Concerns on new policy norms being proposed for UMPPs…

The newly proposed guidelines for development of Ultra Mega Power Projects (UMPPs) have received stiff oppositions from the developers as well as Financial Institutions according to whom the new norms will make the development of UMPPs unviable.

 

 

 

According to the new norms:

• The projects will be owned by power distribution utilities
• Bidders will be mere contractors to build the project
• Bidder shall collect fees through tariffs for 30 years.
• The utilities would own the land, denying power firms the option to mortgage land to raise funds.
• The plants are proposed to be transferred to distribution utilities at the end of the concession period for a price, similar to the case of other infrastructure projects in road and port sectors.
  

However the above norms have been strongly criticised by  bankers/financial institutions and industry officials with the arguments that in financial matters, cash-starved utilities are fundamentally different from strong organisations such as the National Highways Authority of India (NHAI).

Though the according to the Power Ministry the change has been proposed as existing UMPP developers are facing problems in land acquisition.

 

The views/concerns raised by the stack holders are:

• Power plants are feasible only for the previous built, operate and own model than the design, build, finance, operate and transfer basis as there is a significant difference between roads and power projects since the NHAI is an AAA-rated utility unlike the power distribution utilities.
• Funding of the  newly developed UMPPs under these rules would be more risky since the companies setting up the projects will not own the land unlike the previous cases.
• The new guidelines do not provide sufficient security for lenders.
• Certain risks in the proposed framework are not feasible to being priced and consequently are non-financeable. Similarly, even if certain risks are reflected in tariffs, this would result in very high bids, defeating the objective of competitive bidding.
• Capability of state distribution utilities to purchase land, pay electricity bills and buy back the UMPPs after the concession period have also been questioned by the parties involved.
• The accumulated losses of state power distribution companies are estimated at 1.9 Lakh Crore and the Centre has recently approved a bailout package for them.
• According to the draft documents  even in case of non-payment of electricity bills by distribution companies, the concessionaire would terminate the contract and project assets will be transferred to the distribution utilities that will pay the power company.