POWER October 2016 - 40

PROJECT DEVELOPMENT
Reliance told POWER that it disputes all
India's Debilitating Coal Allocation Scandal
The government of India's allocation of
the nation's coal deposits to public sector
entities and various private companies
between 2004 and 2009 drew political
scrutiny in the summer of 2012, resulting
in scathing allegations of corruption. The
scandal implicated several high-ranking
government officials and was especially
politically damaging for India's former
Prime Minister Manmohan Singh, who
headed the coal ministry for three of the
five years under scrutiny.
The scandal reached its apex in March
2012, when a draft investigation report
from the Comptroller and Auditor General
(CAG) of India implied that the government
had hemorrhaged as much as $33
billion by allocating coal-mining licenses
to private companies without a transparent
competitive bidding process. Then, in
kWh, which was still the upper limit for loan
consideration in the bank's 2010 environmental
policy. It also required Reliance Power to
support U.S. exports of technology and services
for projects providing up to 250 MW of renewable
energy. Reliance eventually reduced
the scope of its contract with Bucyrus, and the
Ex-Im Bank revised its loan commitment for
the project from $888 million to $650 million.
By November 2013, however, the project
incurred a construction cost overrun of $1.45
billion-nearly 32% of the original project
cost-owing to the surging cost of imports
and financial charges after a 35% depreciation
of the rupee to the dollar. Costs for land
acquisition for the coal mine also increased,
and the project suffered when a custom duty
exemption for coal mining equipment was
unexpectedly lost.
That was one reason a number of U.S. citizen
and environmental groups with a global
reach urged the OIG to look into the deal,
specifically to vet whether the Ex-Im Bank
had conducted sufficient due diligence of key
project risks, parties involved, exposures, and
red flags, in accordance with bank policies.
The groups in mid-2014 alleged that project
developers were responsible for forcible
displacements (including razing houses-in
one instance, with a resident still inside),
inadequate compensations, safety concerns
and worker injuries, and generally unethical
and inhuman labor practices-along with
heavy, unmitigated pollution. Reliance disputes
these allegations. A company source
told POWER that such allegations are to be
expected with a coal plant of this magnitude.
40
August 2014, India's Supreme Court ruled
that at least 214 coal block allocations
awarded over a longer period-1993 to
2011-were illegal and arbitrary.
The " Coal Gate " scandal ultimately led
the coal ministry to form an inter-ministerial
panel to review the process of coal
block allocation, and it has since taken
back about 80 coal fields. Bank guarantees
in another 42 cases have been forfeited.
Among
those cases is the Chhatrasal
coal block, which was allotted to Sasan
Power in 2006. Reliance Power has legally
challenged that decision, but the government
maintains that the Moher and
Moher-Amlohri Extension blocks already
allocated to the company can produce
enough coal to fuel the company's ultra
mega power project in Madhya Pradesh.
When the OIG finally released its report
in September 2015, it lambasted the Ex-Im
Bank for a series of critical lapses, including
not adequately considering risks of foreign
currency exchange fluctuations in its financial
projections, on which it based credit
determinations and risk ratings. The report
shone an unappealing light on the wholly
owned U.S. government corporation, which
was just gearing up to seek reauthorization
from a divided Congress. (The bank's charter
was eventually extended last fall through
September 2019, though its exposure " cap "
was markedly lowered.)
Nineteen Alleged Fatalities
The most alarming of these allegations, without
a doubt, are reports of 19 fatalities that
occurred during the plant's construction.
According to the OIG's report, in a February
2015 letter to Reliance's CEO, the Ex-Im
Bank's chairman expressed " continued disappointment "
regarding " poor safety " practices
after it learned of four new fatalities
following a visit by Sasan's contracted independent
monitor, Environmental Resources
Management. According to the OIG report,
the letter said: " the number of all fatalities
at the integrated Project is now 19-which
is both tragic and absolutely unacceptable. "
It also noted that, " rather than improving, the
situation appears to be deteriorating. " Stressing
the bank's commitment to the " highest
standards for health and safety compliance
in projects financed by the Ex-Im Bank, " it
also demanded: " [T]he alarming number of
injuries and fatalities must come to an end. "
www.powermag.com
allegations that it is responsible for any fatalities,
and it declined to comment on the
nature of the incidents.
However, the OIG report mentions that
Sasan Power furnished the bank-within 10
days of the chairman's strongly worded letter-with
information on initiatives it was
implementing to reduce incidents. These involved
establishing a multidisciplinary task
force composed of middle managers for the
purpose of developing a safety-oriented culture
and improving training; creating a new
safety manager position at the power plant
" with hiring efforts focused on expatriates
with experience in remediating safety issues " ;
establishing 47 " Safety Champions/
Stewards, " representing the various departments
at the power plant; and hiring a new
safety manager for the coal mine with experience
in mining and managing draglines.
The OIG report notes that, as of January
2015, no more fatalities or major injuries had
been reported at the plant or coal mine. At
the same time, however, it underscores that
its own investigation into grievances related
to rehabilitation and resettlement issues, violation
of labor standards, and environmental
contamination was constrained by its " institutional
role " and a general " lack of cooperation
[it] received from persons in India. "
Widespread Damages
Given the scope and size of Sasan, India's
government had been widely expected to
valorize the UMPP's technical successes.
But the record is mostly silent. This is likely
because India's own much-hyped UMPP
policies have come under scrutiny owing to a
scandal of nationwide notoriety (see sidebar)
that relates to the allocation of coal blocks.
Acknowledging the multiple difficulties
associated with the development of largescale
coal-fired power plants, the Indian
Power Ministry in June 2016 reportedly proposed
scrapping plans for four coal-fired
UMPPs in Chhattisgarh, Karnataka, Maharashtra,
and Odisha. Private investors, meanwhile,
withdrew interests from two UMPPs
at Bhedabahal, Odisha, and Cheyyur, Tamil
Nadu, citing doubts about bidding restrictions
and limitations to how much developers
can pass on increases in fuel costs.
The viability of India's UMPP ambitions
is also wrecked by a doubling of coal taxes
three times in the past four years, ambiguous
land acquisition rules, certain litigation,
and difficulties raising debt financing from
India's stressed banking sector.
For now, Sasan remains one of only two
UMPPs built in India-large and magnificent
but with a wide, dark shadow. ■
-Sonal Patel is a POWER associate editor.
POWER | October 2016
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POWER October 2016

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