According to the latest list of the Central Electricity Authority (CEA), Sikkim has 21 live hydropower projects with a total capacity of 4225 MW, apart from five more that are not enlisted, thus taking the number to 26. Of these, the largest and the most ambitious is a joint venture between the Sikkim government and a private special purpose vehicle called Teesta Urja Limited - the Teesta Stage III 1200-MW Hydroelectric Power (HEP) project.

This critical project is now faced with an inordinate delay in commissioning, leading to almost 100 percent cost escalation. What is worse, there is a bitter stand-off brewing within the private promoting company that could, if it worsens, make the going even tougher for the project.

The Teesta River in Sikkim. Pic: Wikimedia

The genesis

According to a Sikkim cabinet note dated 15 October 2004, a consortium led by a company called Cosmos Electric Supply, promoted by former ITC Chairman KL Chugh, was selected for the Teesta III 1200-MW HEP. Three days later, a director of Cosmos, T Nagendra Rao, wrote a letter to DD Pradhan, Secretary, Power and Energy Department asking the state government to extend the duration of contract or reduce the royalty rate.

Four months later, in a cabinet note dated 21 February 2005, the project was proposed to be allotted to Athena Consortium, formed specifically for the development of the Teesta Stage-III Hydro Electric Power Project on BOOT (Build-Own-Operate-Transfer) arrangement. A day later, it was approved and four days later, the letter of intent (LOI) was issued.

This LOI (letter No.34/GOS/E&P/2004-05/255 dated 26 February 2005), however, was issued in the name of “Athena Projects Private Limited” and not in the name of “Athena Consortium” though the proposal had been placed by the Consortium, which had among its members several central government public sector companies such as PTC India Limited and Infrastructure Leasing & Financial Services Ltd, the state PSU Andhra Pradesh Power Generation Corporation Ltd, as well as private sector players such as ICICI Securities and Larsen & Toubro Ltd.

Athena Projects Private Limited (APPL) is a different entity, a private limited company registered under the Companies Act 1956, having a separate legal identity, where the Consortium members as mentioned in the proposal do not hold 100 percent of its shares. Clearly, therefore the award of the project itself was under a cloud.

In any case, APPL formed a special purpose vehicle, Teesta Urja Limited (TUL) for its joint venture with the Sikkim government. The Sikkim government holds 26 percent in the project, while 11 percent is held by PTC India and 13 percent by financial investors including Morgan Stanley and General Atlantic.

Asian Genco, which currently holds 50.9 percent stake in the project, was formed only in January 2007 and was not a part of the original consortium selected by the Sikkim government. Incidentally, it is controlled by TV Vijaykumar, who was part of the inner coterie of former Andhra Pradesh chief minister YSR Reddy.

In 2010, private equity (PE) firms led by General Atlantic, Goldman Sachs, Morgan Stanley, Norwest Partners and Everstone Capital invested US $425 million in Asian Genco to acquire majority stake in the company.

Delays and cost escalation

Asian Genco has been in the eye of the storm for some time now, with considerable delays in most of its projects elsewhere too and massive cost overruns. The Teesta III HEP is no exception.

This project was expected to make Sikkim self-sufficient in electricity and also a net power exporter. The state was to receive about 12 to 15 percent of power generated under the project. 70 percent of the rest would be transmitted to Delhi, UP, Haryana and Rajasthan, while the balance would be sold on spot basis. But with the inordinate delay in commissioning of the project, all calculations have gone haywire.

The initial project cost of the Teesta III 1200-MW project was fixed at Rs 5705.55 crores as per the Techno Economic Clearance (TEC) set at 2005 prices; this eventually escalated to Rs 8581 crores at 2012 price levels due to delay in commissioning, and at 2014 price levels, the cost has escalated to a staggering Rs 11,383 crores, almost double of what had been originally envisaged.

In May 2014, TUL made a fresh and final call on all stakeholders to infuse an additional equity of Rs 615 crore. But the stakeholders were reluctant to bring in the extra equity needed, given the delay the project had already seen and the resulting rise in costs. As a result, the PE players, who had invested nearly Rs 1200 crore in the project through Asian Genco, began to perceive a threat to their investment.

In the first week of October 2014, they wrote to power minister Piyush Goyal raising concerns over the delay in the commissioning of the hydro power project, and urged him to direct both the Sikkim government and PTC India Ltd to reconsider their decision with regard to equity infusion, pointing out that any delay at this stage would lead to further uncertainty and deviation from completion timelines.

The stalemate has now reached a stage where the Sikkim government has been forced to make an official statement that in the eventuality of the PE investors and other equity partners quitting at this advanced stage, it will buy off 100 percent equity in the project. However, the state, with an annual budget of Rs 2060 crores, is in no position to do that unless it borrows heavily, even as it already has a loan of Rs.800 crore from the Power Finance Corporation (PFC) in order to meet its existing equity commitment.

Other complications

Meanwhile, relations between the private equity investors and the Indian promoters under TUL have soured badly.

The problem started as the promoter began inducting local investors like Cobalt Power into specific projects. The foreign investors alleged such moves diluted their ownership. They were to hold 51 percent stake in each project by virtue of their majority shares in the holding company Asian Genco Pte Ltd, Singapore. But the entry of Cobalt, pushed through by the promoters, reduced them to a minority.

Cobalt Power, a company owned by T V Vijaykumar, had also invested Rs 200 crores in a thermal power project in Seemandhra that was being handled by a company called Energy Infratech Pvt Ltd (EIPL) in which Asian Genco again held 51 percent stake. When Cobalt failed to make any money or get any share in EIPL, it approached the local magistrate’s court. The court directed the police to probe the cheating complaint against all directors of Asian Genco, which included the nominees of the foreign PE entities.

None of the eight directors of Asian Genco turned up before the Hyderabad (Punjagutta) police despite orders to appear and produce company records, following allegations of illegal diversion of funds. The directors, some of whom stay abroad, were issued notices to appear personally and share the company records but they sent their advocates to defend themselves and did not provide any of the sought documents.

Subsequently, both the parties approached the Andhra Pradesh High Court and the court has since ordered them to try and arrive at an amicable settlement, failing which the court will intervene and issue appropriate orders.

While Asian Genco has refused to comment on this controversy, it certainly does not augur well for the Teesta III project, the completion of which is already uncertain. Even if generation does see the light of the day under the project, the extent to which it will benefit a heavily indebted state remains debatable, especially given the fact that there are approximately 10 projects at various levels of advanced construction in Sikkim, which would potentially add 2,000 MW in capacity.

It should also be noted that power sales across the country are running low and many state electricity boards are cancelling purchase agreements they have signed with power surplus states such as Sikkim. The coal scam, excess supply, less demand and slow growth in industry are among the reasons for the low rates and demand for power. In the prevailing scenario, therefore, the road ahead seems anything but a smooth one.