In what could be considered a setback for the ambitious ultra-mega power projects, global power major Allied Energy Services' Indian subsidiary, AES India, has decided to pull out of the race for the Mundra project in Gujarat.
The company is a 'qualified bidder' for the Mundra and Sasan (Madhya Pradesh) power projects.
Sanjeev Aggarwal, director, business development, AES India, said AES would not bid for the Mundra coastal project, given the fuel linkage risks involved.
While it is the responsibility of the developer to manage the fuel in the case of Mundra, Sasan is a coal pithead project, with a secure supply of coal. "We think that under the circumstances, Sasan is a better project to bid for," he said.
AES India and the Hong Kong-based China Light and Power are the only foreign companies that have qualified to bid for these giant projects of 4,000 Mw each, involving an investment of Rs 20,000 crore (Rs 200 billion) per project.
Even for Sasan, AES has raised objections to several of the conditions in the final bid document.
In a letter written last week to Power Finance Corporation, the nodal agency for implementing these projects, AES India has pointed out several discrepancies between the draft bid document that was originally circulated by the ministry and the final document that has been issued to the bidders.
The letter lists out issues that will raise the risk perception about the project, including coal linkage, payment security mechanisms, government clearances, interconnection and transmission facilities and termination and buy-out clauses.
It points out that of the three captive coal blocks allotted to the project, geological reports for only the Moher block were provided to the bidders.
On the second block, Amlori Extension, a single page info-sheet has been issued, while on the third block, information will be provided only 30 days before the bid closes. The letter says under these circumstances, it will be difficult to provide a fixed coal price.
AES also pointed out in the letter that in the event of a political force majuere -- an oblique reference to the Dabhol debacle - a recourse to courts of law "does not provide enough protection for project finance transaction which relies solely on project cash-flows and therefore will be unacceptable to project financiers".
It also cites the lack of a termination clause in the event of a prolonged force majuere.
It further points out that the time lines for bidding are "very aggressive" and the 3.5-month time line for bidding is inadequate. Internationally, the bidding process takes as long as a year, industry sources say.
However, should AES be awarded the project, the Foreign Investment Promotion Board clearance for investment could become an issue for the company, with the Orissa government deciding to withhold its 'no objection' to the company's proposed 1,000-Mw project in Chhattisgarh.
According to FIPB rules, if a company has made an investment in any state, that state's 'no objection' is required for it to invest in another state.
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