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Sasan Power Ltd
Published in Financial Education Association
2015
Volume: 44

Issue: 1
Pages: 165 - 187
Abstract

The case relates to the development and problems with the US$4.3 billion Sasan Power Ltd., a 4000 MwH Pithead and Ultra Mega Power Plant in Central Province of India. Reliance Power won the project in August 2007, through a competitive bidding process at a levelised tariff of US$ 0.02kWh. The Sasan project was a part of the Government of India’s bold new initiative to set up 16 UMPP with 4000 MW capacities each to meet the increasing energy requirement. The program marked a new era that ushered in the use of super-critical technology, ultra-mega scale, pithead or costal location, clearances for land and coal mines by government prior to inviting bids to significantly lower the risk for private players. Government also facilitated the off-take agreement backed by its credit guarantee, thus lowering cost of project, resulting in a competitive fixed levelised tariffs. It marked departure from the ear of cost-plus tariffs. Sasan plant used indigenous coal from the 7000 acres of allocated coal block. However, by August 2014, the project faced several difficulties ranging from tariffs negations to allocation of land, coal blocks, environment clearances, and so on.

This case provides opportunities for understanding the development in the power sector and to analyze issues the sponsors and the regulators faced in implementing the ambitious Sasan Ultra Mega Power plant. The case allows one to value the project—assess the risk and returns and the attractiveness of the investment and associated opportunities (real options). Why the sponsors agreed to a remarkably low tariff and what strategies were envisaged to make it attractive. The question arises, despite such a bold and innovative imitative why did the UMPP program fail?

The case is intended for use in Project Finance, Public Private Partnership, Advance Project Finance, Power Sector courses offered at Graduate and Executive level and management development programs. Teaching note and spreadsheets are available with author upon request.