4000 MW ultra power project - Sasan
September 26, 2007

I am a proud citizen of this nation which has made great strides in many fields including the power sector.

The Sasan 4000 MW ultra power project is certainly a boon for the nation given its immense potential and long-term implications for power self-reliance. However, there are inherent complications and problems that require immediate attention compelling me to write this note.

You would be aware that Union Government has given coal linkage for the proposed 4000 MW power project in Sidhi in Madhya Pradesh to give boost to the ultra mega power projects program being undertaken by the union power ministry. Coal ministry has allocated Moher, Moher-Amlori Extension and Chhtrasal coal blocks with combined reserves of about 800 million tonnes to this project to meet its coal requirement. The Sasan power project is planned as a pit head power plant at an estimated cost of Rs 16,000 crore.

The intent and action in this regard has been extremely novel, however, there are some tricky issues calls for immediate attention and prudent interventions by the government.

If one looks at the long-term calculations some startling facts come to light. One, it is apparent that there is a huge windfall for the promoter Anil Dhirubhai Ambani Group vis a vis volume of the coal that is being made available to it. It is common knowledge that the 4000 MW plant would require upto 20 MT of coal per year. If we take the life of the PPA of 25 years, and it is a simple calculation, only upto 500 MT of coal would be consumed. What would be the fate of the rest volume of the coal? Would this precious natural resource become a tool for a private operator to fill its coffers? These are scary thoughts and as someone who swears by every bit of natural resources that Mother India carries in her womb, I am alarmed because this would mean both financial and natural loss to the Government of India. Hence I submit that the entire additional volume be monitored and should be made available on easy (and not ruthlessly commercial) terms to the people of the country. The government should play the role of an active referee here and should ensure that the coal price is lower than that offered by the Coal India Limited. It is also of importance to note that government should spare no efforts to ensure that the linked coal mine does not fall prey to the coal mafia prevalent in the region.

Two, there is a pressing need to bring in a policy issue also here given the high-decibel talk on natural resources these days. I wish to understand what is the government policy vis a vis utilization of coal (like in gas) and how does it ensure that the excess coal be utilized judiciously during the course of the Power Purchase Agreement (PPA) or thereafter?

The operator may rightly argue that it incurs a cost in developing the mines and hence needs to recover that cost as well. Anyone who understand the nuances of this business would reckon that this cost could be easily recovered through the power tariff's variable charge. The variable mine cost for the additional quantity, in fact, would be negligible. I am pained to point at the lack of clarity on the policy front on this count. For unlike in the E&P business where beyond a threshold much of the hydrocarbon is actually for the benefit of the government, in this instance a small royalty is all that the government will end up earning. Isn't that a grave disregard for a premium and limited natural resource?

Three, there is another critical issue that I wish to emphasize here. We have recently heard much hoopla over the capital expenditure estimates by a company for gas explorations. Taking a cue from the same case, I am of the opinion that the government should ensure that operator be made to commit the running expenses for the mine upfront. It is also of immense significance to note here that much like in the Gas Sales Purchase Agreement (GSPA), the PPA in the power project should ensure that the mining risk should rest entirely on investor and in the case of mine failure alternate fuel must be supplied by ADAG at the cost charged for coal from captive mine. The GSPA for the gas industry had a similar clause.

Four, the government may also want to ensure that the best possible technology is used in design, operation and maintenance of the coal mine.

Also given the stakes involved I would want the government to closely monitor the progress of the project at each level. Given the multiplicity of interests that are associated with voluminous projects, like in any other business, I urge the government to ensure strict surveillance at each stage of the critical power project.

Five, in case there is coal available on expiry of PPA and no agreement is reached for sale of power with the off-taker government must have the right to take possession of the power plant as well as the coal mine.

As a proud citizen, I am certain good sense would prevail and government would do every bit to ensure that no vagueness is left in this critical project. All these issues must be addressed through a transparent process. Any leniency on this could spell big perils for the critical power sector and may even derail the project
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