that the work had ground to a halt when it visited the project site in coastal Andhra Pradesh on June 15.

CAPL claims that the new Indonesian Coal Price Regulation will push up the coal cost because of which the company would not be able to meet the conditions set by the lenders. This has affected its ability to meet the project cash flow requirements, it said, as explanation for stopping work.

CAPL claims that at a review meeting here late June it had informed the Andhra Pradesh Transmission Company — Andhra Pradesh being the lead procurer from the 4,000 MW project — about these issues. The Andhra Pradesh Government, though, is understood to have stated at the meeting that CAPL had not given any details to it on the stoppage of work.

The stoppage comes even as work on the associated infrastructure for the project is in full swing, including Power Grid Corporation's transmission link (Krishnapatnam-Nellore line for start-up power) that is scheduled to come up by November next year. The Krishnapatnam project is one of the four UMPPs awarded so far. Of these, three are being executed by Reliance Power.

The standard Power Purchase Agreement (PPA) for projects such as the UMPPs excludes fuel from the force majeure provisions. Fuel, instead, is mentioned under Clause (a) of Article 12.4 of the PPA that lists out the ‘ Force Majeure Exclusions'. Besides, the ‘Non-natural Force Majeure events' specified in the PPA does not include actions by a foreign government.

Article 14 of the PPA, which deals with the termination of contract on account of default by the power seller (in this case CAPL), lists out the “abandonment by the seller or the seller's construction contractors… for a continuous period of two months” as a condition for triggering the clause, provided if “such a default is not rectified within 30 days from the receipt of first notice from any of the procurer or procurers”. Since CAPL has chosen not to serve notice to the lead procurer (Andhra Pradesh), the termination clause has not yet been triggered, sources said.

The Performance Bank Guarantee submitted by Reliance Power when it won the bid to set up the project is about Rs 300 crore, at Rs 7.5 lakh per MW. RPower had won the project under tariff-based competitive bidding, quoting a levelised Rs 2.33 per unit (kWh)

Published on July 08, 2011

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