Rs 20,000-cr pvt investment plan through MoU route turned down

LUCKNOW : The Uttar Pradesh energy department has rejected a proposal for private investment of around Rs 20,000 crore in power sector through MoU route ahead of the high-profile UP Investors’ Summit opening here on February 21.

Two private sector companies – the Reliance Energy Ltd (REL) and the Bajaj Energy Ltd (BEL) – had proposed to sign agreements at the summit for setting up one thermal plant each at Rosa and Lalitpur, senior officials said, adding the companies had been asked to set up new plants in competitive bidding mode and not through MoU route.

“We welcome investment in power sector. BEL and REL had proposed to set up 1200 MW and 1980 MW thermal plants respectively as expansion plan through MoU route. We want them to come in competitive biddings which the government may consider to invite,” principal secretary, energy and UP Power Corporation Ltd (UPPCL) chairman Alok Kumar said.

REL and BEL already have 1200 MW and 1980 MW coal-fired plants one each at Rosa in Shahjahanpur district and Lalitpur in Bundelkhand. Both the plants were set up under MoU route and commissioned in 2010 and 2015, respectively.

In 2010-11, the central government banned setting up of power plants through MoU but there is no such ban on expansion of existing MoU route plants. Both REL and BEL insisted on expansion through MoU route.

“We have found that the tariff for electricity generated by the plants set up under MoU route is always higher vis-àvis the one available from plants established through competitive bidding. Buying power from a cheaper source benefits consumers,” the UPPCL chairman said.

Kumar added power was available in the market in abundance at affordable price. Ahead of the investors’ summit, both the companies proposed to double the generating capacity by expanding the existing Rosa and Lalitpur plants under the terms and conditions applicable to set up power plant under MoU route.

While REL officials could not be contacted for comments, BEL authorities refused to speak on the issue.

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We have found that the tariff for electricity generated by the plants set up under MoU route is always higher visàvis the one available from plants established through competitive bidding. Buying power from a cheaper source benefits consumers

ALOK KUMAR, chairman, UP Power Corporation Ltd

MOU VS COMPETITIVE ROUTE

According to a senior official at the UP Electricity Regulatory Commission (UPERC), for a power plant proposed to be set up through competitive route (also called Case-1), the state government invites bids and the bidder quoting the lowest tariff (at which it will sell power to the state) is finally awarded the contract.

“However, under MoU route the regulator determines the tariff after the plant is ready. It is decided on the basis of expenses that the company claims to have made to run the plant. Figures are often fudged to get higher tariff approved,” he said.

“A plant set up this way gets a lot of concessions from the government like assured 16% tax-free return on equity, exemption from income tax – a liability that government bears – besides liberal operating norms,” he said.

“Despite giving these concessions, UPPCL buys power from Reliance’s Rosa and Bajaj’s Lalitpur plant at Rs 5-6 per unit. On the contrary, Lanco’s Anpara C thermal plant, set up through competitive bidding, sells electricity for Rs 3-3.50 per unit,” the official added.

According to officials, the decision to turn down investment proposal was prompted by the fact that the country has surplus power generation and electricity can be procured from other states through energy exchange at a price lower than what the plants are charging in UP. President of UP Rajya Vidyut Upbhokta Parishad Awadhesh Kumar Verma said: “There is no point getting private investment at the cost of consumers’ interest. Ultimately the consumers will have to bear the brunt if UPPCL buys expensive power.”