Delay in Power Projects

Written By

Neeraj Kumar Ojha

MBA, Finance, IIT Kanpur

Introduction

The Indian economy has been growing at above 8 percent for the last few years. To sustain

this growth rate, the role of power sector becomes very important. As espoused by

economists and industry experts, the market potential to sustain the GDP Growth rate of India

@ 8% plus per annum requires the power sector to grow at 1.8 - 2 times the GDP rate of

growth. This would mean a year-on-year capacity addition of around 18,000 - 20,000 MW.

The drive to increase the country's generating capacity led to inviting foreign investors in the

country and setting up Independent Power Plants (IPPs) in India. While dozens of projects

have been approved, most of the projects are stalled by delays which occurred due to various

reasons. There has been a quantum increase in the investment in the power sector. In the

beginning of the X Plan (April, 2002), about 24,000MW worth projects with the estimated

cost of $20,568 million were under execution. 46 of these projects (14,300 MW) have been

completed. At present, 83 power generation projects are under execution. The table below

gives the breakup of power projects under construction.

Sector No. of projects

under execution

Capacity under

execution

Estimated cost

Thermal 45 23,783 MW $22,125 million

Hydro 32 13,806 MW $15,100 million

Nuclear 6 3970 MW $6607 million

Total 83 41,559 MW $43,832 million

This paper attempts to study the reasons for delay in power projects by focussing on

following areas:

1. Prepare a list of projects which have been delayed along with the reasons for their

delay.

2. Power project outline and stages of planning.

3. Prepare a contract chart of project agreements and contracts at various stages.

4. Evaluate the existing contract mechanism for enforcing the contracts

2. Delay in Power Projects:

We will start with a list of power projects which have been delayed for some or other reasons.

The reasons that have been cited for delay are also mentioned in the table. We will try to find

out what are the broad areas which are contributing to the delay.

S. No. Name of power project Capacity Reason for Delay

1. Sipat STPP St-I (Super

Critical Units, District:

Bilaspur, Chhattisgarh)

1980 MW There was delay in TG supplies

from Power Machine, Russia and

delay in supply of Rotary

equipments by Doosan ,korea. BLU

is delayed due to non-supply

DDCMIS which is in the scope of

M/s Power Machines, Russia. Also,

there was non-availability of

supervisory personnel of M/s Power

Machines at site.

2. Sipat STPP St-II (Dist.

Bilaspur, Chhattisgarh)

1000 MW There was delay in supply &

erection of material by BHEL. Non-

readiness of Milling System,

Bunkers and Feeders also

contributed to delay.

3. Barh STPP (Mega Power

Project, District: Patna,

Bihar)

1980MW There was delay in supply of boiler

material from Russia. Delay in

Finalization of boiler erection

Agency as TPE wants removal of

ceiling on price variations.

4. Neyveli TPS-II (District:

Cuddalore, TN)

500MW Delay was caused due to shortage of

HP Welders.

S. No. Name of power project Capacity Reason for Delay

5. Kawas, NTPC, Surat

1300MW Placement of order for 1300 MW is

held up due to non-finalisation of

gas supply agreement with RIL.

6. Jhanor, Gandhar, NTPC,

Bharuch

1300MW Placement of order for 1300 MW is

held up due to non-finalisation of

gas supply agreement with RIL.

7. Bhatinda Power Plant

500MW The project was delayed by 15

months due to BHEL which is the

EPC contractor for the project.

8. Sasan Project

4000MW Problems in land acquisition are

causing delay in starting the project.

Govt. has asked for reduction in

land required for the project. Out of

3280 acre land required, only 77

acre has been acquired.

9. R-ADAG, Yamunanagar,

Haryana

600MW ADAG claimed that there was 8

months delay by state authorities in

clearing the drawings

S. No. Name of power project Capacity Reason for Delay

11. NTPC Kahalgaon, Bihar

Expansion

from 840MW

to 2340MW

Lack of adequate road and rail links,

congestion in railway links, low

coal supplies.

12. Ratnagiri CCPP (M/s

Ratnagiri Gas & Power

Pvt. Ltd., Erstwhile

Dabhol CCGT Ph II)

1480MW The erstwhile Dabhol CCPP Ph-II

was to be synchronized during the

year 2001-02, but due to the rift

between MSEB and DPC, the

construction work of Phase-II

terminated since June 17, 2001.

Now the dispute has been resolved

and a new Company Ratnagiri Gas

and Power Pvt.Ltd. has been

constituted with M/S NTPC and

GAIL to revive the project.

Thus we see that the broad reasons for delay in power project can be grouped under following

heads:

1. Delay in supply of equipments from foreign countries like Russia, Korea, etc.

2. Delay in supply and erection by BHEL.

3. Delay in finalisation of contracts on fuel supply (like gas supply contract).

4. Delay in land acquisition.

5. Delay in approving design and drawings by the client.

6. Lack of adequate infrastructure like road and rail links to the project site.

7. Delay by sub-contractor (like welders, civil construction).

In order to analyse the reasons for delay in power projects, we need to understand the various

stages in which the planning and execution of power projects is completed.

3. Power project outline and stages of planning

The development process of any power project can be divided into four stages:

Stage 1 Stage 2

Stage 3

Stage 4

Each stage in the above flow diagram consists of various activities. Broadly speaking the

various activities under different stages can be grouped as follows:

Stage1. Conception and feasibility Studies includes:

1. Define the need for the development

2. Evaluate plant capacity

3. Analyse technology

4. Evaluate site(s)

5. Environment impact assessment

6. Obtain permits and regulatory approvals

7. Prioritise project objectives

8. Analyse project risks

9. Prepare conceptual scopes and estimates

10. Prepare preliminary design options

11. Define project implementation approach

12. Establish project control approach

Power Project Conception and

feasibility Studies

Project

implementation

Bidding and

contracting

Project planning

Stage2. Project planning includes:

1. Plan and develop project requirements.

2. Process requirements and prepare design brief.

3. Prepare conceptual design and specification.

4. Prepare bid documents and RFP.

5. Establish pre-qualification evaluation criteria.

Stage3. Bidding and contracting includes:

1. Conduct pre-qualification exercise

2. Shortlist pre-qualified contractors for Tender.

3. Contractors submit bids and proposals

4. Evaluate bids

5. Negotiate contracts

6. Appoint contractors

Stage4. Project implementation includes:

1. Administer contract.

2. Contractors develop detailed design.

3. Review design and give approvals.

4. Approve sub-vendors and sub-Contractors.

5. Contractors proceed with construction and commissioning.

6. Control quality on site.

7. Commissioning.

8. Training operators.

Thus we find that most of the bottlenecks in completing projects result from delays in stage 4

activities. We find that most of the delays occur due to contractual problems arising from

poor contract design, absence of provisions for administering contracts and delay in design

approvals activities.

4. Major Physical activities in Power Projects

Power projects encompass a large number of physical activities which can be grouped

under following heads.

a) Land acquisition.

b) Site preparation.

c) Main plant.

d) Balance of plants.

The duration of project activities, especially, main plant and balance of plants is given in the

chart below.

Bars in red colour show activities which have been the cause of delay in power projects.

5. Contractual arrangement in power project

As we have seen above, there are a vast number of activities to be performed in completing a

power project. The coordination of these activities requires a well defined line of control and

monitoring by the client organization. The client’s organization can be divided into three

entities which are directly involved in the development of the new power plant. They are

1. Management: It provides project funding and makes relevant strategic decisions.

2. Project Group: It provides specific inputs and comments on the designs issues.

3. Operation and Maintenance (O&M) Group: Apart from providing specific inputs, this

group participates in the commissioning of the facilities.

The client organization appoints an engineering consultancy and project management firm

which specializes in power plant development as the project manager. The role of

engineering consultancy firm which acts as the project manager includes the following:

1. Performing feasibility studies and preparing the client’s requirements.

2. Basic design and RFP.

3. Formulating contract strategy, obtaining and evaluating proposals, and advising the

client on the appointment of contractors.

4. Monitoring progress, budget and quality of the works.

5. Responsible for project planning, co-ordinating and controlling the contractors.

The project manager also appoints another specialist consultancy firm as its sub-consultant to

provide technical support. The link between the client organization, the project manager and

the contractor is shown in the diagram below.

Client Management

Project Group O&M Group

Project Manager

(Consulting firm)

Sub Consultant

(Technical Support)

Contractor 1 Contractor 4

Contractor 3

Contractor 2

Sub- Contractor

Sub- Vendor

Conclusion

Timely completion of power projects is very crucial to the development of our country. The

complexity of work involved in power project and the involvement of several parties like

government, environmental agencies, owner (power utility), contractors and sub-contractors

make the timely completion of power project a very challenging task. Delay in power project

can be due to several reasons like delay in land acquisition, delay in supply of equipments,

delay in approval of drawing and design documents, etc. Study of the contract agreement

between the owner and the contractor suggests that the existing contract document has a lot

of loop holes and lacks any clear cut measure to check the delay at different stages of power

project. By incorporating suitable measures and defining strict norms and penalties for

completing each of the individual activities in the contract document, we can bring

substantial improvement in the timely completion of the power project.