Jayalalithaa reverses DMK regime’s decision on the 1,600-megawatt project

Reversing the previous Dravida Munnetra Kazhagam (DMK) government's decision on the 1,600-megawatt (MW) Udangudi super critical thermal power project, Chief Minister Jayalalithaa on Friday announced that her government would implement it as a State sector project, ensuring the availability of the entire power generated to the State.

When the coal-fired project was mooted in October 2007, it was meant to be a joint venture project involving the erstwhile Tamil Nadu Electricity Board (TNEB) and the Bharat Heavy Electricals Limited (BHEL). A special purpose vehicle – Udangudi Power Corporation Limited (UPCL) – was established in December 2008 to implement the project that would have two units of 800 MW each. The project was named after its site, Udangudi, about 45 km from the Tuticorin town.

Announcing her decision in a statement, the Chief Minister said she discussed with senior officials on Thursday the factors that contributed to the non-implementation of the project. What became clear was that the project could not be executed through the UPCL. The State government would fund the project and implement it through the Tamil Nadu Generation and Distribution Corporation (TANGEDCO). It would provide to the TANGEDCO the project cost of Rs. 8,000 crore as equity share capital assistance.

It had been decided to import coal for meeting the requirements of the project, as the Union Coal Ministry had not issued orders for allocation of coal. The environmental clearance from the Union Environment and Forests (E&F) Ministry would be sought after informing the Union Ministry of the latest decision to import coal.

As the project was going to be implemented by the TANGEDCO, it would earn ‘mega power' status. This would facilitate the provision of several tax sops, which would eventually create the scope for reducing the project cost.

Giving an account of the project, the Chief Minister recalled that the project cost of Rs. 8,000 crore included equity and debt components. As for the equity component, the [now-defunct] TNEB and the BHEL would contribute 26 per cent each with the remainder to be raised through financial institutions or a private promoter. It had been decided to tap any company for debt.

Till the end of the DMK regime in May 2011, the private promoter was not finalised.

Apart from the allocation of Rs. 32.5 crore each by the State power utility and the BHEL, no work was carried out for the project. As the Long Term Coal Linkage was not firmed up, the environmental clearance from the Union E&F Ministry was not obtained.

The BHEL's “lack of cooperation” was one of the factors that led to the non-execution of the project. A senior official says that the State government's annual contribution to equity share capital assistance to the TANGEDCO can be linked with the project.

Another official says that even though the project was originally proposed as a joint venture scheme involving a Central government entity, the Central authorities did not provide encouragement. In respect of Udangudi, they did not grant the mega power status or the long term coal linkage.

Under such circumstances, the State was left with no option but to pursue its own course as it was desperate to launch the project.

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