The Telegraph
Since 1st March, 1999
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Govt lists areas for private role in power update

Calcutta, April 18: The power ministry has listed various options for private participation in the renovation and modernisation (R&M) of power plants.

A give a final shape to these options, which are being drawn up in consultation with banks and financial institutions (FIs), will be given after elections.

“Various options have been identified to attract private investment in renovation and modernisation schemes. Though the degree of privatisation varies in each, all of them involve temporary or permanent transfer of assets to a private firm,” a senior power ministry official told The Telegraph.

One of the options, the official said, is that under the lease, rehabilitate, operate and transfer, state electricity board-owned power plants could be handed over to a private agency. This company would invest in an update of the plant and recover its costs and generate returns through the sale of power on the basis of a long-term power purchase agreement.

Under this arrangement, the legal title of the plant remains with state electricity boards (SEBs). The duration of the lease should be long enough to facilitate recovery of investment and repayment of the loan.

Another option being weighed by the ministry is the SEB and the private developer could come together in the joint venture arrangement. Other extreme option could be sell these plants outright to firms.

The official said private participation in R&M activities of power plants has not been good. “Some firms have shown interest in negotiations, but so far no investment from the private sector has come in,” he added.

The need for R&M can be judged from the fact that of the total installed thermal capacity in the country, about a quarter has already completed more than 20 years of its design life; another half of these stations are operating under 45 per cent of their capacity.

With R&M, the life of these units can be extended by another 15-20 years. In addition, they can be operated at their rated capacity with equal or better efficiency levels.

“Even economics dictates that we concentrate on renovation,” the power official said. Against a cost of Rs 4 crore for developing 1 MW of new thermal capacity, R&M would cost only Rs 8 lakh. That is, R&M additional capacity can be achieved at just 20 to 30 per cent of the cost of equivalent new generation. The government has identified 106 units with a capacity of 10413 MW for R&M in the Tenth Plan period.

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