Sasan’s Shadow: An Ultra Mega Power Project’s Dark Side

For all its record-breaking achievements for speed, innovation, and efficiency, the 3,960-MW Sasan Ultra Mega Power Project should have been a POWER Top Plant. But the unique project has been plagued by serious setbacks-including loss of life-that show how perilous the plant construction journey can be.

A decade ago, India was suffering a power crisis so dire that only 56% of households in the country with a population of 1.1 billion had connections to the grid. (Today, it's 81%; see this issue's "THE BIG PICTURE: Still in the Dark" in the Global Monitor department.) Where electricity was available, power cuts were routine, and Indian industry, so used to failings of the national grid, was forced to build its own "captive" generating plants. In 2005, gripped by the prospect of a widening chasm between demand and supply (at the time, demand exceeded supply by 12.1%), India's central government set ambitious targets to add 100 GW of new generating capacity over the next 10 years to fuel its surging economy.

One of its most formidable ventures to boost this virtual doubling of generating capacity was the introduction of ultra mega power projects (UMPPs). Backed by the Ministry of Power and the Central Electricity Authority, the program consisted of two stages. First, it tasked the state-owned Power Finance Corp. (PFC) with setting up subsidiaries known as "special purpose vehicles" (SPVs) to procure land, water, and environmental clearances as well as power purchase agreements and to allocate coal blocks to fuel a dozen planned 4-GW UMPPs scattered around the country. Secondly, the government invited private companies to bid competitively to acquire an SPV based on the lowest "levelized" tariff to be charged for electricity.

In February 2006, the PFC established Sasan Power Ltd. to develop, own, and maintain a UMPP in Singrauli, a district in the northeastern state of Madhya Pradesh. Historically, the region had been covered in forests so dense and wild that it was used as an open-air prison by the maharajas of the neighboring Rewa region. Since construction of a large dam in the 1950s that formed a sizable artificial lake, the Govind Ballabh Pant Sagar Lake Reservoir, and the discovery of rich coal deposits spread over 2,200 square kilometers of nearby land, Singrauli has been transformed into an energy hub. Owing to its proximity to an abundance of coal and water, today the region has an operating power capacity of more than 10 GW-mostly from coal-fired plants, and projects of up to 15 GW are under construction.

Reliance Power (then known as Reliance Energy Ltd.), the power-generating arm of conglomerate Reliance Group, ultimately acquired Sasan Power in August 2007 at a levelized tariff of 1.196 rupees/kWh (about $0.026/kWh at the time). That year, Reliance also snapped up SPVs and related assets for another UMPP: the 4-GW Krishnapatnam project planned for Andhra Pradesh state. And in 2009, it won rights to set up the Tilaiya UMPP in Jharkhand state.

Tilaiya was canceled last year, owing to inordinate delays in land acquisition. As Reliance told POWER, the Krishnapatnam UMPP is also in regulatory limbo. The project was to depend on imported coal from Indonesia, but following rule changes, the price of that coal has shot up. "The company has moved Central Electricity Regulatory Commission (CERC) for [a tariff revision], citing 'force majeure.' The matter is subjudice," the company said, declining to comment further.

Sasan, on the other hand, was fully commissioned by April 2015-a stunning 12 months ahead of schedule.

A Project of National Significance

Putting Sasan online on schedule was a matter of "national importance," Reliance said, as it would benefit 350 million people in seven Indian states and territories: Madhya Pradesh, Punjab, Uttar Pradesh, Delhi, Haryana, Rajasthan, and Uttarakhand.

Project construction officially kicked off in 2009. Reliance's construction arm, Reliance Infrastructure Ltd. (RINFRA), won the engineering, procurement, and construction (EPC) contract. RINFRA then appointed consultants such as Black & Veatch, HOK, Toshiba Power Systems, and Indian engineering firms Development Consultants Private Ltd. and STUP, among others, to design and develop the project.

The project's major equipment was sourced from a number of entities (Table 1) from around the world.

Table 1. Sasan Ultra Mega Power Plant's major equipment suppliers. Courtesy: Reliance Infrastructure

Today, the UMPP is a 3,960-MW supercritical coal-fired power plant consisting of six 660-MW units and two government-allocated coal mines located about 12.4 miles away from the power plant. The project and associated coal mines account for nearly 10,000 acres of land, of which nearly 7,000 acres is for the mining operation. That makes it one of the biggest integrated coal mine and power projects at a single location in the world.

Among the project's most remarkable attributes is that it transports coal to the power plant from the coal mines via a 9-mile-long overland conveyor belt (Figure 1). Reliance noted that the single flight conveyor system "has a higher reliability, longer service life, [it is] compatible for rough terrain, and it requires lower human interface" than the alternatives.

1. Coal belt. Coal from two mines leased from India's government is transported to the 3,960-MW Sasan Ultra Mega Power Project via a 9-mile-long conveyor belt that crosses rough terrain and rivers. The overland conveyor includes head tail drives and two horizontal curves. Courtesy: Reliance Infrastructure

The plant also uniquely uses fiber-reinforced plastic (FRP) cooling towers, and it has one of the largest FRP towers in the world, according to its manufacturer, Hamon Shriram Cottrell, a joint venture between Belgium's Hamon Group and India's Shriram Industrial Holdings.

By the time the project was deemed complete, it had achieved several "firsts" for an Indian power plant:

a- It was the first time in the country that boiler light-up for steam blowing was done with coal firing instead of oil.

a- It clocked the country's fastest hydro test to identify leaks of the boiler.

a- It achieved commissioning of five 660-MW units within 12 months-the fastest in the country. Four units were synchronized to the grid in a record eight months' time.

The Sasan mine, comprising the Moher and Moher Amlohri Extension coal blocks, was also developed remarkably quickly-within a period of 12 months from grant of lease. According to Reliance, the greenfield mine is the largest captive coal mine in the coal-rich country in terms of volume handled. As of March 2016, it had achieved coal production of 17.2 million tons per year, and it "is set to create a new benchmark of coal production amongst the private sector players," the company said. Handling that volume of coal requires unique equipment, it said, including two 110-ton draglines and 55 massive 240-ton dump trucks.

And even a year after the UMPP was declared operational, the plant continued to stir awe. On May 2, Reliance announced that the plant achieved a load factor of about 100% over the month of April. During its first year, it achieved a plant load factor of about 90%. It is a stellar achievement when compared to the average plant load factor of Indian thermal plants of 53.9% over the past year, as reported by the Central Electricity Authority.

The High Price of Progress

Yet, putting up a plant of this magnitude, of such widespread significance, has come at a steep toll to Reliance, the plant's surrounding communities in Singrauli District, and even to the Indian government and the project's various international financiers.

Although Reliance declined to comment on the project's financial hurdles, its precarious funding situation is described in a scathing, even if highly redacted, report released by the U.S. Export-Import (Ex-Im) Bank's Office of Inspector General (OIG) last September.

In 2010, the project cost was an estimated $4.5 billion, financed by 70% debt and 30% equity. Total project debt (of $3.16 billion) was originally to be provided by Indian banks (led by the State Bank of India), the Ex-Im Bank of the United States, and a consortium of Chinese lenders.

Plans to build the plant were ruffled after an unspecified lender pulled out of the project, the report says. In June 2010, concerned about the project's high carbon emissions, the Ex-Im Bank also voted to withhold financing for the export of U.S. mining equipment on behalf of Bucyrus (which has since been acquired by Caterpillar Inc.) and services from North American Coal Co. and Black & Veatch.

In October 2010, responding to a re-submitted application, the bank approved a loan commitment based on a new requirement in the loan agreement that the project emit no more than 850 grams of carbon/kWh, which was still the upper limit for loan consideration in the bank's 2010 environmental policy. It also required Reliance Power to support U.S. exports of technology and services for projects providing up to 250 MW of renewable energy. Reliance eventually reduced the scope of its contract with Bucyrus, and the Ex-Im Bank revised its loan commitment for the project from $888 million to $650 million.

By November 2013, however, the project incurred a construction cost overrun of $1.45 billion-nearly 32% of the original project cost-owing to the surging cost of imports and financial charges after a 35% depreciation of the rupee to the dollar. Costs for land acquisition for the coal mine also increased, and the project suffered when a custom duty exemption for coal mining equipment was unexpectedly lost.

That was one reason a number of U.S. citizen and environmental groups with a global reach urged the OIG to look into the deal, specifically to vet whether the Ex-Im Bank had conducted sufficient due diligence of key project risks, parties involved, exposures, and red flags, in accordance with bank policies. The groups in mid-2014 alleged that project developers were responsible for forcible displacements (including razing houses-in one instance, with a resident still inside), inadequate compensations, safety concerns and worker injuries, and generally unethical and inhuman labor practices-along with heavy, unmitigated pollution. Reliance disputes these allegations. A company source told POWER that such allegations are to be expected with a coal plant of this magnitude.

When the OIG finally released its report in September 2015, it lambasted the Ex-Im Bank for a series of critical lapses, including not adequately considering risks of foreign currency exchange fluctuations in its financial projections, on which it based credit determinations and risk ratings. The report shone an unappealing light on the wholly owned U.S. government corporation, which was just gearing up to seek reauthorization from a divided Congress. (The bank's charter was eventually extended last fall through September 2019, though its exposure "cap" was markedly lowered.)

Nineteen Alleged Fatalities

The most alarming of these allegations, without a doubt, are reports of 19 fatalities that occurred during the plant's construction.

According to the OIG's report, in a February 2015 letter to Reliance's CEO, the Ex-Im Bank's chairman expressed "continued disappointment" regarding "poor safety" practices after it learned of four new fatalities following a visit by Sasan's contracted independent monitor, Environmental Resources Management. According to the OIG report, the letter said: "the number of all fatalities at the integrated Project is now 19-which is both tragic and absolutely unacceptable." It also noted that, "rather than improving, the situation appears to be deteriorating." Stressing the bank's commitment to the "highest standards for health and safety compliance in projects financed by the Ex-Im Bank," it also demanded: "[T]he alarming number of injuries and fatalities must come to an end."

Reliance told POWER that it disputes all allegations that it is responsible for any fatalities, and it declined to comment on the nature of the incidents.

However, the OIG report mentions that Sasan Power furnished the bank-within 10 days of the chairman's strongly worded letter-with information on initiatives it was implementing to reduce incidents. These involved establishing a multidisciplinary task force composed of middle managers for the purpose of developing a safety-oriented culture and improving training; creating a new safety manager position at the power plant "with hiring efforts focused on expatriates with experience in remediating safety issues"; establishing 47 "Safety Champions/Stewards," representing the various departments at the power plant; and hiring a new safety manager for the coal mine with experience in mining and managing draglines.

The OIG report notes that, as of January 2015, no more fatalities or major injuries had been reported at the plant or coal mine. At the same time, however, it underscores that its own investigation into grievances related to rehabilitation and resettlement issues, violation of labor standards, and environmental contamination was constrained by its "institutional role" and a general "lack of cooperation [it] received from persons in India."

Widespread Damages

Given the scope and size of Sasan, India's government had been widely expected to valorize the UMPP's technical successes. But the record is mostly silent. This is likely because India's own much-hyped UMPP policies have come under scrutiny owing to a scandal of nationwide notoriety (see sidebar) that relates to the allocation of coal blocks.

India's Debilitating Coal Allocation Scandal The government of India's allocation of the nation's coal deposits to public sector entities and various private companies between 2004 and 2009 drew political scrutiny in the summer of 2012, resulting in scathing allegations of corruption. The scandal implicated several high-ranking government officials and was especially politically damaging for India's former Prime Minister Manmohan Singh, who headed the coal ministry for three of the five years under scrutiny. The scandal reached its apex in March 2012, when a draft investigation report from the Comptroller and Auditor General (CAG) of India implied that the government had hemorrhaged as much as $33 billion by allocating coal-mining licenses to private companies without a transparent competitive bidding process. Then, in August 2014, India's Supreme Court ruled that at least 214 coal block allocations awarded over a longer period-1993 to 2011-were illegal and arbitrary. The "Coal Gate" scandal ultimately led the coal ministry to form an inter-ministerial panel to review the process of coal block allocation, and it has since taken back about 80 coal fields. Bank guarantees in another 42 cases have been forfeited. Among those cases is the Chhatrasal coal block, which was allotted to Sasan Power in 2006. Reliance Power has legally challenged that decision, but the government maintains that the Moher and Moher-Amlohri Extension blocks already allocated to the company can produce enough coal to fuel the company's ultra mega power project in Madhya Pradesh.

Acknowledging the multiple difficulties associated with the development of large-scale coal-fired power plants, the Indian Power Ministry in June 2016 reportedly proposed scrapping plans for four coal-fired UMPPs in Chhattisgarh, Karnataka, Maharashtra, and Odisha. Private investors, meanwhile, withdrew interests from two UMPPs at Bhedabahal, Odisha, and Cheyyur, Tamil Nadu, citing doubts about bidding restrictions and limitations to how much developers can pass on increases in fuel costs.

The viability of India's UMPP ambitions is also wrecked by a doubling of coal taxes three times in the past four years, ambiguous land acquisition rules, certain litigation, and difficulties raising debt financing from India's stressed banking sector.

For now, Sasan remains one of only two UMPPs built in India-large and magnificent but with a wide, dark shadow. a-

-Sonal Patelis a POWER associate editor.

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