Power Play: Why A Thermal Power Plant Is Rocking Tamil Nadu Politics

With state elections only a year away in Tamil Nadu, the Jayalalithaa government may have a tough time thanks to questions being raised about the huge cost of purchased power in the state

On February 24th 2012, then Chief Minister of Tamil Nadu, J Jayalalithaa, buoyed by a massive sweep in the 2011 state elections announced that she would scrap a joint venture with PSU Bharat Heavy Electricals Limited (BHEL) to construct an ultra mega power project at Udangudi in Tuticorin district. One of the prime reasons she cited for this was “non co-operation” by PSU BHEL. The project, which was conceived during the previous DMK (Dravida Munnetra Kazhagam) regime, was inked in 2007 for two units of 800 MW capacity each.

Eight years later, the state is back to square one. Bids which were all set to be issued have been suddenly scrapped and the state power utility, TANGEDCO (Tamil Nadu Generation and Distribution Corporation Limited), has issued fresh tenders. Tamil Nadu, it appears, will have to wait much longer for the Udangudi plant to see the light of day, as a protracted legal battle begins.

This tale and its severe ramifications is one of great inefficiency at best and one of large scale corruption at worst. This is a tale of Tamil Nadu and its virtually non-existent government.

A Tale of Two Power Plants

Two identical thermal power plants in Tamil Nadu with the same bidders and similar tenders are symbolic of the malaise in the governance of the state. Tenders for both the Udangudi project as well as the Ennore project were issued a month apart – the former in April 2013 and the latter in May 2013. Both were EPC cum debt projects – meaning that the company that won the bid to construct these thermal plants would also finance the project by finding its own lenders. This was the first time the cash-strapped state power utility would call for such an arrangement.

On 27 September 2014, the day when Chief Minister Jayalalithaa went to jail in the disproportionate assets case in Bangalore, TANGEDCO awarded the Ennore project to BHEL. This move came despite the only other qualified bidder, a Chinese consortium called CSEPDI-Trishe (Central Southern China Electric Power Engineering Design Institute of China; Trishe is the Indian partner firm) taking the power utility to court and demanding that BHEL be disqualified for non-performance. They cited Jayalalithaa’s decision to cancel the Joint Venture with BHEL in the Udangudi project as reason enough to disqualify BHEL as a poor vendor.

Barely six months later, TANGEDCO took a decision on the other similar power project, Udangudi. Cancelling the bids citing deficiencies in both BHEL’s and the Chinese consortium’s bids, the power utility decided to issue fresh tenders. Once again CSEPDI dragged TANGEDCO to court. They alleged that TANGEDCO willfully manipulated the bidding process so as to favour BHEL.

The Court Battle

Smarting from what they called a joke being played on them, the Chinese consortium on 1^st April 2015 took TANGEDCO to the Madras High Court following cancellation of bids for Udangudi. CSEPDI-Trishe had emerged as the lowest bidder for Udangudi beating BHEL with a bid lower by Rs 136.8 crore.

“TANGEDCO did not intimate us as to this decision to cancel bids, nor were reasons given for the sudden cancellation,” submitted CSEPDI-Trishe in the Madras High court. TANGEDCO, on the other hand, submitted that it was not binding upon them to give reasons other than the ones in the State Tender Bulletin. The Madras High Court directed TANGEDCO to furnish reasons for cancellation of the tender and cleared the decks for the Chinese consortium to begin legal proceedings against TANGEDCO. Litigation is currently underway on this issue.

TANGEDCO says an independent consultant Fichtner, hired to look into both bids by BHEL and the Chinese consortium found several deficiencies in both. As a result, the state power utility decided to scrap both bids and call for fresh tenders.

Deficiencies in Bids

Various issues have been identified by independent consultant Fichtner in both BHEL’s as well as the consortium’s bids. These include improper drawdown schedules (schedules for release of money to the company), financial costs “not firm and subject to variation”, documents being sent in different envelopes some in cover A and others in cover B and other financial workings being submitted as part of the supplementary price bid rather than with the original price bid. Fichtner has concluded that the lowest bidder is the Chinese consortium and has left it to TANGEDCO to take a call on whether or not to award the contract to the lowest bidder.

The Chinese are livid. They maintain that the bids for both the Ennore plant as well as Udangudi were identical except for the amount. If the Ennore bid was successfully processed and contract awarded to BHEL, then why has TANGEDCO preferred to cancel bids for Udangudi, they questioned.

The Chinese also say that consultant Fichtner has found no discrepancies in documents, he has instead, stated that some documents were in different envelopes – a fact which should not have a bearing on the bidding process. CSEPDI-Trishe alleges that the state power utility is trying to “favour BHEL” and that its intentions in cancelling the bids are “mala fide”.

The Chinese insist that the bids for Udangudi cannot be canceled at such a later stage, after the first two processes have been completed. They quote TANGEDCO’s own submission in the Ennore plant case where it said that a bid can only be rejected on the day of submission, during preliminary stages or during technical evaluation of the bids. In other words, TANGEDCO said bids cannot be rejected after the opening of price bids, the second stage in the process, but that any rejection of bids can only be done during the first phase of techno-commercial bid opening.

The Chinese consortium alleges that information was provided to BHEL by TANGEDCO even before the bids were opened in phases. They also allege that the state power utility deliberately sought to favour BHEL over the Chinese consortium.

Power Politics

A war of statements has predictably erupted between the ruling AIADMK (All India Anna Dravida Munnetra Kazhagam) and the Opposition parties in the state, each of which has accused the AIADMK of corruption and inefficiency.

The most vocal of these is the DMK chief M Karunanidhi, who lambasted the state government’s decision to cancel the bids after an inordinate delay. He asked state Electricity Minister Natham Viswanathan whether the bids were canceled as they were “not worth 10 paise”.

“If there were deficiencies found soon after opening the bids, why was there so much delay in announcing the cancellation,” asked Karunanidhi in a statement in March 2015, while calling for an enquiry committee to be set up to look into irregularities and reasons for delay in the Udangudi project. He also alleged that the Udangudi project was deliberately being delayed so the state could purchase costly power from private producers in return for kickbacks.

Soon after, AIADMK minister Natham Viswanathan issued a scathing response to Karunanidhi’s allegations. “The only truth in Karunanidhi’s statement is that the foundation stone was laid by the DMK,” he said in a statement in March. “No land acquisition or environmental clearance was done and long term coal linkage was not provided. Why did Karunanidhi delay the project for four years?” he asked. No answers were forthcoming, however, to a number of sticky points raised by the DMK chief.

A united Opposition, consisting of the DMK, Vijaykanth’s DMDK, Ramadoss’ PMK as well as the Left parties took on the government over this issue in the state Assembly in March, leading to pandemonium and confusion in the melee.

MG Devasahayam, retired IAS officer and power expert says,

“This is the fallout of the reform process which started in the mid-1990s. Earlier state power utilities increased capacity every year and they did not face such losses. Because of debilitating embargos by GoI, no new capacity is being added by state power boards. Wrong priority reforms have crippled state power utilities as they started buying power at high cost from private power producers. TANGEDCO is between the devil and the deep sea. Due to incapability of raising funds, corruption, crippled by reform process losses are mounting. DMK is flogging a dead horse – there is no point saying that TANGEDCO has not done this or that. TANGEDCO simply does not have the capacity to do it.”

TANGEDCO’s Losses

Inefficiency is not new to TANGEDCO. Crippling losses have cast a shadow on the power utility for the past decade. In 2013-14, TANGEDCO’s losses totaled Rs 13,985 crore. This is in large part due to delays and inefficiencies.

The Comptroller and Auditor General pulled up the state power utility TANGEDCO last year for losses incurred in causing undue delays in implementing key power projects. These delays range from 3 months to over 5 years. The CAG pulled up the power utility for not only failing to adhere to timeframes on key power projects, but also for not penalising the errant vendor, in most cases, BHEL. In a jarring indictment of the mismanagement of TANGEDCO, the CAG had noted that TANGEDCO could have avoided enormous losses to the state exchequer by simply following the rules.

“The very fact that there are only two bidders is itself revealing. There should be a queue of bidders for such projects. But no one wants to come forward because they know that TANGEDCO cannot pay. TANGEDCO in no position to deal with private companies and they appear to be more comfortable with BHEL,”

Devasahayam added.

For Udangudi alone, the state government had to pay BHEL a sum of over Rs 64 crore in order to exit the Joint Venture in 2012. Add to that the unknown costs incurred over the entire process of finalising bids as well as the hiring of an independent consultant and it appears that the state power utility is only continuing to bleed public money over ventures that simply do not bear fruit.

Power Starved State

Having the dubious distinction of being one of the three state power utilities in the country which are the biggest loss making units, TANGEDCO has some serious questions to answer. The state is staring at an estimated shortage of around 3500 MW in 2014-15, as per estimates by the Energy Department. More delay and a legal tangle in the case of Udangudi will not serve to make the situation any better.

The much touted solar power policy formulated in 2012 has not taken off. As per the policy, the state should have set up 1000 MW of solar capacity by 2015. Currently only 120 MW of solar power has been set up in the state.

Despite being the largest producer of wind energy in the country with 7480 MW of installed wind energy capacity, wind power producers have dragged TANGEDCO to court too, for not evacuating the power produced during the windy season. “This is due to TANGEDCO wanting to buy costly power from private producers for kickbacks,” says a wind energy expert who preferred to stay anonymous.

Devasahayam opines,

“The only solution is to decentralise power distribution and change the whole concept of power management. We need to remove villages from the grid and set up small solar projects in clusters of villages to make them self sufficient. We need to go for massive rooftop wind-solar hybrid installations. There is no point in centralising power generation and distribution anymore,”

In this backdrop of a state starved for power, the questions are many – why has it taken 8 long years for this project to be finalised? Why did the state government not realise that there were deficiencies in bids for two whole years? Why, after so long, did the power utility decide to scrap the bids and go in for fresh tenders when identical bids were allowed to go through for another power project?

As Tamil Nadu heads into election year in 2016, a harsh summer looms, with power tariffs already at their highest. In 2014, summer meant 16 hour power cuts in many districts across Tamil Nadu. Small businesses in the state are worried as we head into the dog days of summer this year, as power cuts mean loss of business.

Jayalalithaa and her men may well face a searing test in the run-up to 2016.