The Hindu Business Line : Spurred by New Electricity Act — Reliance to revive Hirma power project

BSES Ltd, the power sector arm of the Reliance group, has decided to revive the $4-billion 3960-MW Hirma mega thermal power project in Orissa that has been in a limbo for the last two years.

In a recent letter to the Power Ministry, the Reliance group and the promoters have renewed their interest in the project and said that they would be implementing the project in phases.

According to the promoters, the new Electricity Act, 2003, has thrown up opportunities to secure credible consumers and, in turn, payments from the power purchasers — the very reason why the project did not make progress prior to enactment of the new Electricity Act.

The new Act allows for power generation companies to directly tie-up with distribution areas, subject to regulatory clearance.

Prior to the new Act, Reliance had entered into an arrangement with an intermediary organisation, Power Trading Corporation, to secure power purchase contracts with five States.

However, since the purchasing state electricity boards were financially bankrupt, no credible payment security mechanism could be worked out.

n the absence of payment security, the project was not commercially viable.

The project was also plagued with the problem of accessing adequate fuel to power the entire generation capacity.

It also hit a barrier since the coal linkage shrunk from 20 million tonnes to 10 mt. This, since the environment clearance for a 10-mt mine had fallen through.

Coal India Ltd, and in turn, the Coal Ministry offered instead linkage from a mine located around 240 km from the project site.

However, to avail the `mega' project benefits like customs duty waiver, etc, the project necessarily had to be pithead in nature.

This is another reason that the promoters have offered to set up the project in a phased manner, in line with the availability of fuel.

The project was conceived as early as 1994 by a company then called Consolidated Electric Power Asia (Cepa).

Later, Reliance took a 50 per cent stake in the company, marking a divergence from its past strategy to go in alone in any sector it forays into.

Later Cepa (renamed Southern Energy Asia-Pacific Ltd - SEAP) was taken over by Mirant Corporation, US.

In late 2001, the company withdrew from the project, leaving Reliance as the lone promoter of the project.

Sometime in early 2003, the Power Ministry weighed the option of offering the project to Neyveli Lignite Corporation and National Thermal Power Corporation (NTPC) since Reliance had informally expressed its desire to exit the project. While NTPC was not interested in the project, NLC was keen in taking up a part of the project.

The Hirma project was the first inter-State project to have its power tariff approved by the Central Electricity Regulatory Commission (CERC).

The project promoter had signed a contract with the Government-owned Power Trading Corporation, which in turn had signed power sale contracts with Rajasthan, Madhya Pradesh, Gujarat, Punjab and Haryana.