Powering Dream Merchants

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[HIGH RISK GAME: Merchant power plant projects do not have any assured offtake (Pic by Amit Verma) With private companies showing keen interest in setting up merchant power plants, the power ministry is working on a proposal to extend tax breaks to these projects on the same lines as those given to ultra mega power projects and mega power projects. Despite resistance from officials in the finance ministry &mdash; the nodal ministry that would finally grant this concession &mdash; Power Minister Sushilkumar Shinde is pushing the proposal. The power ministry&rsquo;s view is that since promoters of merchant power plants are taking all the risk of setting up such large power projects, the government should extend all possible help. Importantly, these sops would go towards reducing the cost of power and, therefore, make their power tariff very competitive. In August last year, the finance ministry notified the sops for ultra mega power projects that granted &ldquo;full exemption from central excise duty to goods procured for setting up ultra mega power projects based on super-critical technology&rdquo;. Sops for merchant power plants would not be a permanent feature, says a power ministry source. Therefore, this measure would only benefit those promoters who are in an advanced stage of setting up their projects. Unlike conventional power plants, which are planned on the basis of an assured offtake of power based on a power purchase agreement (PPA) with a buyer, a merchant power plant&rsquo;s promoter does not have any assured offtake; he takes the entire risk of selling power to consumers on his balance sheet. A power ministry note says: &ldquo;Unlike traditional utilities, merchant power plants compete for customers and absorb the full market risk... ...the risk of a merchant power plant is carried on the balance sheet of the promoter.&rdquo; Growing shortage of electricity across the country coupled with the facility of open access where consumers are allowed to choose their power suppliers are important factors that are attracting investors to set up merchant power plants. The success of ultra mega power projects in getting rock bottom power tariffs using supercritical power technology is another factor that has made investors confident that they would be able to sell their power to consumers if their tariff is low. According to the power ministry, merchant power plants of 1,000 MW would be provided coal linkages and under the initial plan, 15 coal blocks with estimated reserves of about 3.6 billion tonnes have been identified for such power ventures. It is interesting to note that even some old counter-guaranteed projects such as the 1,000-MW Hinduja-National Power project in Andhra Pradesh is now being revived and will be be executed as a merchant power project. This project had languished for more than 15 years and in 2000, despite being armed with a counter-guarantee from the Centre, had to be abandoned because the project cost worked out to be quite high. (Businessworld Issue Dated 4-10 August 2009)