Given the country?s investment environment, and the fact that almost all the power projects set up over the past five years are in some manner of dispute, it is a promising sign that the response to the latest round of bids for two Ultra Mega Power Projects (UMPPs) has been quite good. The two projects, in Orissa and Tamil Nadu, have received bids from big players like NTPC, NHPC, L&T, China Light and Power, Adani Power and GMR Energy. All told, there are 9 bids for the Orissa plant and 8 for the one in Tamil Nadu. Given the mess the existing four UMPPs and several other big projects are in?in the case of the Adani and Tata ones, even after the Deepak Parikh panel suggested a tariff hike, the states have still not agreed to this?the response does seem a bit surprising. Equally, with some existing promoters deeply stressed, some of the bids have to be taken with more than a pinch of salt. In the case of Adani Power, for instance, while debt levels rose 71% between FY11 and FY13, net worth eroded by 68% between FY11 and H1FY14, according to a Credit Suisse research analysis.
While it is only when the bids are opened that a complete picture will be available, one reason for firms being a bit more optimistic is that with the government?s R2 lakh crore restructuring beginning to kick in, power producers are more optimistic of being able to start recovering their dues?FE reported just this week that power producers had got R3,500 crore worth of dues from a clutch of state electricity boards. This is especially important since, as the latest Power Finance Corporation report points out, state utilities have eroded their net worth?from R15,000 crore in FY10, this fell to R5,000 crore in FY11 and to a negative R32,000 crore in FY12. While some of the short term stress will get fixed with the immediate infusion of funds, the larger problem is fixing the aggregate losses of all power utilities which rose from R16,000 crore in FY08 to R63,000 crore in FY12?without accounting for subsidies they rose from R35,000 crore to R93,000 crore.
The other reason for the responses, undoubtedly, is that the UMPPs offer those bidding the scope to pass on hikes in fuel prices unlike in the case of the UMPPs and non-UMPPs that are locked in some manner of dispute. None of this, however, will add up to much if the states are not able to cut power theft meaningfully and improve the finances of state electricity boards. Getting banks to agree to funding the two projects with so many imponderables will probably be the next challenge.
