Coal Supply Problems May Delay Adani Power's 3,300-Megawatt Tiroda Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--The 3,300-megawatt (MW) power project that is being developed by India's power project development company Adani Power Limited (BSE:533096) (APL) (Ahmedabad, Gujarat), near Tiroda in Maharashtra, is likely to be delayed after government authorities refused to approve mining operations in the allocated coal blocks. Mining at Lohara Bhandara extension and Lohara West blocks, which have combined reserves of about 170 million tons, has been stalled after the Ministry of Environment and Forests refused to give approvals. Earlier, APL was allocated these blocks to perform captive coal mining for the Tiroda power project. The Ministry has indicated that mining will adversely impact the Tadoba - Andhari tiger reserves, which are in the vicinity of the coal blocks. APL is part of the Adani Group (Ahmedabad), which has interests spanning sugar, petrochemicals, refining, ports and energy.

APL has written to the government seeking an alternate coal block allocation for the power project. However, sources have indicated that there is no provision to allocate an alternate coal linkage in place of a recommended coal block. C Balakrishnan, the coal secretary for India, has said that this has never happened. Officials have indicated that the federal government is contemplating an amendment in the regulatory framework to incorporate this alternate linkage clause.

Industry experts have observed that the project is unlikely to be deferred for too long. Alternate allocation of coal blocks is imperative for timely completion of the project. The Tiroda project is critical to reduce the acute power shortages faced by Maharashtra. The government is also keen on expediting this project, as APL has committed to supply 2,500 MW from the Tiroda power plant to the state grid of Maharashtra. A long-term, fixed tariff power purchase agreement to this affect has been signed. The project is an important contributor to India's power generation targets as outlined in the 11th and 12th Five-Year Plans. In all likelihood, the project will receive coal supplies from the federal government's linkage scheme, until such a time that a policy amendment for alternate coal allocation comes into effect.

APL is developing the 3,300-MW, $3.5 billion Tiroda power project in multiple phases. The first 660-MW unit is expected to be commissioned by July 2011. The other units are likely to be ready for commercial operations by April 2012. In July 2009, the company raised $500 million through an initial public offering. Project officials have indicated that APL has made significant investments on the project and placed orders for equipment.

In a related development, APL is one of the four selected international bidders to build a 1,000-MW, coal power plant at Pristina in Kosovo. The bidders have been requested to submit their detailed project reports (DPRs). The final bidder will be selected and announced in July this year. The other bidders are a consortium of ContourGlobal (New York) and a Greek public enterprise Public Power Corporation S.A. (ATH:PPC) (Athens, Greece); AES Corporation (NYSE:AES) (Arlington, Virginia), in partnership with Demir Exports A.S (Ankara, Turkey); and Park Holding Incorporated (Istanbul, Turkey). Kosovo, which has lignite reserves of about 10 billion tons, is facing acute power shortages. APL has domestic power projects with a combined generating capacity of 11,000 MW, in various stages of execution. The projects include the 1,320-MW plant at Kawai in Rajasthan and the 2,640-MW and the 4,620-MW projects at Dahej and Mundra, respectively, in Gujarat. In February, the company announced that it would commence work on the 1,320-MW power project at Chaunsara, in Madhya Pradesh.

The precarious condition of Adani Power's Tiroda project highlights the disjointed procedures adopted by various ministries in India. According to a media report, during the September 2006-08 period, every mining and industrial project proposal that sought environmental approvals was cleared. About 134 thermal power plants and 952 mining projects were cleared with no environmental concerns. However, thanks to the Copenhagen summit and a determined approach by the Ministry of Environment and Forests to reduce greenhouse gas emissions, environmental clearances for industrial and mining projects are now tough. Presently, about 120 projects are on hold due to environmental issues. The projects include the 2,600-MW captive power plant and the 11 million-ton-per-year steel plant to be developed by Jindal Steel and Power Limited (BSE:532286) (JSPL) (New Delhi) in Jharkhand, a petrochemicals complex at Jamnagar by Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) and an aluminum project by Vedanta Resources Limited (LSE:VED) (London, England). Several mining proposal including projects by Tata Chemicals Limited (BSE:500770) (Mumbai) and Grasim Industries Limited (BSE: 500300) (Nagda, Madhya Pradesh) are on hold.

Recently, Jairam Ramesh, Minister of State for Environment and Forests, alleged that the state governments are deliberately delaying the process of informing the ministry about wildlife buffer zones. The delay is helping the state administration and industry bodies secure approvals in areas near wildlife sanctuaries. About 40 project permits have been given to companies in the area around the Tadoba-Andhari Tiger reserve.

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