Madhya Pradesh threatens to cancel power purchase agreement with Maheshwar dam developer

S Kumars failed to meet operation deadline; all project related activities at a stand-still

By Aparna Pallavi
Published: Thursday 14 March 2013

The government of Madhya Pradesh has issued a notice of cancellation of its 35-year power purchase agreement with Shri Maheshwar Hydel Power Corporation Ltd (SMHPCL) on the grounds that the project proponent, textile company S Kumars, has failed to meet its commercial operation date deadline of September 27, 2010. The notice, issued by the Madhya Pradesh Power Management Company (MPPMC), says that all project related activities have come to a stand-still and there is no money for rehabilitation of  an estimated 60,000 project affected people. The notice also points out that due to the company failing to make payments, Ms BHEL and other contractors have withdrawn their personnel from the dam site.

Maheshwar dam, located at Maheshwar, is the first privately financed hydroelectric project in India, and at the time of its initiation in 1987, was slated to produce 400 MW of electricity. The contract for its construction was given to S Kumars in 1993.

The project has been in financial problems repeatedly since its inception. Work on the dam was stalled between 2001 and 2006 after the state government attached the dam and properties following willful default on the part of project proponent on loans taken from the Madhya Pradesh State Industrial Development Corporation (MPSIDC). During this time, the consortium of project lenders also stopped disbursing funds for the project because the proponent had fraudulently transferred Rs 106.4 crore of project funds to its group companies not related to the project, says a press release of the Narmada Bachao Andolan (NBA).

Following this debacle, the project was given a CoD of March 8, 2010, which was later extended to September 27, 2012 because work on the project was stopped by the forest department for nearly a year.

Speaking to Down To Earth about the notice, MPPMC executive director (IPC) Rajesh Mehta said that the ball is in the project proponent’s court. “We have given them 60 days to explain their side, and we are told they are trying to arrange money,” he said, adding that the actual cancellation of contract will be a lengthy process and nothing can be predicted regarding the outcome of the exercise. “If the company achieves its CoD within six months, then the agreement may not be cancelled,” said he.

Maheshwar power too expensive

The NBA press note has welcomed the move by the MPPMC on the plea that power from the Maheshwar dam is the most expensive in the state, estimated at Rs 10 per unit in 2010, against the state’s average purchase price of Rs 2.44 per unit as mentioned in the annual revenue requirement filed before the Madhya Pradesh Electricity Regulatory Commission. The reason for this inflated cost is the huge cost escalation of the project.  Over 35 years, this power will burden the state exchequer by Rs 20,000 crore extra, the note pointed out.

Mehta said that power tariff of the Maheshwar dam is being negotiated, but refused to give any estimates. He also refused to specify any upper limit for the purchase price of power in the state. “We can only wait and watch,” he said.

However, Alok Agarwal of NBA, said that the tariff cannot go down. “The Rs 10 price was estimated at a project cost of Rs 4,200 crore way back in 2010. At present the price it would be still higher because project cost has crossed Rs 5,000 crore,” he said. “The tariff can only go up.”

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