NTPC’s shoddy project execution

The Centre is considering Maharatna status for NTPC even though its performance leaves much to be desired
Noor Mohammad Delhi Hardnews

The Indian government is considering Maharatna status for NTPC even when the public sector thermal power major is yet to prove that it can compete in the changing regulatory environment. The company's performance remains below par even in the critical area of project execution. It clearly lacks the nimbleness of private businesses.

The company has diversified across energy value chain by foraying into areas like coal mining, oil and gas exploration, power distribution besides equipment manufacturing. The company has also drawn up plans to enter into wind and nuclear power generation. Meanwhile, the company's reflexes in project implementation seem to have slowed down. The company has badly mismanaged implementation of two mega power projects - Barh-1 and Sipat-1 each 1,960 MW capacity. This is ironical, given that project execution is supposed to be NTPC's forte.

NTPC Chairman RS Sharma was quoted as saying that cost optimisation should be integral to the company's working. However, it seems that the NTPC chairman lacks the wherewithal to translate the vision into reality. For instance, the NTPC is having a tough time dealing with foreign equipment supply contractors for its Barh-1 and Sipat-1 mega power projects. It is unable to resolve commercial disputes with the two contractors. The result: both the projects are in a limbo giving rise to widespread fear that these capacities might not be commissioned during the current 11th Plan period. Russia's Technopromexport and Korea-based Doosan won contracts for the supply of boiler to NTPC's Barh and Sipat project, respectively.

The two contractors have presented escalation claims which would significantly raise the project cost and also electricity tariff. This poses a serious dilemma for NTPC. It cannot afford to meet escalation claims of contractors nor can it change the contractors at this stage. NTPC awarded the contract to Technopromexport on March 14, 2005. The first unit was to be commissioned by January 2009. However, it turns out that the project is already delayed by 44 months and the issue of who will bear cost escalation is yet to be settled.

The dispute with Technopromexport started when NTPC held back payment to the Russian vendor after its name changed and the company became a joint stock company on issuance of a decree by the Russian government. NTPC took too long a time to confirm whether there was any impact of the Technopromexport's name change on the contract. During this period, the contractor halted work pending resolution of the dispute.

Technopromexport has claimed cost escalation of 87 per cent due to price rise. Under contractual terms, NTPC can bear only up to 20 per cent of the extra cost. However, the contractor remains adamant on full payment of extra cost and has refused to restart implementation work pending that. Meanwhile, implementation work on the Sipat project also remains suspended pending resolution of similar commercial issues between NTPC and the contractor. Escalation claims are rising as the two sides fight over who should bear the extra cost.