The changes proposed by the Power Ministry to the bidding guidelines and the efforts to address the concerns of investors and lenders could revive interest in ultra mega power plants (UMPPs), according to India Ratings and Research (Ind-Ra).
The new guidelines cover key investor/developer risks (including fuel price variation), fixed charge quote, ownership of asset, incentive/disincentive for performance, land acquisition and termination of contract. The new norms propose a build, own and operate model which, Ind-Ra believes, will be more acceptable to lenders than the earlier ‘design, build, finance, operate and transfer’ model, where the asset ownership did not vest with the developer.
The new guidelines also provide for a better fuel cost pass-through. Earlier, a fuel cost bid was divided in two parts which required the developer to project the non-escalable part of the fuel cost over the life of the project, leading to viability issues. The draft norms propose a segregation of operating and infrastructure assets into two special purpose vehicles. The land for coal block as well as the power plant will be under one infra SPV while the plant would be developed under the other, operating, SPV. This will enable separate mortgage of land and power assets to raise funds. This can, however, pose challenges in the sale of asset.
The 2015-16 Budget had proposed 5 UMPPs, each of 4,000 MW in the plug-and-play mode.