In its first step as a developer-owner of a thermal power station, public sector power plant equipment manufacturer BHEL has suffered a huge cost over-run.

BHEL owns 27.34 per cent of Raichur Power Corporation Ltd, to which it is supplying two sets of boilers and turbines of 800 MW each to RPCL’s plant in Yeramarus near Raichur.

Karnataka Power Corporation Ltd (52.58 per cent) and Industrial Finance Corporation of India (20.8 per cent) are the other joint owners of RPCL.

The first of the two 800 MW units went on stream last week, after a huge delay.

The cost of the delay has been estimated at ₹3,760 crore, or 30 per cent of the revised project cost of ₹12,770 crore (or ₹8 crore a MW).

The cost over-run has been funded by ₹3,184 crore of additional bank loans, and more equity by the promoters.

BHEL put out a press release last week announcing the successful commissioning of the first unit.

The release also noted that the unit “marks BHEL’s foray into the field of power generation”. The huge cost over-run has been attributed to the non-award of ‘mega power project’ status to the 1,600-MW plant by the Centre, as a result of which RPCL could not avail itself of certain tax benefits.

Further, adverse rupee-dollar rate and higher interest during the construction period also impacted the costs.

Rating agency India Ratings and Research downgraded the RPCL’s bank loans to ‘negative’.

Crucially, it remains to be seen how the Central Electricity Regulatory Commission views the cost over-run while deciding the tariff at which the RPCL will sell its power.

As a consequence of the delay in the commissioning of the project, RPCL has asked for pushing the repayment of the first tranche of the principle from April to October.

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