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25 power projects fail to materialise in Karnataka

George Iype in Bangalore

Karnataka has the unique distinction of holding on to the maximum number of dead power purchase agreements or PPAs and Memoranda of Understanding or MoUs for private power projects in the country.

Twenty five major and minor private power projects (aggregate capacity = 7,000 mega watts by the year 2002) now exist only on paper.

Karnataka is frantically searching for quick solutions to meet the increasing power deficiency.

The controversial 1000 mega watt Cogentrix power leads the list of defunct projects. Most other power projects -- some of them are barge-mounted -- were often cited as short-term solutions to augment the power-starved state.

But years after the government’s state electricity board signed the ambitious agreements with independent power producers, none of them are anywhere near financial closure. This at a time when the projects should have started power generation!

Government officials and experts put forth several reasons as to why Karnataka is suffering under the weight of now-useless power project agreements.

The first and foremost reason why power project proposals gather dust in the state is that the government entered into agreement with many of the smaller independent producers who did not have any experience in the energy sector.

“In fact, many of the so-called power developers managed to get the memorandum of understanding with the government to trade the agreement papers for huge bank loans,” says a senior official in the Karnataka Electricity Regulatory Commission.

The official says another reason why the Indian companies failed to meet the deadlines is because they simply could not get the right foreign partners to implement the projects.

“No foreign power player was willing to become a project venture partner with the independent power developers in Karnataka because of the bad publicity generated by the Cogentrix project,” he pointed out.

Crucially, most of the independent power generators dumped their plans after their negotiations with the government for additional financial security packages collapsed.

Interestingly, soon after signing the agreements with the private players, the Karnataka government begun pressurising the central ministry of power for increased fuel linkage to the state.

In 1997, the state was receiving a fuel linkage of 1160 mega-watt, but the then J H Patel government demanded it to be increased to 2500 mega-watt as several projects it signed were to be run on liquid fuel.

The ministry of power promptly increased the fuel allocation to the state. But seeing that the private power projects in Karnataka was getting nowhere near even the start-level, the ministry last year threatened that it would cancel increased fuel allocation to the state.

Now faced with an acute power shortage problem and dead projects, the state government has chalked out a plan to review many of the PPAs it entered into with much fanfare years back.

But some of the companies like Mangalore Power Company, Nagarjuna Power, Atria Power and Tannir Bhavi which have already invested large sums of money in the projects, claim that the fault lies with the Karnataka government as it has failed to sign escrow agreements with the private players.

In fact, Tannir Bhavi which is building a 200 mega watt power generating facility on the Mangalore coast, went to court in March demanding immediate action as its escrow agreement, securitisation and hypothecation agreements were to expire on April 1.

Bangalore-based energy consultant A C Kewal Nath says compared to other states in the country, the Karnataka government lags far behind in honouring and signing escrow agreements for power.

“The privatisation of power projects in Karnataka is in a mess because there has always been a conflict of interest between the government, the private producers and the distribution companies,” he told rediff.com.

Nath points out that the state government has not so far chalked out the most important alternate securitisation mechanism or financial guarantee for private companies.

According to a study by the Union power ministry, Karnataka has so far signed escrow agreements with only three power companies -- Atria Power, Rayalaseema Power and Tannir Bhavi.

It said the government and the Karnataka Power Transmission Corporation was yet to honour escrow covers for power worth more than 3000 mega-watts.

While many private power producers are now planning to take up their cases to court, the S M Krishna government is said to be drafting a new power policy agenda with fresh financial guarantees to tide over the energy crisis in Karnataka.

Business

Karnataka