The fortunes of Sasan Power Ltd (SPL), a wholly owned subsidiary of Anil Ambani-led Reliance Power Ltd, are followed with interest in India's electricity circles. The coal-fired project SPL is setting up is important in India's electricity landscape as it promises to sell power at the lowest tariff in the country - at an average of Rs 1.19 a unit for 25 years. Today, it is hard to purchase electricity even at Rs 4 a unit.
Located at Sasan in Madhya Pradesh's Singrauli district, the plant will have six units of 660 megawatt (MW) and entails an investment of more than Rs 23,000 crore. It is one of a series of ambitious projects the government envisaged nine years ago to rapidly expand generation capacity.
A legal spat, then, over its commissioning has grabbed the power industry's attention. On April 4, Reliance Power said in a press release the first unit began commercial operations from March 30. However, buyers of electricity from the project as well as the regional grid operator say the company hurried through the unit's commissioning without meeting the required performance parameters for financial benefits.
SPL has a pact to supply electricity to distribution companies in seven states in central and north India. Initially, the buyers seemed to accept March 30 as the commissioning date. Some of them, as well as the grid operator Western Regional Load Despatch Centre (WRLDC), have now challenged the date before sector watchdog Central Electricity Regulatory Commission (CERC).
The commissioning date is important as it will determine the tariff SPL can start charging from the buyers. An adverse CERC ruling could impact the earnings of both SPL and its parent. How? As per the Power Purchase Agreement (PPA) with the buyers, SPL had to supply electricity at a tariff of 69.8 paise per kilowatthour for the first year, 70.2 paise for the second, and Rs 1.313 for the third year. If March 30 is the commissioning date then the first year would be 2012/13, or the year which ended March 31. This means the company will be able to charge higher tariffs sooner. A setback at the CERC would mean SPL would have to charge the lower first-year tariff from the year of commissioning.
Rs 1.19 The average tariff per unit of power from the Sasan project for 25 years
161 MW The maximum capacity the 660 MW Sasan unit touched during the commissioning test
Back-of-the-envelope calculations suggest SPL will save about Rs 60 crore if the commissioning date is March 30 and it is able to move to a higher tariff from April 1. Besides, it will not have to pay liquidity damages of about Rs 20-30 crore a month that distribution companies could have sought for any delay because March 31 was the revised deadline to commission the first unit.Reliance Power CEO Jayarama P. Chalasani told Business Today there were "commercial interests" in commissioning the unit in March. "We informed all concerned regarding this (commissioning test) well in advance. No one objected to it."
The Sasan project has been in the thick of controversies from the start (see Dogged by Controversies on next page). It is one of four 4,000 MW ultra mega power projects the government has awarded so far - three to Reliance Power and one to Tata Power. While Tata Power has commissioned its entire Mundra project in Gujarat, Reliance Power's three projects are at various stages.
Reliance Power has stopped work at the Krishnapatnam project in Andhra Pradesh, citing changes in Indonesian law on coal exports. Construction at the Tilaiya project in Jharkhand hasn't yet started. SPL began its commissioning test for the first 660 MW unit on Holi, March 27, when demand for electricity was relatively low. The parameters to find out if SPL passed the commissioning test are contained in the PPA, which is a legal document that also mentions the conditions for generation and sale of power. As per the PPA, SPL needed to generate at least 95 per cent of the contracted capacity, or about 620 MW, for 72 hours before the unit could be declared commercial. Why? Running the unit at this rate helps detect any troubles the plant might experience in the future.
The PPA says an independent engineer must monitor and sign off on the commissioning test. The independent engineer, in this case Lahmeyer International, is a crucial link in the process. In its report, reviewed by Business Today, Lahmeyer said the unit generated between 101.38 MW and 161 MW of electricity, way short of the target. The report also says the unit could not meet the other parameters including testing the supercritical technology. Chalasani does not dispute the numbers, but blames WRLDC for the low generation. "We were ready to test at full capacity."
WRLDC is part of state-run grid operator Power System Operation Corporation (PoSoCo), a subsidiary of transmission utility Power Grid Corporation of India. The Sasan plant is connected to WRLDC and the electricity it generates is transmitted to distribution companies through PoSoCo. WRLDC counters SPL's arguments. "We restricted generation only for one day (March 27) as demand was low because of Holi," says P. Pentayya, General Manager, WRLDC. "During the tests, we repeatedly gave them instructions to ramp up their capacity. But SPL did not follow these instructions."
Documents filed as part of the WRLDC's petition with the CERC show that, from March 27 to March 29, SPL sent four emails seeking permission to raise the load. On March 29, at 10:20 pm, the grid operator allowed SPL to raise generation to 200 MW. SPL could not reach this mark. On March 30, at 7:18 am, WRLDC asked for SPL's plans for a full load test. SPL didn't respond. Chalasani says the message came 60 hours after SPL had been running the unit at a low load. Ramping up generation at the time "was not possible at all" due to technical reasons, he adds.
After the tests, Lahmeyer accepted "part-commissioning" of the SPL unit. "We made our findings clear in the report as per the PPA. There was no extra concession for Reliance Power," says C.N. Murty, Executive Director (Energy Business) at Lahmeyer. He could not pinpoint the clause in the PPA that allows for part-commissioning of the unit.
Madhya Pradesh Power Management Company (MPPMC), the lead buyer of electricity from Sasan, has objected to Lahmeyer's report, says Mohammad Suleman, the state's power secretary. Lahmeyer did not conduct proper due diligence before giving its approval, he adds.
Padamjit Singh, a consulting engineer with Punjab State Power Corporation, one of the buyers, agrees. "The report was not done properly. The test not only flouted the PPA, but also the rules set by the CERC and the CEA (Central Electricity Authority). The veracity of the report needs to be probed." A review of the communication between SPL and the buyers, all filed as part of the petitions before the CERC, raises questions about SPL's claim of clearing the commissioning test. Three oddities:
- Lahmeyer's report, at 10:23 pm on March 30, certified the unit generated 101.38 MW and okayed starting commercial operations at this capacity.
- WRLDC in an email at 12:34 am on March 31 accepted the declared capacity at 101.38 MW. Later, it asked SPL to take acceptance from all buyers.
- On April 2, the Madhya Pradesh utility sent SPL a letter accepting Lahmeyer's report. Other buyers followed suit.
WRLDC approached the CERC on May 9. WRLDC lawyer Sitesh Mukherjee told the regulator that, after its initial email to SPL, the grid operator took legal opinion and found out that SPL's move to commission the unit violated several rules.
Manu Srivastava, Managing Director, MPPMC, says his company does not accept the unit's commissioning and had told this to authorities and SPL on March 31.
Srivastava's position is at odds with the communication between MPPMC and SPL. On April 2, MPPMC Executive Director Rajesh Mehta wrote a letter to SPL accepting the independent engineer's report. Srivastava did not have an explanation for this. "We told them (SPL) we would agree to buy electricity only if the unit's capacity is derated," he says. De-rating is a technical process that would mean SPL cannot sell more than 101.38 MW. Chalasani says Lahmeyer and the buyers had accepted March 30 as the commissioning date. His version, as detailed by the sequence of events during and immediately after testing, is accurate. But the contents of the emails and letters are subject to interpretation and legal veracity.
Chalasani also says clause 6.3.4 of the PPA allows SPL eight chances to retake the tests in next six months. Singh, the engineer at the Punjab utility, disagrees. He says the clause specifies procedures for de-rating after a unit is commissioned. The Sasan unit, he says, could not be commissioned as it did not achieve the required conditions.
101.38 MW The capacity at which Lahmeyer certified the Sasan unit could start commercial operations
So, what's in store for SPL? On June 6, SPL told the CERC the unit achieved full capacity load and was ready for another test from June 10. During the test on June 11, demand for power fell after rain in states including Maharashtra and the unit was asked to shut down, says WRLDC's Pentayya. He adds the grid operator later asked SPL to restrict generation at 450-480 MW. The company, however, will have to run the unit at 95 per cent capacity for 72 hours before it can be commissioned.
No buyer has so far bought electricity from the project, waiting for the CERC to settle the issue. If the CERC rejects the March 30 date - which seems likely - SPL will have to redo the tests. "We want cheap power. Electricity from Sasan will cut down our expenses by at least 47 paise per kWh," says Srivastava of MPPMC. "But we will not compromise on legal provisions."