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Tata Mundra's possible closure? Power ministry's 'pressure tactic' on consumer states

By Bharat Patel*
Tata power has announced to the Union Ministry of Power that Tata Power may be forced to stop operating  its imported coal-based Mundra Ultra-Mega Power Project (UMPP) after February, 2020. It is not only unfortunate but also criminal that irreversible damage has been caused to the fragile ecosystem of Mundra coast for a project that will have a running life of only seven years.
The project has destroyed the environment the economic displacement of the communities affected. Farmers, fish workers, salt pan workers, cattle grazers have suffered irreversible damage to their lives and livelihoods. The outdated open cycle technology used in the plant has destroyed the marine ecology.
Today, thousands of fish workers are struggling to make ends meet due to decline in the fish catch in the area, agricultural land has become saline to ingress of sea water from the intake channel and the grazing land has been acquired for the project. After all this damage, the project didn’t even make any financial sense also.
This project has displaced people, snatched their livelihoods and failed to carry out any genuine consultations. Making matters worse, the plant from the very beginning has been operating at a financial loss following rises in the prices of imported coal. Now, the company may be looking at selling the plant to the government.
This situation points out to many failures on part of the government, financing agencies and company who have clearly failed to conduct due diligence, assess the financial viability of the project and the damage that the project would cause to the people and environment.
The Union Power Ministry’s orders to consumer states Haryana, Rajasthan, Punjab and Maharashtra, which buy power from the Mundra plant, to decide on the matter, or deal with power shortage without Centre’s support are pressure tactics to force consumers states to bear with the losses of the company.
These costs would eventually come to the consumer. In case, the five consumer states allow pass-through of additional fuel cost to consumers, this would mean allowing relief beyond the PPA terms and conditions which would imply passing on to the consumers, commercial risks that were voluntarily assumed by the project developer to win the contract.
The reports that the government may take over the project is of serious concern. The project is a stressed asset. By the end of FY2018-19, the Mundra UMPP, also known as Coastal Gujarat Power, had incurred total retained losses in excess of US$-1.5bn. This is when to combat continual, significant losses the plant, the company imported a higher proportion of lower energy coal in an attempt to reduce fuel costs. The proportion of lower energy coal used at Mundra increased from 20% in 2018 to 42% in 2019.
Governments’ record of running companies profitably has taken a beating in the last many years. Deliberately they have been made to underperform, to pave way for privatization. Examples of BSNL, Air India, MTNL, SAIL and many such flagship companies are well known to all.
The story of Gujarat is not any different. In Gujarat, state run entities (PSUs) incurred losses of Rs 3,813.93 crore in 2017-18 according to a CAG report. The major loss-making state PSUs were GSPC (Rs 1,564 64 crore), Sardar Sarovar Narmada Nigam Ltd (Rs 1,075.8 crore), Bhavnagar Energy Company Ltd (Rs 617.31 crore) Gujarat State Road Transport Corporation (Rs 264.81 crore) and Gujarat Water Infrastructure Ltd (Rs 137.53 crore.
At a time when the government is unable to run the PSUs properly, it doesn’t make any sense to acquire a loss making private company with taxpayers’ money, especially when the prospects of turning it into a profit making one is nearly impossible.
In the worst case scenario, even if the government decides to take up and run the project, it is essential that the technology is changed from open cycle to a closed cycle cooling system for the outlet channel. This step is critical to save the marine life, which in the years of operation of the plant has been destroyed due to discharge hot water into the sea. Over the years, there has been a significant decline in the fish catch and has destroyed the livelihood of thousands of fish workers.
The initiative launched by government of India for facilitating the development of coal-based Ultra Mega Power Plants (UMPPs), each of minimum 4000 MW capacity has been a complete failure. The first UMPP of India, Mundra UMPP was awarded to Tata Power through a competitive tariff-based bidding process.
Mundra UMPP takeover? Govt record of running companies profitably has taken a beating in the last many years
Of the 16 proposed UMPP projects 8 have been cancelled, 4 have been shelved, one is at a pre-permit development sage. Only two projects have been operational, one being Tata Mundra UMPP and other Sasan UMPP. Both projects are under financial distress and have been marred with serious environment and social concerns.
With the scale and design of the Ultra Mega Power Projects they are designed for failures. It is important that the energy security are met in a sustainable manner. It also raises questions about the aggressive development paradigm and inequality in energy access and consumption.
This project also highlights the failure of Multilateral Development Banks, which claim commitment to reducing poverty and promoting sustainable development. Both International Finance Corporation (IFC) and Asian Development Bank (ADB), who have financed this project failed to conduct due diligence.
The financial viability of a project needs to be factored in before a project is sanctioned. This should have included not only the building and operational costs of the project, but also displacement and loss of livelihood and environmental damage. Government subsidies also needed to be factored in.
Negative environmental and social impacts of this project were recognized by audit reports of the Compliance Advisor Ombudsman (CAO) – the independent recourse mechanism for the World Bank’s IFC – and the ADB’s Compliance Review Panel (CRP), following complaints from the communities.
Despite scathing reports from their accountability mechanisms recognizing the non-compliance of environmental and social policies of these institutions, the response of the management was of denial and there was little or no relief for the affected community. The affected community rejected remedial Action Plans that were prepared as a part of the compliance processes as they were mere bandage work.
This is also a reminder of the little or no power these accountability mechanisms of MDBs have, reducing them to merely toothless observers. It is a shame that after nine years of the complaint being filed by the affected community to CAO, and the IFC loan being paid off; in the last monitoring report of the remedial action plan of IFC for the Project remains incomplete.
The complete apathy of the funding institutions led to the fish workers adversely affected by the project file suit against the IFC in federal court in Washington, DC in April 2015. After a long battle a historic decision in February 2019 the US Supreme Court decided that international organizations like the World Bank Group can be sued in US courts, they “don’t enjoy absolute immunity”.
The case will again go back to the lower court for the arguments to establish that in this particular case IFC can be held responsible in the US Courts for the destruction of livelihood of the fishing community of Mundra by lending finance to Tata Mundra Power Project as, now they are stripped of their absolute immunity.
The Tata Mundra UMPP is a complete failure. From the violation of national laws to the failure of to apply the environmental and social safeguards, from environmental and social destruction to financial disaster, to failed policies of energy security, this project is a case study of what should not be done.
But, it is the people of Mundra who have suffered the worst for the wrong decisions of the Government. Whether the government decides to buy the plant or company abandons the project the people continue to suffer and this needs to be addressed immediately.
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*Machimar Adhikar Sangharsh Sangathan, Kutch, Gujarat

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