DEVELOPMENT OF ULTRA MEGA

POWER PROJECTS

UMPP Policy
 Provision of Electricity Act, 2003

Section 63 of the Electricity Act, 2003

• ERCs to adopt the tariff through transparent process of

bidding
• Moving away from cost plus approach
• Encourage private sector investment
 Guidelines for tariff based competitive
bidding

• Guidelines for competitive bidding for tariff determination

– notification of 19th January, 2005.

• Objectives - promoting competitive procurement,

facilitating transparency and fairness, reducing
information asymmetry, protecting and providing
flexibility to suppliers on availability of power while
ensuring certainty on tariffs for buyers.
 Provisions of the National Electricity
Policy

• The aims and objectives - supply of reliable and quality

power of specified standard in an efficient manner and at
reasonable rates and protection of consumer interests

• Competition to bring benefits to consumers, competition

to determine the price
 Provisions of Electricity Tariff Policy

• Objective - to promote competition, efficiency in

operations, improvement in quality of supply, ensure
availability of electricity to consumers at reasonable and
competitive rates..
• Introducing competition in different segments of the
industry leading to benefits to consumers through
reduction in capital costs and also efficiency of
operations.
• Price to be determined competitively.
 Provisions of Electricity Tariff Policy

• All future requirement of power to be procured

competitively by distribution licensees, except in cases of
expansion of existing projects or where there is a State
controlled / owned company as an identified developer
and where regulators will need to resort to tariff
determination based on norms.

• Even PSUs will have to bid for projects for determination

of tariff, after a period of 5 years
 Launch of Ultra Mega Projects through
tariff based competitive bidding

• Desired capacity addition of 100,000 MW by 2012

• Capacity addition not feasible from the ongoing and
proposed new projects already identified.
• Need to develop large capacity projects at the national
level to meet the requirements of a number of states
• Thrust to development of projects through competitive
bidding.
• Ultra Mega Power Projects – to reduce power shortage
 Launch of Ultra Mega Projects through
tariff based competitive bidding

• Economies of scale leads to cheaper power through

development of large size power projects using latest
technologies.
• Ministry of Power, CEA and Power Finance Corporation
working in tandem for development of five projects
under tariff based competitive bidding route.
• The Ultra Mega Power Projects - each with a capacity of
minimum 4,000 MW, scope for expansion.
 Launch of Ultra Mega Projects through
tariff based competitive bidding

• Meet the power needs of a number of states through

regional and national grids.

• To enhance investor confidence, reduce risk perception

and get good response to competitive bidding,
necessary to provide the site, fuel linkage in captive
mining blocks, water and obtain environment and forests
clearance, substantial progress on land acquisition
leading to possession of land, through a Shell Company.
 Launch of Ultra Mega Projects through
tariff based competitive bidding

• UMPPs developed on a Build, Own, and Operate (BOO)

basis.
• PFC under the Ministry of Power, nodal agency
• Shell companies to be responsible for tying up
necessary inputs from the likely buyers of power and
tying up of power off takes from these projects with
appropriate terms and conditions and Payment Security
Mechanism
 Role of Ministry of Power

Ministry of Power - facilitator and co-ordinate with Ministry/

Agencies for ensuring:

– Coal Block Allotment/ Coal Linkage

– Environment/ Forest clearances

– Required support from State Govt. Agencies

 Role of Ministry of Power

• Coordinate with Financial Institutions towards financial

closure.

• To facilitate PPA and proper payment security

mechanism - with State Govt./ State utilities

• Monitoring the progress of shell companies w.r.t

predetermined timelines.
 Selection of sites

Criteria for selection of sites:

– Pit head location with domestic coal,

– Coastal location with imported coal,
– Coastal location with domestic/blended coal,

Through a preliminary scrutiny by CEA of a number of potential

sites identified in the country.
 UMP Projects identified

Two pit head and three coastal locations, for

setting up Shell companies by PFC

– Sasan Power Limited (M.P.)

– Akaltara Power Limited (Coastal Gujarat)

– Coastal Gujarat Power Limited

– Coastal Karnataka Power Limited

– Maharashtra Ultra Mega Power Project Co.

 Functions of the Shell Companies

To facilitate following activities

• Preparation of project report

• Land acquisition
• Allocation of fuel linkages/coal blocks.
• Allocation of water by the state Govt.
• Appointment of consultants for EIA & Project Report
 Functions of the Shell Companies

• Appointment of consultants for International Competitive

Bidding (ICB), document preparation & evaluation.

• Various approvals and statutory clearances.

• Off-take/sale of power – section 63 of EA2003 provision.

 Functions of the Shell Companies

• Power Evacuation/ (Transmission) System.

• Rating of Projects

• PFC appointed the Technical Consultants, for

conducting studies and prepare bankable Project Report,
through a competitive bid process.
 Payment security mechanism

• Revolving Letter of Credit by distribution licensees;

• Escrow account establishing irrevocable claims of

receivables of distribution utility

• In a likely event of any default, direct supply to HT

consumers or any other more credible distribution
licensees .
 Funds requirement

• UMPPs entail investments of Rs. 15,000 crores for each

project

• For good and credible developers and power projects

offering less expensive power, debt funding no constraint

• FIs involved at various stages including the final

evaluation of the bids, for updating them

• Development through large private business groups, on

their own or through consortiums with parties and
agencies from outside
 Discussions with Heads of Financial
Institutions
• To elicit support meeting of Heads of Financial
Institutions – SBI, LIC, IDBI, HDFC/IDFC, ICICI, PFC,

• Points for consideration

• F.I. representation in Pre-Qualification Committee

• Rating of Green Field Projects for better terms of funding
• Publicize globally
• The proposed payment security mechanism is adequate
 Discussions with Heads of Financial
Institutions

• Involvement of F.I. in selection of Consultant for Project

Report

• Activating Bond Market

• Access ECB (Present limit to be liberalized)

• 20 year debt tenure [12+8 (LIC)]

• Attracting Venture Capital

 Short listed eleven technical consultants

• WAPCOS

• TCE Engineers Consulting Ltd.

• DCPL Development Consultant Pvt. Ltd.

• Lahmeyer International Pvt. Ltd.

• L&T Sargent & Lundy Ltd.

• NTPC Ltd.
Short listed eleven technical consultants

• Fitcher Consulting Engineers

• Desien Pvt. Ltd.

• Macon Pvt. Ltd.

• Tractebel Engineers & Contractor Pvt. Ltd.

• STEAG Encotec (Germany)

• Desien Pvt. Ltd. -

 Discussions with Top Industry Leaders

• There should be full State Govt. support so that

facilitation like land acquisition, water availability etc,
consent of State Pollution Control Board etc. are
available to Shell Companies/Project Developers.

• Since these are large projects, each involving a capital

expenditure of the order of Rs.15,000 crores, the
sectoral capping and the group capping for the purpose
of debt financing, as notified by the RBI, will need to be
revisited and properly enhanced.
 Discussions with Top Industry Leaders

• Proposed Debt : equity ratio of 70 : 30 to be revisited,

proportion of debt could be enhanced.

• Ministry of Power to ensure that power evacuation and

transmission system is put in place in time and there
should also be sufficient redundancy in the system, so
that the advantages of Open Access in transmission and
distribution are fully availed of.
 Discussions with Top Industry Leaders

• It is good that the pit-head power stations are being

provided captive coal blocks rather than linkage.

• The criteria for evaluation of bids to be formulated by

Shell Company on the basis of advice of consultants to
avoid ambiguity, after pre-qualification, the commercial
consideration like tariff to be the sole criterion for
selection.

• Long Term debt and take out financing would be useful

and render better tariff.

• 80 1A benefit under Income Tax Act should be extended

 Support of State Governments

• State’s role - ensuring water, land at reasonable price ,

environment clearance and coordination by the district
administration at the time of visit by the prospective
developers.

• State governments can participate in equity in these

projects, optional to the states.
 Support of State Governments

• Shell Companies, deal with sanctions, clearances, land

acquisition etc,

• Similarly, States that are likely buyers of power of these

plants, to evolve consensus and basic agreement
regarding broad framework of the Power Purchase
Agreement, with mutual rights and obligations properly
structured therein.
 Salient features of Plant and Choice of
Technology

• UMPPs to use Super Critical Technology to achieve

higher levels of fuel efficiency, saving of fuel and lower
green-house gas emissions.
• Flexibility in unit size subject to adoption of specified
minimum Supercritical parameters.
• Integrated power project with dedicated captive coal
blocks for pithead projects.
• Coastal projects to use imported coal.
 Bidding Process

• Two stage selection process - Request for Qualification

(RfQ) for qualifying criteria for selection of bidders,
eligibility to participate in the second stage

• The second stage Request for Proposals (RfP) from

qualified bidders

• Evaluation of the response to the RfP, successful bidder

is identified on the basis of the lowest levelised tariff.
 Selection of Sites for Setting up of
UMPPs

• Nine projects identified to be taken up, 4 at pithead and

5 at coastal locations. The nine sites for the UMPPs
identified by the CEA in consultation with the States are
as follows:-

– Five coastal sites at:- Mundra in Gujarat, Krishnapatnam in

Andhra Pradesh, Tadri in Karnataka, Girye in Maharashtra, and
Cheyyur in Tamil Nadu.
 Selection of Sites for Setting up of
UMPPs

• Four pithead sites at :- Sasan in Madhya Pradesh,

Tilaiya in Jharkhand, Sundergarh District in Orissa and
Akaltara in Chhattisgarh, Marakana in Tamil Nadu,
additional site at Ghataprabha in Belgaum District, in
Karnataka.

• CEA examining the preliminary feasibility of these sites

for development of UMPPs.
 Role of the Ministry of Power

• Coordination among various Ministries/Agencies of the

Central Government, and State Governments/Agencies.

• Coordination with Central Ministries/Agencies for

ensuring:
• Coal block allotment/coal linkage
• Environment/forest clearances
• Water linkage
 Role of the Ministry of Power

• Required support from State Governments and their

agencies:

• Working out allocation of power to different States

from UMPPs in consultation with the States.
• Facilitating PPA and proper payment security
mechanism with State Governments/State Utilities.
• Monitoring the progress of Shell companies with
respect to predetermined timelines.
 Concept of Special Purpose Vehicles
(SPVs)

• As per competitive bidding guidelines issued

under the Electricity Act for procurement of
power by distribution licencees.
• Guidelines permit procurement of electricity by
more than one distribution licencee (also known
as a procurer) through a combined bid process,
and in such a case the procurers shall have the
option to conduct the bid process through an
authorised representative.
• .
 Concept of Special Purpose Vehicles
(SPVs)

• The concept of “Authorised Representative” forms part of

the standard bidding documents (issued under the
competitive bidding guidelines)

• Authorised representative is the corporate body

authorised by the procurers to carry out the bid process
for the selection of the successful bidder on their behalf.

• Accordingly, PFC has set up separate SPVs for each of

the 9 UMPPs identified, as authorized representatives of
the procurers (distribution companies of the power
procuring States). These SPVs are 100% owned
subsidiaries of PFC
 SPVs set up
• Sasan Power Limited for project at Sasan, Madhya
Pradesh.
• Coastal Gujarat Power Limited for project at Mundra
(Gujarat).
• Coastal Karnataka Power Limited for project at Tadri,
Karnataka.
• Coastal Andhra Power Limited for project at
Krishnapatnam, AP
• Coastal Tamil Nadu Power Limited for the project at
Cheyyur in TN
 The names of the SPVs
• Coastal Maharashtra Mega Power Limited for the project
at Girye, Maharashtra.

• Orissa Integrated Power Limited for the project in

Sundergarh District in Orissa.

• Jharkhand Integrated Power Limited for the project near

Tilaiya dam, in Jharkhand.

• Akaltara Power Limited for the project at Akaltara in

Chhattisgarh.
 SPV Composition

• The Boards chaired by a Director of the PFC; other

members - officials of PFC, and representatives of the
distribution companies of the major power procuring
States inducted on the Boards at the appropriate stage.

• On completion of the entire process for selection of the

project developer, the SPVs transferred to the selected
bidders i.e. to the selected project developers.
 Role of SPVs

• Carry out various activities on behalf of the procurers.

• Completion of these activities prior to award of the
project, to enhance the investor’s confidence, reduce risk
perception and get a good response to the competitive
bidding process.
• Main activities undertaken by the SPVs
– Appointment of Consultants to undertake preparation
of Project Report,
– preparation of Rapid Environment Impact
Assessment Report etc.
 Role of SPVs

• Appointment of Consultants for International Competitive Bidding

(ICB), document preparation & evaluation

• Finalise RfQ/ RfP documents in consultation with States / bidders

• Carry out RfQ/ RfP process and award of project

• Acquisition of land for the project

• Obtaining Coal blocks for pit-head projects

 Role of SPVs

• Getting clearance regarding allocation of water by the

State Govt. for pithead locations

• Approval for use of sea water from Maritime Board/ other

Govt. Agencies for coastal locations
 Role of SPVs

• Obtain clearance from the State Pollution Control Board,

initiate forest clearance etc. for the project and for the
coal mines, environment and forest clearances from the
Central Government.

• Obtaining geological reports/ other related data from

CMPDI for the coal blocks.

• Tie up the off-take/ sale of power