The 3,600-megawatt thermal power project of Infrastructure Leasing and Financial Services' power arm in Tamil Nadu, a hugely power-starved state, has been delayed by a year-and-a-half on execution issues, forcing a sharp escalation in cost and a ratings downgrade.
One half of phase one of the project - constituting 600 MW split into two units - was supposed to have come up by now. This is now pushed back to early 2015, said a report by rating agency Icra. Likewise, the second half was supposed to come up by May 2014. This has also been delayed, by a year. However, Hari Sankaran, vice-chairman and managing director, IL&FS, told the two units would be up by December 2014 and February 2015, respectively. "The project has witnessed delays primarily on account of suspension of site works because of the order by National Green Tribunal in June 2012," he said in an email.
As per the order, the scope of the project was changed and additional equipment such as flue gas desulphurisation unit, which removes harmful sulphur-dioxide gases, had to be installed. This, he said, resulted in the extension of the overall project time.
Also, as a result, the project cost is expected to increase 40%, he said. The cost of power evacuation infrastructure and forex fluctuations also contributed to the increase in cost. It was toward this project that IL&FS, and its power arm IL&FS Energy Development Company, had created a special purpose vehicle called IL&FS Tamil Nadu Power Company. IcraBSE 1.23 % has downgraded its long-term rating onRs 4,460-crore term loans to triple B- from triple B, as a result of the cost overruns.
Icra said, "The total cost over-run is estimated at about Rs 3,200 crore, for which the funding tie up is yet to take place." Sankaran said there would be no implication from the downgrade. He said, "Rating of investment grade is acceptable to banks. BBB- instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk."
The initial cost for the first phase was supposed to be about Rs 6,300 crore, aboutRs 1,900 crore of those coming in from equity. Now, it is estimated at about Rs 9,500 crore. The delay could hurt Tamil Nadu, which faces a peak power deficit of nearly 4,000 MW. The wind season had eased its burden significantly in recent months. But the end of the wind season has brought in the power cuts again. This is especially so, as the company had planned to sell 85% of the project capacity on a long-term basis to discoms in the Southern region
