The rise and fall of an Indian coal plant
A recent damning audit report by India’s Comptroller and Auditor General (CAG) reveals many financial horror stories and a litany of basic errors in assessing the viability of proposed coal plants.
One company, Krishna Godavari Power Utilities Limited (KGPUL), proposed to build a 360 MW plant in Andhra Pradesh based on imported coal. If all went well, the first 60 MW unit was due to be completed by April 2012.
In many respects of the rise and fall of KGPUL’s coal plant dreams is typical of the arc many of the projects once hyped as part of the Indian coal plant bubble.
The CAG’s audit reports that KGPUL comprised a consortium of three companies, one of which was Dr. M. Venkataratnam Associates, which held a 37.5 per cent stake in the project. PTC India held another 52 per cent share and Krebs Biochemicals the remaining 10.5 per cent stake. (Motupalli Venkataratnam, the principal of Dr. M. Venkataratnam Associates, was also the Chairman of Krebs Biochemcials.)
While the first 60 MW phase of the project was the smallest of those the dozen loans the audit reviewed in detail, in many ways it illustrates the magnitude of the banks’ failures.
PTC, the largest company in the joint venture, had experience in power trading but none when it came to the construction and operation of any power project.
Nor did Dr. M. Venkataratnam Associates have any real world power plant experience. However, the banks noted that Dr. M. Venkataratnam had served as Chairman of REC, as well as the Andhra Bank and the Tobacco Board of India. (Venkataratnam was Chairman and Managing Director of REC from January 1983 on, retiring at a later but unknown date from this and other public sector roles. In September 2009 – after retiring as non-executive Chairman of Krebs Biochemicals & Industries – he was appointed as a director of KGPUL, even though he was 81 at the time.)
While Dr. M. Venkataratnam Associates was expected to contribute 37.5 per cent of the equity needed beyond whatever loans they raised for the project, Venkataratnam had limited assets. The CAG audit noted that the major portion of his net worth “was in the form of land and house property, which had no realisation prospects.”
Despite the lack of any credible experience in power plant construction and operation, the banks rated the company as being eligible for funding. In March 2007 KGPUL got the loan they sought and the plant was scheduled to be commissioned in November 2011.
When the development of the plant stalled, the commissioning date was at first pushed back to the end of October 2012.
However, by the time the CAG audit was undertaken in May 2017, the plant still didn’t exist. The US$11.9 million loaned for the project was registered in the bank’s books as a non-performing asset.