Delay in Power Projects

Written By

Neeraj Kumar Ojha

MBA, Finance, IIT Kanpur
 Introduction
The Indian economy has been growing at above 8 percent for the last few years. To sustain
this growth rate, the role of power sector becomes very important. As espoused by
economists and industry experts, the market potential to sustain the GDP Growth rate of India
@ 8% plus per annum requires the power sector to grow at 1.8 - 2 times the GDP rate of
growth. This would mean a year-on-year capacity addition of around 18,000 - 20,000 MW.
The drive to increase the country's generating capacity led to inviting foreign investors in the
country and setting up Independent Power Plants (IPPs) in India. While dozens of projects
have been approved, most of the projects are stalled by delays which occurred due to various
reasons. There has been a quantum increase in the investment in the power sector. In the
beginning of the X Plan (April, 2002), about 24,000MW worth projects with the estimated
cost of $20,568 million were under execution. 46 of these projects (14,300 MW) have been
completed. At present, 83 power generation projects are under execution. The table below
gives the breakup of power projects under construction.
Sector No. of projects Capacity under Estimated cost
under execution execution
Thermal 45 23,783 MW $22,125 million
Hydro 32 13,806 MW $15,100 million
Nuclear 6 3970 MW $6607 million
Total 83 41,559 MW $43,832 million

This paper attempts to study the reasons for delay in power projects by focussing on
following areas:

1. Prepare a list of projects which have been delayed along with the reasons for their
delay.
2. Power project outline and stages of planning.
3. Prepare a contract chart of project agreements and contracts at various stages.
4. Evaluate the existing contract mechanism for enforcing the contracts
2. Delay in Power Projects:

We will start with a list of power projects which have been delayed for some or other reasons.
The reasons that have been cited for delay are also mentioned in the table. We will try to find
out what are the broad areas which are contributing to the delay.

S. No. Name of power project Capacity Reason for Delay

1. Sipat STPP St-I (Super 1980 MW There was delay in TG supplies

Critical Units, District: from Power Machine, Russia and
Bilaspur, Chhattisgarh) delay in supply of Rotary
equipments by Doosan ,korea. BLU
is delayed due to non-supply
DDCMIS which is in the scope of
M/s Power Machines, Russia. Also,
there was non-availability of
supervisory personnel of M/s Power
Machines at site.

2. Sipat STPP St-II (Dist. 1000 MW There was delay in supply &
Bilaspur, Chhattisgarh) erection of material by BHEL. Non-
readiness of Milling System,
Bunkers and Feeders also
contributed to delay.

3. Barh STPP (Mega Power 1980MW There was delay in supply of boiler
Project, District: Patna, material from Russia. Delay in
Bihar) Finalization of boiler erection
Agency as TPE wants removal of
ceiling on price variations.

4. Neyveli TPS-II (District: 500MW Delay was caused due to shortage of

Cuddalore, TN) HP Welders.
S. No. Name of power project Capacity Reason for Delay

5. Kawas, NTPC, Surat 1300MW Placement of order for 1300 MW is

held up due to non-finalisation of
gas supply agreement with RIL.

6. Jhanor, Gandhar, NTPC, 1300MW Placement of order for 1300 MW is

Bharuch held up due to non-finalisation of
gas supply agreement with RIL.

7. Bhatinda Power Plant 500MW The project was delayed by 15

months due to BHEL which is the
EPC contractor for the project.

8. Sasan Project 4000MW Problems in land acquisition are

causing delay in starting the project.
Govt. has asked for reduction in
land required for the project. Out of
3280 acre land required, only 77
acre has been acquired.

9. R-ADAG, Yamunanagar, 600MW ADAG claimed that there was 8

Haryana months delay by state authorities in
clearing the drawings

S. No. Name of power project Capacity Reason for Delay

11. NTPC Kahalgaon, Bihar Expansion Lack of adequate road and rail links,
from 840MW congestion in railway links, low
to 2340MW coal supplies.
12. Ratnagiri CCPP (M/s 1480MW The erstwhile Dabhol CCPP Ph-II
Ratnagiri Gas & Power was to be synchronized during the
Pvt. Ltd., Erstwhile year 2001-02, but due to the rift
Dabhol CCGT Ph II) between MSEB and DPC, the
construction work of Phase-II
terminated since June 17, 2001.
Now the dispute has been resolved
and a new Company Ratnagiri Gas
and Power Pvt.Ltd. has been
constituted with M/S NTPC and
GAIL to revive the project.

Thus we see that the broad reasons for delay in power project can be grouped under following
heads:

1. Delay in supply of equipments from foreign countries like Russia, Korea, etc.

2. Delay in supply and erection by BHEL.

3. Delay in finalisation of contracts on fuel supply (like gas supply contract).

4. Delay in land acquisition.

5. Delay in approving design and drawings by the client.

6. Lack of adequate infrastructure like road and rail links to the project site.

7. Delay by sub-contractor (like welders, civil construction).

In order to analyse the reasons for delay in power projects, we need to understand the various
stages in which the planning and execution of power projects is completed.
3. Power project outline and stages of planning

The development process of any power project can be divided into four stages:

Power Project Conception and Project

feasibility Studies planning
Stage 1 Stage 2

Bidding and
Stage 3
contracting

Project
Stage 4
implementation

Each stage in the above flow diagram consists of various activities. Broadly speaking the
various activities under different stages can be grouped as follows:

Stage1. Conception and feasibility Studies includes:

1. Define the need for the development

2. Evaluate plant capacity
3. Analyse technology
4. Evaluate site(s)
5. Environment impact assessment
6. Obtain permits and regulatory approvals
7. Prioritise project objectives
8. Analyse project risks
9. Prepare conceptual scopes and estimates
10. Prepare preliminary design options
11. Define project implementation approach
12. Establish project control approach
 Stage2. Project planning includes:

1. Plan and develop project requirements.

2. Process requirements and prepare design brief.
3. Prepare conceptual design and specification.
4. Prepare bid documents and RFP.
5. Establish pre-qualification evaluation criteria.

Stage3. Bidding and contracting includes:

1. Conduct pre-qualification exercise

2. Shortlist pre-qualified contractors for Tender.
3. Contractors submit bids and proposals
4. Evaluate bids
5. Negotiate contracts
6. Appoint contractors

Stage4. Project implementation includes:

1. Administer contract.
2. Contractors develop detailed design.
3. Review design and give approvals.
4. Approve sub-vendors and sub-Contractors.
5. Contractors proceed with construction and commissioning.
6. Control quality on site.
7. Commissioning.
8. Training operators.

Thus we find that most of the bottlenecks in completing projects result from delays in stage 4
activities. We find that most of the delays occur due to contractual problems arising from
poor contract design, absence of provisions for administering contracts and delay in design
approvals activities.
4. Major Physical activities in Power Projects

Power projects encompass a large number of physical activities which can be grouped
under following heads.

a) Land acquisition.

b) Site preparation.

c) Main plant.

d) Balance of plants.

The duration of project activities, especially, main plant and balance of plants is given in the
chart below.

Bars in red colour show activities which have been the cause of delay in power projects.
5. Contractual arrangement in power project

As we have seen above, there are a vast number of activities to be performed in completing a
power project. The coordination of these activities requires a well defined line of control and
monitoring by the client organization. The client’s organization can be divided into three
entities which are directly involved in the development of the new power plant. They are

1. Management: It provides project funding and makes relevant strategic decisions.

2. Project Group: It provides specific inputs and comments on the designs issues.
3. Operation and Maintenance (O&M) Group: Apart from providing specific inputs, this
group participates in the commissioning of the facilities.

The client organization appoints an engineering consultancy and project management firm
which specializes in power plant development as the project manager. The role of
engineering consultancy firm which acts as the project manager includes the following:

1. Performing feasibility studies and preparing the client’s requirements.

2. Basic design and RFP.
3. Formulating contract strategy, obtaining and evaluating proposals, and advising the
client on the appointment of contractors.
4. Monitoring progress, budget and quality of the works.
5. Responsible for project planning, co-ordinating and controlling the contractors.

The project manager also appoints another specialist consultancy firm as its sub-consultant to
provide technical support. The link between the client organization, the project manager and
the contractor is shown in the diagram below.
 Client
Management

Project Group O&M Group

Project Manager

(Consulting firm)

Sub Consultant

(Technical Support)

Contractor 1 Contractor 2 Contractor 3 Contractor 4

Sub- Contractor

Sub- Vendor
Conclusion
Timely completion of power projects is very crucial to the development of our country. The
complexity of work involved in power project and the involvement of several parties like
government, environmental agencies, owner (power utility), contractors and sub-contractors
make the timely completion of power project a very challenging task. Delay in power project
can be due to several reasons like delay in land acquisition, delay in supply of equipments,
delay in approval of drawing and design documents, etc. Study of the contract agreement
between the owner and the contractor suggests that the existing contract document has a lot
of loop holes and lacks any clear cut measure to check the delay at different stages of power
project. By incorporating suitable measures and defining strict norms and penalties for
completing each of the individual activities in the contract document, we can bring
substantial improvement in the timely completion of the power project.