While the concept of independent power producers has been in existence for over two decades, it the tariff-based ultra mega power project series that is seen as the biggest token of the PPP model in the power generation side. The UMPP endeavour involves the setting up of around ten power projects based on fuel-efficient supercritical technology. The envisaged capacity of each power plant is around 4,000 mw. The UMPP endeavour is scheduled to commission in the XII Plan (2012-17) but some units (if not entire plants) are envisaged to turn operational within the ongoing Plan period itself.

So far, four UMPPs have been awarded. These are Mundra (Gujarat), Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand). The remaining six to seven are under various stages of pre-bidding. At a recent event in Mumbai, Union power minister Sushilkumar Shinde expressed his appreciation on the UMPP series but admitted that there has been some delay in awarding projects. He even observed that setting up of power plants of this magnitude has won India admiration at the global level. However, when asked about his view on the fact that three out of the four projects awarded have gone to the same developer, he noted that the power ministry has decided to limit the number of UMPPs given to a single developer to three. It may be mentioned that the Sasan, Krishnapatnam and Tilaiya UMPPs have been won by Anil Ambani-controlled Reliance Power. The Mundra project is being developed by Tata Power Company.

The new directive, suggested by the power minister, will ensure that private sector participation does not concentrate around the same entrepreneurial group. Industry experts believe that while tariff-based bidding ensures technical and commercial efficiency, a situation where same developers get multiple projects increases the overall project risk profile. It can therefore be expected that the remaining UMPPs will see a fresh set of developers. The bidding for the four projects awarded so far has witnessed healthy competition from domestic and even international players.

Impact of fuel costs:
With effect from January 5, 2011, all projects in the power sector would be awarded through the tariff-based bidding mechanism. Hence, it is of paramount importance for the developer to ensure that the winning tariffs can be sustained over the duration of the power purchase agreement. With respect to coal-fired power projectsthe UMPP series being such-coal availability and pricing play a very critical role in keeping the tariffs sustainable. Some of the UMPPs are based on imported coal. Among the four awarded, Mundra and Krishnapatnam are such. It has so happened that developers of these UMPPs had entered into long-term agreements with coal suppliers from Indonesia and Australia, among others. The coal was made available at much lower than market rates, in view of the long tenure of the fuel supply contract. However, in a much unexpected move, the Indonesian government recently directed that no exports of coal would be allowed at less-than market prices. This has jolted developers like Tata Power and Reliance Power who has finding it difficult to sustain the winning tariff of their respective UMPP. The Union power ministry accepted the consequent difficulties in store for private developers and assured that India will negotiate with coal sourcing countries. It is also understood that while the normal power purchase agreements factor in a general cost escalation clause, future UMPPs will have a specific clause with respect to price fluctuations of imported coal. This being so, the second round of bidding for the Orissa UMPP has been delayed. In the first round of bidding, over twenty entities participated.

First UMPP soon:
Tata Power Company expects to commission the first unit of its 5x800-mw supercritical Mundra ultra mega power project in Gujarat by March 2012. The unit has already been synchronized to grid following availability of the power evacuation facility in September last year. The unit was delayed due to non-availability of power transmission lines on time. Work on the remaining four units of the supercritical Mundra power plant is progressing well, a statement by Tata Power observed. The 800-mw rated power units of the Mundra project will be the largest operational in India, an industry observer noted.

Meanwhile, Reliance Power expects to commission the first unit of its 6x660-mw Sasan UMPP in Madhya Pradesh during 2012- 13. Shanghai Electric Corporation (SEC) is the main plant supplier on whom the order was placed in July 2008. The order for balance of plant works has also been placed. According to latest reports available, the boiler foundation of five out of the six units has been constructed, among much other progress achieved.