DRAFT GUIDELINES FOR RISK IDENTIFICATION

AND MITIGATION IN R&M PROJECTS IN THERMAL

POWER STATIONS IN INDIA

Submitted To:

CENTRAL ELECTRICITY AUTHORITY (CEA)

Under the Project “Coal Fired Generation Rehabilitation

Project-India”

Funded By:

THE WORLD BANK

Prepared By:
MERCADOS ENERGY MARKETS INDIA PVT. LTD.
(AF-MERCADOS EMI)

31st October, 2012

CENTRAL ELECTRICITY AUTHORITY AF MERCADOS EMI

TABLE OF CONTENTS

I Executive Summary _____________________________________________ 11

II Introduction _________________________________________________ 21

1. Background of the Assignment______________________________________21

2. Scope and Objective of the Study____________________________________22

3. Country Issues and Role of R&M_____________________________________23

4. Legislative, Policy and Regulatory Framework in India____________________26

5. Achievement of R&M and LE works in the past Plan periods________________30

6. Emerging Market Trends and its influence on R&M_______________________31

III Approach and Methodology for the Study __________________________ 37

1. Review of past R&M experience in the country__________________________37

2. Site visits to select power plants_____________________________________37

3. Stakeholder Consultations__________________________________________44

4. Expert Consultations______________________________________________44

5. Details of consultation in different states______________________________44

IV R&M Process Cycle ____________________________________________ 48

1. Identification Stage_______________________________________________48

2. Assessment Stage________________________________________________48

3. Planning Stage___________________________________________________49

4. Execution Stage__________________________________________________50

5. Closure Stage____________________________________________________50

V Risk Identification and Mitigation Framework ________________________ 53

1. Elements of Risk Identification_______________________________________53

2. Strategies for Addressing the Risk____________________________________55

VI Risk Management Guidelines ____________________________________ 58

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1. Identification Stage_______________________________________________59

2. Assessment Stage________________________________________________67

3. Planning Stage___________________________________________________84

4. Execution Stage__________________________________________________93

5. Closure Stage___________________________________________________108

VII Risk Heat Matrix and Management Plan __________________________ 119

1. Risk Heat Matrix_________________________________________________119

2. Risk Management Plan____________________________________________121

VIII Conclusion and Way Forward __________________________________ 129

Annexure I – Scope of Work ______________________________________ 131

Annexure II – Draft Guidelines for Risk Identification and Mitigation in R&M

Projects in Thermal Power Stations in India __________________________ 137

Annexure III – List of Officials Consulted during the Project _____________ 154

References ____________________________________________________ 158

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LIST OF ABBREVIATIONS

ABB Asea Brown Boveri

AHP Ash Handling Plant

AOH Actual Operating Hour

AOP Auxiliary Oil Pump

BEE Bureau of Energy Efficiency

BFPs Boiler Feed Pumps

BHEL Bharath Heavy Electricals Limited

BoP Balance of Plant

BSEB Bihar State Electricity Board

BTG Boiler, Turbine and Generator

BTPS Barauni Thermal Power Station

C&I Control and Instrumentation

CAG Comptroller and Auditor General

CEA Central Electricity Authority

CERC Central Electricity Regulatory Commission

CHP Coal Handling Plant

CM Condition Monitoring

CPRI Central Power Research Institute

CSPGCL Chhattisgarh Power Generation Company Limited

DC Designated Consumers

DCS Digital Control System

DPR Detailed Project Report

EA Electricity Act

EE R&M Energy Efficient Renovation & Modernization

EPC Engineering Procurement and Construction

ESCerts Energy Saving Certificates

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ESMAP Energy Sector Management Assistance Program

ESP Electrostatic Precipitator

FMEA Failure Modes and Effects Analysis

GHG Green House Gases

GoI Government of India

GSECL Gujarat State Electricity Corporation Limited

HPGCL Haryana Power Generation Company Limited

IBR Indian Boiler Regulations

IDC Interest During Construction

IEX Indian Energy Exchange

IRR Internal Rate of Return

JV Joint Venture

KBUNL Kanti Bijlee Utpadan Nigam Limited

kCal Kilo Calorie

KPI Key Performance Indicators

KTPS Koradi Thermal Power Station

kWh Kilowatt

LE Life Extension

LE&U Life Extension and Uprating

LROT Lease, Rehabilitate, Operate and Transfer

MDCC Material Dispatch Clearance Certificate

MoP Ministry of Power

MOU Memorandum Of Understanding

MPD Maintenance Planning Department

MPPGCL Madhya Pradesh Power Generation Company Limited

MSEB Maharashtra State Electricity Board

MSPGCL Maharashtra State Power Generation Corporation Limited

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MU Million Units

MW Megawatt

MYT Multi-Year Tariff

NASL NTPC Alstom Power Services Private Limited

NEP National Electricity Policy

NPV Net Present Value

NTP National Tariff Policy

NTPC National Thermal Power Corporation

O&M Operation & Maintenance

OEM Original Equipment Manufacturer

PAT Perform Achieve and Trade

PFC Power Finance Corporation

PLF Plant Load Factor

PSPCL Punjab State Power Corporation Limited

PTPS Panipat Thermal Power Station

PXIL Power Exchange of India

R&M Renovation & Modernization

RLA Residual Life Assessment

RLA/CA Residual Life Assessment/Condition Assessment

RSVY Rashtriya Shram Vikas Yojana

SHR Station Heat Rate

SPM Suspended Particulate Matters

STEAG Steinkohlen-Elektrizität AG

TCE Tata Consulting Engineers

TOP Turbine Oil Pump

TPE Techno Prom Export

TPS Thermal Power Station

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UPPCL Uttar Pradesh Power Corporation Limited

UPRVUNL Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited

WBPDCL West Bengal Power Distribution Company Limited

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LIST OF TABLES

Table I-1: Risk Management Plan .............................................................................. 13

Table II-1: Achievement of R&M and LE works in various Plan periods ............................ 30

Table II-2: Emerging Power Sector Market Scenario and Implications for R&M ................ 31

Table III-1: List of units to be considered for review of R&M experience with LE works as
per the Terms of Reference ....................................................................................... 38

Table III-2: Attributes of the identified plants ............................................................. 41

Table III-3: List of entities consulted .......................................................................... 44

Table VI-1: Potential Risks involved in R&M Process ..................................................... 58

Table VI-2: Technical Study of Thermal Plants ............................................................. 72

Table VII-1: Risk Management Plan ......................................................................... 121

LIST OF FIGURES

Figure II-1: Energy and Peak Shortages in India.......................................................... 23

Figure II-2: Age Profile of thermal units in India .......................................................... 25

Figure II-3: Planned capacity and achievement of LE and R&M works during 10 thand
11thPlan .................................................................................................................. 31

Figure III-1: Approach for the study .......................................................................... 37

Figure IV-1: R&M Process Cycle ................................................................................. 51

Figure VII-1: Risk Heat Map for a typical R&M Project ................................................ 120

LIST OF BOXES

Box II-1: Benefits of undertaking R&M of old thermal power plants ..............................................24

Box VI-1: Approach adopted for identification of units for undertaking R&M ..................................60

Box VI-2: Lack Of confidence and uncertainty with regard to R&M Projects ...................................64

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BoxVI-3: Need for Experience Sharing ......................................................................................66

Box VI-4: Inadequate Assessment for R&M ...............................................................................71

Box VI-5: Evaluation of different R&M options ...........................................................................75

Box VI-6: Limited capacities of the Utilities in undertaking R&M works ..........................................78

Box VI-7: Lack of funding for undertaking R&M (Thermal Power Station - BTPS) ............................82

Box VI-8: Vendor Participation in R&M Bidding Process ...............................................................86

Box VI-9: Higher than expected price discovery .........................................................................89

Box VI-10: Rebidding of R&M Package ......................................................................................90

Box VI-11: Time gap between studies and Execution of Work ......................................................95

Box VI-12: Occurrence of Technical Surprises ............................................................................97

Box VI-13: Delay in Supply of Material during Execution .............................................................99

Box VI-14: Lack of Penalty Clause for Delay in Completion of Work ............................................ 101

Box VI-15: Need for Quality Control and Quality Assurance ....................................................... 103

Box VI-16: Formulation of CSR policy ..................................................................................... 106

BoxVI-17: Delay in obtaining shutdown for R&M works during execution..................................... 107

Box VI-18: Weak O&M practices of various State Generation Companies in India ......................... 108

BoxVI-19: Delay in capital overhaul post R&M of the unit .......................................................... 109

Box VI-20: Adequate skills to undertake O&M, post R&M of the plant ......................................... 110

Box VI-21: Experience of Engaging Specialised Company for O&M of Coal based Power Plant in India
......................................................................................................................................... 111

BoxVI-22: O&M supervision included in the contract of executing agency .................................... 112

Box VI-23: Post R&M Guarantees Not Achieved ....................................................................... 113

Box VI-24: Absence of post evaluation of R&M works ............................................................... 117

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Section I

Executive Summary

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I Executive Summary

Planning and implementing R&M projects is often witnessed by occurrence of adverse

events that can derail the objectives of the project. Identifying and mitigating project risks
are crucial steps in managing successful R&M projects. Thus, a well structured and
documented Risk Management at each stage of the process is of utmost importance.
Mitigation of the identified risks can significantly alter the risk profile of the R&M projects
making them an attractive proposition for all stakeholders in the sector. The objective of
these guidelines is to serve as guidance in identifying and addressing the key risks faced in
design and implementation of R&M in the country.

The salient features of this report along with the key outcomes are provided below:

1. The intent behind these guidelines is to identify risks constraining the large scale
implementation of renovation and modernization programme of coal based thermal
power plants in the country.

2. The identified risks and suggested strategies to manage these risks may be
considered by the generating companies for implementation after suitably modifying
it as per their local conditions or set up of their power plants.

3. It is essential that the identified risks in these guidelines are evaluated by each
generating company before implementing R&M projects and formulate appropriate
strategies in line with that suggested in these guidelines to manage the
identified/evaluated risks.

4. A holistic assessment of the risks has been made by identifying risks occurring in
different stages of R&M cycle i.e. in identification, assessment, planning, execution
and closure stage and by understanding the impact of the risk, its frequency of
occurrence, its severity and the bearer of the risk.

5. Realistic assessment of the risks have been undertaken as far as possible by

incorporating ground/field level experience of power plants undergoing or have
undergone R&M in the country.

6. For better explanation and understanding of the risks and strategies to manage the
risks appropriate examples in the Indian context have been quoted/incorporated to
the extent possible.

7. Various strategies have been suggested to effectively manage the risk which
includes strategies for risk mitigation, risk avoidance, risk sharing and risk
acceptance.

8. Lastly, it is expected that these guidelines would provide guidance to the generating
companies to improve the planning and execution of R&M projects by minimizing the

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risks leading to improved performance of the power plants in an environmentally

sustainable manner.

Table below summaries the key risk occurring in different stages of R&M process cycle
along with the category of risk, the bearer, its severity, frequency of occurrence and the
strategies proposed to deal with such risk.

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Table I-1: Risk Management Plan

Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

IDENTIFICATION STAGE

Moderate if
symptoms are
identified during Utility/Plant
Reactive approach the initial stages. Owner is the Strengthening of internal data acquisition, monitoring
Management
1 to identification of High However, the direct bearer. and alert systems to track unit performance and
Risk
plant for R&M magnitude of Also, impacts the diagnose early warning symptoms (Risk Avoidance)
impact increases consumers.
as the delay
increases.

Lack of long term

Utility/Plant
plan (Optimal The rationale for R&M of a project should be established
Owner is the
Management Generation Plan) at the state level taking into account all the alternative
2 High Moderate direct bearer.
Risk and awareness of competing options. The decision should involve multiple
Also, impacts the
available market stakeholders including the Discoms (Risk Avoidance)
consumers.
options

Entire R&M
market including A. Need for Experience Sharing and Dissemination
Lack of confidence (Risk Mitigation)
Depends on case potential
and uncertainty Ranges from
to case basis, may generating
3 Market Risk with regard to moderate to
range from low to companies, B. Need to Develop Market for R&M in the Country by
success of R&M high.
moderate equipment communicating the overall market size and address
projects
suppliers, design concerns of various stakeholders (Risk Avoidance)
consultants etc.

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

ASSESSMENT STAGE

Ranges from A. Advance Planning for Scheduling of Technical

low to high Studies so as to either coincide the timing with the
depending annual/capital overhaul or provide advance notice to
Delay in obtaining
upon the the discom for such shutdown (Risk Avoidance)
Institutional unit shutdown for Generating
4 number of Low
Risk undertaking company
units B. Additional Allocation of Power to States from
technical studies
requiring Unallocated Quota of Central Pool for carrying out
simultaneou the RLA studies, Condition Assessment and Steam
s shutdown Path Audit (Risk Avoidance)

Impacts all the

Comprehensive Studies for the unit planned for R&M
parties including
should be mandatory. The scope of the study should
generating
cover both the Main Plant Equipment as well as the
company,
Inadequate Balance of Plant. The assessment should cover review of
supplier(s) and
5 Technical Risk technical High High O&M processes as well. Proxy assessment i.e. in case of
the
assessment/studies multiple units undergoing R&M, studies are conducted
Implementation
only for one of the units and scope for all units is
Support
prepared on the basis of the same, should be avoided.
Consultant (if
(Risk Avoidance)
applicable).

Weak analytical Comprehensive Identification and Assessment of

Management framework for Options including computation of financial returns,
6 High Moderate Consumers
Risk selection of R&M payback period, shutdown time required and
options conformance to the set objectives.(Risk Avoidance)

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

Appropriate
Practice of obtaining in-principle approval from the
Commission not
7 Regulatory Risk Moderate Moderate Utility Appropriate Commission should be encouraged.(Risk
apprised of the
Avoidance)
R&M project plan

Creation of dedicated R&M Cell by the utility at the

headquarters and the plant level. The nominated
officials should be exposed to the current practices and
Limited capacity of must be trained on R&M aspects through specialist
Operational utilities in Utility and entities. (Risk Avoidance)
8 High Moderate
Risk undertaking R&M Vendors
Engaging Specialised Consultants especially design and
works
implementation support consultants. (Risk Avoidance)

Avoidance of transfer of personnel involved in R&M

Project in the middle of R&M work.

Scope of Work to be as precise as possible including

Contractual Weakly defined Differs from Utility and roles and responsibilities of each entity involved in the
9 High
Risk scope of work moderate to high Vendor contract. General statements should be avoided (Risk
Mitigation)

Utility is the
direct bearer. Increased proliferation of innovative financing
Also impacts the approaches /models coupled with creation of awareness
Utility unable to Low to suppliers. In the about benefits of R&M through pilot studies to be taken
10 Funding Risk High
mobilise funds moderate long run, this risk up. Alongside, the assessment of R&M should involve
has robust analysis of alternative approaches and
repercussions on computation of financial returns. (Risk Mitigation)
the entire R&M

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

market.

PLANNING STAGE

Utility is the
Low level of
direct bearer. Focussed efforts should be taken up to involve potential
participation by the
11 Market Risk Low Moderate Also impacts the players in the R&M market by the utilities and the
vendors in the
potential CEA.(Risk Mitigation)
bidding process
vendors.

The contracts should aim at balancing the risk and

Moderate,
benefits between the utility and the implementation
with increase
vendor. The price is an outcome of inherent risks in the
Higher than in
Utility and contract. Adequate flexibilities in the contract to be
12 Market Risk expected price participation Moderate to high
Vendor provided to accommodate reasonable/acceptable
discovery the
changes. At all stages, the decision to go ahead for R&M
likelihood
should be re-evaluated and considered in the light of
may be low
proposed changes.(Risk Mitigation)

A. Rebidding should ideally be avoided through robust

project preparation, however in cases where it still
emerges as the only option, potential bidders should
Rebidding/Reward/ be encouraged to assess the current plant condition
Market and Ranges from
Delay in award of Utility and and assume the responsibility of the task.(Risk
13 Operational moderate to High
R&M Vendor Acceptance)
Risk high
packages/contract B. Management should undertake timely decision with
regard to award of contract by formulating
qualification requirements and evaluation
procedures along with appropriate timelines before

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

seeking interest from the vendor. (Risk Avoidance)

Implementation
contract awarded To avoid conflict of interest, a single entity should not
Management
14 to vendor involved High Moderate Utility be allowed to assume the role of design consultant as
Risk
in carrying out well as the supplier. (Risk Avoidance)
technical studies

EXECUTION STAGE

Affects all the

parties including
the utility, Creation of clearly defined decision making and
Management Weak decision-
15 Moderate High supplier and the reporting structures with nominated officials authorized
Risk making framework
implementation to undertake decisions related to R&M (Risk Mitigation)
support
consultant.

A. Undertaking comprehensive assessment through

technical studies with clearly defined scope of work
(Risk Mitigation)
Occurrence of Utility and B. Creation of technical surprise plan including unit
16 Technical Risk High High
technical surprises Vendor rates for specific items, contingency fund allocation
to deal with exigencies. (Risk acceptance)
C. Establishing a clear decision making
framework.(Risk Mitigation)

Contractual Weak dispute Utility and Creation of Dispute Resolution Committee at the start of
17 Moderate High
Risk resolution Vendor project to address disputes between the Utility and the

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

mechanism Contractor in a timely manner (Risk Mitigation)

constraining the
execution of work

A. Availability of key components should be ensured

before the start of the project and should be in
Mismatch (or accordance with the pre-defined plan finalized
delay) in supply of before the commencement of work.(Risk Mitigation)
Utility and
18 Market Risk critical equipment High High
Vendor B. Provision of Penalties for delay in completion of
and the shutdown
work. (Risk Sharing/Transfer)
period
C. Sequential delivery of materials to the R&M site
(Risk Mitigation)

Weak Supervision, Approval of detailed quality plans and Engaging Quality

Operational
19 Quality Control And Moderate Moderate Utility Control and Quality Assurance Consultants by the
Risk
Assurance Utility. (Risk Mitigation)

Failure to comply A. Renovation of ESP system of the power

Socio- with environmental Generating plant. (Risk Mitigation)
20 Environmental standards and High Moderate company and
Risk perceived negative supplier B. Undertaking socio-environment impact assessment
externalities to assess the impact of the project. (Risk Mitigation)

Delay in Low to high Low to high A. Advance Planning for Scheduling of Shutdown for
Institutional provisioning of depending depending upon Utility and Execution of Works (Risk Avoidance)
21 obtaining unit upon the the delay in
Risk Vendor B. Additional Allocation of Power to States from
shutdown for number of obtaining the
Unallocated Quota of Central Pool (Risk Avoidance)
executing R&M units approvals for

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

works requiring shutdown. C. Implementation of partial R&M activities during

simultaneou Annual shutdown periods. (Risk Avoidance)
s shutdown

CLOSURE STAGE

Preparation and implementation of O&M action plan for

Sustainability of units undergoing R&M. This should be adopted through
Operational R&M gains affected Generating a Board Resolution and followed thereafter. (Risk
22 High High Mitigation)
Risk by weak O&M Company
practices Engaging specialised agency for O&M of the plant, post
R&M. (Risk Mitigation)

Rectification/replacement of components to meet

Post R&M Generating guaranteed parameters at no extra financial cost to
Technical Risk
23 guarantees not Moderate High company and utility. (Risk Mitigation)
achieved supplier Levy of Liquidated Damages for shortfall in
performance. (Risk Mitigation)

Non-approval of Involvement of Regulator should be ensured from the

Generating
24 Regulatory Risk costs incurred Low High inception of the project with regular updates about the
Company
during R&M progress of the project. (Risk Avoidance)

Absence of ex-post Experience gained must be documented and

Operational Generating
25 evaluation and High Low incorporated in subsequent units planned for R&M
Risk company
feedback loop works. (Risk Mitigation)

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Section II

Introduction

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II Introduction
1. Background of the Assignment
The World Bank has financed the “Coal-Fired Generation Rehabilitation Project-India” for
demonstrating Energy Efficiency Rehabilitation & Modernization (EE R&M) at coal fired
generating units through rehabilitation of 640 MW of capacity across three States-West
Bengal, Haryana and Maharashtra. The above project has two components:-

i. Component-1: Energy Efficiency R&M at Pilot Projects

This component would fund implementation of Energy Efficient R&M of 640 MW

capacity comprising Bandel TPS Unit-5(210 MW) of WBPDCL, Koradi TPS Unit-6(210
MW) of Mahagenco and Panipat TPS Unit-3&4 (2x110 MW) of HPGCL. The World
Bank has earmarked US $ 180 million of IBRD loan and US $ 37.9 million of GEF
grants for the Component-1.

ii. Component-2: Technical Assistance to CEA and Utilities

The Technical Assistance component of the project is aimed at providing support in

implementation of EE R&M pilots, developing a pipeline of EE R&M interventions,
addressing barriers to EE R&M projects and strengthening institutional capacities of
implementing agencies for improved operation and maintenance practices. The
World Bank has earmarked US $ 7.5 million GEF grant for the Component-2.

Under Component 2, The World Bank is providing technical assistance of US $ 1.1 million as
a part of GEF grant to CEA under “Coal Fired Generation Rehabilitation Project-India” for
addressing the barriers to Energy Efficient R&M of coal fired generating units in India. The
project is being implemented by CEA through appointment of consultants for carrying out
following four studies:

a) Review of institutional capacity and capacity strengthening interventions at CEA.

b) Study on reduction of barriers to R&M interventions in thermal power stations in

India.

c) Study on developing markets for implementation of R&M in thermal power stations

in India.

d) Review of experience from Pilot R&M interventions in thermal power stations in

India.

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Accordingly, CEA has engaged M/S Mercados Energy Markets India Pvt. Ltd. (AF-Mercados
EMI), for undertaking study on “Reduction of barriers to R&M interventions in thermal
power stations in India”.

2. Scope and Objective of the Study

The key objectives of the study are as follows:

a) Assess the key risks in planning and implementation of R&M of thermal power
projects, and develop guidelines to mitigate such risks (Task 1)

b) Assess the technical surprises encountered during implementation of R&M and

develop guidelines for early identification of potential surprises and ways of
addressing them (Task 2)

c) Review International best practices in R&M (Task 3); and

d) Assess the potential reduction in Green House Gas (GHG) emissions on account of
implementation of Energy Efficient R&M and suggest possible framework for
monetizing the GHG emissions reduction (Task 4)

The detailed scope of work is provided in Annexure I. The report pertains to Task 1 (a)
listed above1. The details of the scope of Task 1 are provided below.

There are various risks which are associated with the R&M interventions at thermal power
stations for their Life Extension. Under this activity, the Consultant shall undertake the
following activities as mentioned below:

a. Reviewing the past experiences of developing and implementing R&M with Life
Extension Projects. The Consultant shall review the experience of R&M and Life
Extension in Indian thermal power stations to identify the various risks encountered
while carrying out such R&M works.

b. Studying and analyzing the risks identified in detail and the consequences of such
risks on R&M projects. The Consultant shall study and analyze the various risks
associated with development and implementation of R&M projects in technical,
commercial, contractual and market aspects including but not limited to following
risks:

 Policy and Regulatory Risks including recovery of Capital Cost and its impact
on post R&M Tariff

 Project Schedule and Time Over-run Risks along with its impact on Estimated
R&M Cost due to time over-run and provisions in contractual arrangements;

1
In accordance with the scope of work of the assignment separate reports will be prepared for each of
the Task.

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 Cost Over-run Risks including change in scope and provisions in contractual

arrangements;

 Risks during execution phase including resources risks ;

 Political Risks if any ;

 Post R&M Performance Risks and associated mitigation measures i.e.

Liquidated Damages, etc.

c. Conducting meetings and interaction with the concerned stakeholders such as State
Generating Stations, Central and State Electricity Regulatory Commissions,
Equipment Suppliers, Design Consultants, Funding Agencies and CEA to analyze the
identified risks.

d. Based on the above study and interactions with stakeholders, the Consultant shall
develop strategies to mitigate the risks and prepare “Guidelines for Risk
Identification and Mitigation in R&M Projects in Thermal Power Stations in India”.

3. Country Issues and Role of R&M

The power sector is imperative for sustained and inclusive economic growth. While the
sector in India has witnessed a few success stories in the last 4-5 years, the road that lies
ahead of us is dotted with innumerable challenges that result from the gap that exists
between what is planned versus what the power sector has been able to deliver. One of the
key challenges faced by the power sector is the perpetual lack of adequate capacity
addition viz-a viz demand leading to severe energy and peak shortages. In 2011-12,
overall energy shortage and peak shortage in the country stood at 8.5% and 10.6%
respectively. Trend of energy and peak shortages in India is presented in Figure II-1.

Figure II-1: Energy and Peak Shortages in India

Energy shortage
1,200,000 -15%

900,000
-10%
600,000
-5%
300,000

0 0%
2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Demand Supply Gap(%)

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Peak shortage
150,000 -20%
120,000 -15%
90,000
-10%
60,000
30,000 -5%

0 0%
2006-07

2007-08

2008-09

2009-10

2010-11

2011-12
Demand Supply Gap(%)

Source: CEA

With the high cost of new installations, poor financial health of the utilities and emerging
fuel constraints it is essential to maximize generation from the existing power stations by
restoring their rated capacity as, also, the efficiency of the power stations through
Renovation & Modernisation (R&M) including Life Extension (LE) of existing old power
plants. It is the most cost effective option to achieve additional generation from existing old
units at low cost with short gestation period. The benefits of undertaking R&M of old plants
are presented in Box II-1.

Box II-1: Benefits of undertaking R&M of old thermal power plants

 New plants are expensive than the cost associated with R&M of plants, wherein the
old plants can be renovated and modernized at lower costs along with the extension
of their life.

 Longer gestation period of new plant in comparison to outage time when R&M is
undertaken

 Availability and efficiency can be improved including improvement in heat rate,

reduction in auxiliary consumption, hence lower emissions

 Increasing fuel shortage and hence focus on utilizing the scarce resource in the most
efficient manner and produce electricity at the least possible cost

 With tariff based bidding becoming a norm, utilities have to bring down their cost of
generation to remain competitive.

 Minimal Rehabilitation and Resettlement issues.

 Incorporation of new technology

 Ability to comply with environmental and safety norms that are increasingly
becoming stringent

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R&M is thus a low hanging fruit that can be harnessed to bring in additional capacity in the
country. Also, considering the extent of shortages and severity of challenges faced by the
country, all modes of supply augmentation need to be pursued simultaneously including
R&M of old thermal power plants.

The overall potential of R&M in India is also substantial. While much of the 1970s (and
older) vintage units have been or need to be retired, many of the coal-fired power plants
(NTPC as well as state utility owned plants) that were commissioned in and before early
1980s are now due for rehabilitation and life extension. Units sizes in the country range
from 30MW to 500 MW. Most of the smaller size units ranging from 30 MW to 100 MW are
operating for more than 30 years. Most of these units are non-reheat type with low design
efficiency and are operating at poor efficiency and very low plant load factors. Such units
are being considered for retirement in a phased manner. The 210-500 MW units have a
better track record in terms of their plant load factor and availability. However, many of
200/210 MW units have completed or are near the end of their normal operating life and
require inputs for life extension and modernization to upgrade and improve their
performance level. Thus, a large number of existing units require R&M & LE works.Figure
II-2provides a break up of age profile of thermal units in India.

Figure II-2: Age Profile of thermal units in India

500 7 12 1

15 - 20 Years

200/210 KWU 26 20 20 20 - 25 Years

25 - 30 Years

> 30 Years
200/210 LMZ 8 15 26 19

0 10 20 30 40 50 60 70 80

No. of units

Source: CEA

As per the National Perspective Plan of CEA, under 12th Plan, LE works have been identified
on 72 thermal units of total capacity 16,532 MW and R&M works have been identified on 23
units (4,971 MW) during the 12th Plan. Further, LE works for 31 units (4,527MW) and R&M
works for 16 units (4,010 MW) are slipped over to 12th plan2.

2
Energy Efficiency (EE) R&M of several thermal power plants is already being taken up through
external co-operation from Germany through KfW and the World Bank. Contract has been awarded
for preparation of DPRs in respect of three stations at Bokaro, Kolaghat and Nasik TPS through KfW

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Considering that the old generation capacities are likely to remain in use
(wherever possible) even after replacement capacities have been commissioned,
R&M needs to be accorded adequate focus and priority. Over the last decade, the
electricity supply industry has witnessed several changes that have serious
implications for R&M in the country. These changes need to be understood in the
context of the current legal, policy and regulatory framework, which has been
elaborated in the following sub-section.

4. Legislative, Policy and Regulatory Framework in India

Various policy and regulatory measures and national level mission and programs lay
emphasis on promoting R&M in the country. The enabling provisions for R&M in the country
are provided below:-

a. Electricity Act 2003

The Electricity Act2003 (EA 2003) is the primary legislative instrument which governs the
electricity supply industry in India.

Section 61 (C) of the Act requires the Appropriate Commission to set tariff by considering,
the factors which would encourage competition, efficiency, economical use of resources,
good performance, and optimum investments‟.

b. Energy Conservation Act 2001

Similar to EA 2003, the Energy Conservation Act, 2001 contain provisions related to the
promotion, efficient use and consumption of energy. It empowers the Central Government
to force inefficient generation utilities to take “appropriate measures” to increase energy
conversion efficiency in their operations.

c. National Electricity Policy2005

National Electricity Policy notified by the Govt. of India (GOI) in 2005 under the provisions
of EA 2003states the following:

“One of the major achievements of the power sector has been a significant increase in
availability and plant load factor of thermal power stations especially over the last few
years. Renovation and modernization for achieving higher efficiency levels needs to be
pursued vigorously and all existing generation capacity should be brought to minimum
acceptable standards. The Govt. of India is providing financial support for this purpose.

For projects performing below acceptable standards, R&M should be undertaken as per
well-defined plans featuring necessary cost-benefit analysis. If economic operation does not

funding. Some other units, namely Bandel TPS Unit-5 (210 MW) and Koradi TPS Unit 6 (210 MW)
have been identified for EE R&M through World Bank funding.

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appear feasible through R&M, then there may be no alternative to closure of such plants as
the last resort.

In cases of plants with poor O&M record and persisting operational problems, alternative
strategies including change of management may need to be considered so as to improve
the efficiency to acceptable levels of these power stations.”

d. National Tariff Policy 2006

National Tariff Policy notified by the Govt. of India in 2006 under the provisions of EA 2003
states the following:

“Renovation and modernization (it shall not include periodic overhauls) for higher efficiency
levels needs to be encouraged. A Multi-Year Tariff (MYT) framework may be prescribed
which should also cover capital investments necessary for renovation and modernization
and an incentive framework to share the benefits of efficiency improvement between the
utilities and the beneficiaries with reference to revised and specific performance norms to
be fixed by the Appropriate Commission. Appropriate capital costs required for pre-
determined efficiency gains and/or for sustenance of high level performance would need to
be assessed by the Appropriate Commission.”

e. Integrated Energy Policy 2006

Integrated Energy Policy notified in 2006 within overall objective for sustainable growth
with energy security and improved efficiency. The following provision directly pertains to
R&M:

“Rehabilitation of existing thermal stations could raise capacity at least cost in the short run
and this should be taken up urgently.”

f. Guidelines for Renovation and Modernization / Life Extension works of

Coal/Lignite based Thermal Power Stations, 2009

With a view to expedite the R&M/ LE works during the 10thplan period, GoI, Ministry of
Power (MoP) issued guidelines in Feb, 2004. The guidelines provided a framework to be
followed if generators are to be benefit from debt financing from the Power Finance
Corporation (PFC) at an interest rate subsidy of 3-4 percent. Consequently, the guidelines
were revised in 2009 by the MoP for R&M/LE works for power generating stations.

These guidelines provide detailed methodology for implementation of R&M and LE&U
programmes along with roles and responsibilities of different stakeholder and timelines
etc.; lays down the maximum cost for undertaking such programmes; emphasis on cost
benefit analysis before undertaking investment decision on R&M/LE&U scheme driven by
economic sensitivity analysis on cost of generation; and framework for participation of
private sector in LE programme etc.

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g. PAT Scheme of the Bureau of Energy Efficiency

In order to accelerate as well as incentivize energy efficiency, the Perform Achieve and
Trade (PAT) mechanism has been designed by Bureau of Energy Efficiency (BEE). PAT is a
market based mechanism to enhance cost effectiveness of improvements in energy
efficiency in energy-intensive large industries and facilities (classified as Designated
Consumers as per Energy Conservation Act 2001), through certification of energy savings
that could be traded. A total of 144 Thermal Power Plants in the country have also been
identified as a set of designated consumers. Among other measures, R&M is likely to be one
of the means for achievement of the target heat rates provided to the above plants.

h. CERC (Terms and Conditions of Tariff) Regulations, 2009

In order to provide requisite compensation to the generating utility for R&M, the tariff
regulations notified by the CERC provide the following mechanism for recovery of the
expenditure incurred on R&M of plants:-

“The generating company for meeting the expenditure on Renovation and Modernization
(R&M) for the purpose of extension of life beyond the useful life of the generating station or
a unit thereof shall make an application before the Commission for approval of the proposal
with a Detailed Project Report giving complete scope, justification, cost-benefit analysis,
estimated life extension from a reference date, financial package, phasing of expenditure,
schedule of completion, reference price level, estimated completion cost including foreign
exchange component, if any, record of consultation with beneficiaries and any other
information considered to be relevant by the generating company.”

“Provided that in case of coal-based/lignite fired thermal generating station, the generating
company, may, in its discretion, avail of a „special allowance‟ as compensation for meeting
the requirement of expenses including Renovation and Modernization beyond the useful life
of the generating station. Special allowance shall be @ Rs. 5 lakh/MW/year in 2009-10 and
thereafter escalated @ 5.72% every year during the tariff period 2009-14, unit-wise from
the next financial year from the respective date of the completion of useful life with
reference to the date of commercial operation of the respective unit of generating station;
provided that in respect of a unit in commercial operation for more than 25 years as
on1.4.2009, this allowance shall be admissible from the year 2009-10.”

i. Tariff Regulations by State Electricity Regulatory Commissions

In line with provision of the CERC tariff regulations various state electricity regulatory
commissions have also incorporated relevant provisions for recovery of expenditure
incurred on R&M as part of their tariff regulations.

j. National Perspective Plan for Renovation &Modernization and Life

Extension & Uprating of Thermal Power Stations

The Central Electricity Authority (CEA) in consultation with state power utilities and other
stake holders have prepared a National Perspective Plan for Renovation and Modernisation
and Life Extension of thermal power stations upto the year 2016-17.

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The broad objectives of future R&M national plan include:

a) Identification of thermal units requiring LE during 11 th and 12th Plans in order to extend
their useful economic life for another 15-20 years beyond their designed economic life
of 25 years.

b) Assessment of total investment required during 11th and 12th Plans for LE programme.

c) Identification of potential candidates for EE R&M programme and assessment about

external funding and other sources of financing during the 11 th and 12th Plan.

d) Providing a road map for smoother implementation of R&M/LE schemes.

e) Projection of expected benefits from these schemes.

k. Indian Boiler Regulations, 1950

Regulation 391 A of IBR, 1950 elaborates on the aging effects on boilers and maximum
permitted working pressure allowed for operation of various types of boilers. Specifically,
for water tube boilers, these regulations prescribe the following:

(i) The boilers which are operating at a temperature of 400°C and above including utility or
industrial boilers and all boiler parts operating in the creep range of the boiler shall be non-
destructively tested after they are in operation for 1,00,000 hours for assessment of the
remnant life of the parts;

(ii) The parts of a boiler when it completes a life of twenty five years are to be tested as per
table 2 for assessment of the remnant life of such parts. If results are acceptable as per the
standards laid down by the Central Boilers Board, a certificate shall be issued by the Chief
Inspector of Boilers for extending the life of the boiler for a further period of ten years or
such less period as recommended by the Remnant Life Assessment Organisation. This
assessment of remnant life shall be carried out thereafter every five years by the
organisations working in the field of boilers and remnant life and extension thereof after
such organisation is approved by the Central Boilers Board. Such organisation shall work in
close coordination with the office of the Chief Inspector of Boilers in the field of remnant life
assessment and extension. The working pressure of such boilers may be reduced on the
recommendations of such approved organisation.

It may be worthwhile to mention here that while an enabling policy and

regulatory framework has been provided for undertaking R&M, the performance
from being reasonable until the 9thplan period, has deteriorated since the 10thplan
period. This is further discussed in the following sub-section.

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5. Achievement of R&M and LE works in the past Plan

periods
The importance of R&M was recognised by the GOI way back in 1984 when Phase-I R&M
Programme for 34 thermal power stations in the country was launched by the CEA as a
Centrally sponsored scheme. Since then R&M option has been effectively utilised over the
various plan periods. R&M and LE works completed in various plan periods along with the
results achieved in terms of additional generation in Million Units (MU) and equivalent
Megawatt (MW) is presented in Table II-1.

Table II-1: Achievement of R&M and LE works in various Plan periods

S. Five Year No. of Capacity Additional Generation

Equivalent MW
No Plan Units (MW) Achieved MU/Annum

1 7th 163 13,570 10,000 2,000

8th 198

2 (R&M) (194) 20,869 5,085 763

(LEP) (4)

9th 152

3 (R&M) (127) 18,991 14,500 2,200

(LEP) (25)

10th 25

4 (R&M) (14) 3,445 2,000 300

(LEP) (11)

11th 129

5 (R&M) (76) 16,146 5,400 820

(LEP) (53)

Source: Quarterly Review Report- Renovation, Modernisation and Life Extension of Thermal Power
Stations (January – March; 2012), CEA

The momentum for undertaking R&M works continued till the 9 th Plan but considerable
slippages were observed thereon in the subsequent plan periods. Equipment capacity
constraints, contractual delays, reluctance to shut down units in light of chronic power
shortages in the respective states, financial constraints etc. were some of the reasons for
such slippages. Although the performance of the programme improved during the 11 th Plan,

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achievement had only been 56% and 61.4% of the planned number of units and capacity
respectively. Planned capacity viz-a-viz the achievement of R&M and LE works during 10th
and 11th Plan is presented in Figure II-3.

Figure II-3: Planned capacity and achievement of LE and R&M works during
10thand 11thPlan

10th Plan 11th Plan

15,000 14,270 20,000 18,965

14,855
10,413 15,000
10,000
MW

MW
10,000
7,318
5,000
2,460 5,000
985 1,291

- -
LE R&M LE R&M

Planned Achieved Planned Achieved

Source: National Electricity Plan and Quarterly Review Report- Renovation, Modernisation and Life
Extension of Thermal Power Stations, (January – March; 2012), CEA

As observed above, the performance of R&M in the country after deterioration in the 10 th
plan period, has improved in the 11th plan period. Several emerging trends in the power
sector has been witnessed that will contribute towards creating conducive atmosphere for
R&M in the near future. The following sub-section summarizes these trends.

6. Emerging Market Trends and its influence on R&M

Ever since the enactment of EA 2003, the electricity market has witnessed several changes
that strongly influence the R&M market for thermal power plants. Table II-2 below maps
out the changes prior to EA 2003 and after the enactment and also indicates implications
for R&M projects in India.

Table II-2: Emerging Power Sector Market Scenario and Implications for R&M

Before
Characteristics/ enactment Current
Implications for R&M
Market Changes of the Scenario
EA2003

• As a result of emergence of power

Presence of Absent Present markets, alternate procurement
Power Markets
avenues are now available to the state

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Before
Characteristics/ enactment Current
Implications for R&M
Market Changes of the Scenario
EA2003

and Competition utilities to prevent outages when plants

undergo R&M

• Increased focus on efficiency

improvement owing to competitive
procurement of power and possibility of
extension of the framework to state
generating companies in the near future

• Increased private sector participation

Degree of Private across the value chain in the electricity
Sector Low High supply industry has resulted in better
Participation response, lower lead-time and risk
sharing.

• Open market policy of GoI and

increasing capacity expansion has
attracted many international players,
rubbing shoulder against market
dominant players like BHEL by providing
Equipment comparable technological competencies
Small Large and services.
Vendors Base
• Alongside, the equipment market has
also seen emergence of several
domestic players as well, leading to a
much more diversified equipment
vendor base.

• One of the strategies of PAT Scheme of

the BEE is aimed at enhancing energy
efficiency in existing power plants and
has set power sector as one of the
Designated Consumers (DC). DCs have
Focus on
Low Higher to achieve notified reduction in fuel
Optimization
consumption (kg/kWh) by 2014-15.

• Along with the above there are several

generation optimization
products/modules that many new
generating plants or plants undergoing

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Before
Characteristics/ enactment Current
Implications for R&M
Market Changes of the Scenario
EA2003

refurbishment are opting for to increase

the overall plant output and increase
process efficiency.

• With power sector contributing 40% to

carbon emissions of India, R&M with
short gestation time can be short and
Market medium term strategy to achieve
framework for National Action Plan on Climate
GHG emission Change.
Absent Present
reduction and • Although at present the contribution of
Environmental R&M towards GHG mitigation is small,
Compliance the capabilities promise the flexibility
for responding to emerging economic,
socio–environmental and sustainable
development needs.

• At present, acute coal shortage looms

large on the sector. Domestic coal
shortage was never envisaged in any of
the previous plan period; however the
sector today has suddenly awakened up
to this reality.

• In such extreme coal supply

Coal Constraint No Yes
constrained scenario, focus on available
coal being used in most efficient form
by the market participants is high.

• The above trend supports R&M as

energy efficient R&M results in lowering
specific coal consumption of the plant
and hence promotes optimal utilization.

Each of the points mentioned in the table is explained below:

Presence of Power Markets has enabled the state utilities to go for alternative
procurement strategies like procuring power competitively from Trader and Power

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Exchanges in the country i.e., Indian Energy Exchange (IEX) and Power Exchange of India
(PXIL) in order to negate long outages during R&M Project.

In addition to the above, Power Market overtime has now become much more
Competitive. As per the National Tariff Policy, the procurement of power by distribution
licensees has to be made through competitive bidding and thus arrangement of power
supply both in the short and medium term is no longer a constraint. Soon Central / State
public sector companies are also expected to compete with private sector to supply power
to the distribution companies through competitive bidding. The above clearly requires the
state utilities/generating plants to gear up to meet the improved efficiency requirement
that comes along with competitive conditions.

Energy Efficient R&M also allows suitable performance optimisation of the plant and
helps in reducing the Station Heat Rate. This traditionally has not been the focus (most of
the old plants that have undergone R&M have focussed on life extension or improvement in
plant availability). Improvement in efficiency and quality of supply allows reduction of
Variable Cost of the plant and thus helps the plant be in higher position in State Merit Order
Dispatch. Further going deeper, EE R&M allows exploration of newer technologies in Coal
Blending for reducing the cost of generation.

Higher Degree of Private Sector Participation across the entire energy sector value
chain has enabled streamlined processes for quicker response, lower lead time and efficient
delivery. R&M projects traditionally beleaguered with delays due to poor project
management, active participation of private parties from the beginning of R&M process as
design consultants, in bidding and procurement of materials, etc. can reduce the
unnecessary delays.

Increase of Equipment Vendors Base since GoI opened up the power sector to
competition has allowed bringing in market innovations and advanced technological options
to Indian Power Sector. The shift in focus from „Generation Maximisation‟ to „Generation
Optimisation‟ with efficiency enhancement, recent global forays of companies and strategic
alliances with Indian vendors can provide quicker and more reliable supply of diverse
systems and equipments to counteract the shortages and delays in R&M Project. In
addition, emergence of several domestic manufacturers has also led to diversification of
equipment supplier vendor database.

GoI‟s various initiatives to Focus on Optimization in Energy sector by creating nodal

agency Bureau of Energy Efficiency has resulted in handsome savings by implementing PAT
Scheme. Under this scheme, power utilities can purchase Energy Saving Certificates
(ESCerts) by reducing their specific energy consumption and trade in Power Exchanges or
pay penalties. Soon Energy Efficient R&M Project will be a critical option to be considered
for meeting the efficiency requirement and competitive with alternate sources of
generation.

Due to the predominance of fossil fuels in the generation mix, there are large negative
environmental externalities caused by electricity generation. Market framework for GHG
emission reduction and Environmental Compliance promotes energy efficient drivers
like R&M intervention that lead to sustainability of the energy –environment system. R&M

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Program contributes to global sustainability through GHG mitigation and it conforms to

national priorities of development of local capacities and infrastructure.

Coal Constraint faced by power project developers in India is adding significantly to the
woes of the power sector, given it is already grappling with challenges of land acquisition
and environmental clearances. Energy Efficient R&M Intervention mitigates the problem to
an extent as it allows the utility to operate the plant at its designed parameters with lower
specific coal consumption and does not require land acquisition and environmental
clearances.

All of the above changes being witnessed in the sector indicate positive changes
for R&M market in the country. However, the above changes have to be
accompanied by introduction of measures that are aimed at addressing the
inherent policy, technical, commercial, and regulatory barriers faced by the
stakeholders involved in the R&M process. These barriers once remove can alter
the risk profile of the R&M projects making them an attractive proposition for all
stakeholders in the sector.

With the above background, the objective of this study (among other objectives)
has been to identify and address the key risks faced in design and implementation
of R&M in the country.

The following sections of this report cover the following:

Section III specifies the approach and methodology adopted by the team to undertake the
study.

Section IV describes the R&M process cycle and models adopted in India.

Section V specifies the framework adopted for risk identification and mitigation.

Section VI elaborates on the guidelines for risk identification and management covering in
detailed the key risks experience, the frequency of occurrence, impact of risk, the risk
bearer and the mitigation framework.

Section VII summarizes the risk identified above and the mitigation action into a tabular
check list that can be referred by power utilities to mitigate risk experience during various
stages of the R&M.

Section VIII provides the conclusion and way forward.

In addition to the above, Annexure II provides the draft “Guidelines for Risk Identification
and Mitigation Measures in R&M”

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Section III

Approach and Methodology for

the Study

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III Approach and Methodology for the Study

The study team undertook the following tasks to undertake this study:

Figure III-1: Approach for the study

Review of Past Experience
1. Review of the Past experience of R&M in
the country.

Ongoing R&M Projects

Site Visits – Review of
2. Site Visit to Select Power Plants

Expert Views
3. Stakeholder Consultation Draft
Guidelines

4. Expert Consultation

All of the above collectively contributed

towards development of the risk
identification and mitigation framework Stakeholder Consultation
presented as part of this study.

Each of the above is explained below:

1. Review of past R&M experience in the country

Literature review was undertaken to understand the policy and regulatory framework with
regard to R&M in the country, experience of past R&M projects, issues and concerns of
different stakeholders. This included review of past studies, review of tariff regulations of
various states and previous tariff orders/petitions of the generation utilities.

2. Site visits to select power plants

In order to understand the ground level realities, concerns and barriers constraining the
R&M schemes in different states, a case study approach was selected wherein the ten
plants were identified across the country by the CEA for undertaking a detailed study.

The list of these plants as per the terms of reference is provided below:

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Table III-1: List of units to be considered for review of R&M experience with LE
works as per the Terms of Reference

Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works3
Station
(TPS)

Unit 1- Unit was

synchronized on 8
February 2007
after LE works

Unit 1 -NASL, Unit 2- Unit was

synchronized on 5
1, 2 Bathinda
1 3 x 110 PSPCL/Punjab October 2005 after
&3 TPS
Unit 2&3- LE works
BHEL
Unit 3 –
Synchronization
expected by
November 2011
after LE works

Unit 1- Unit was

synchronized on
31 March 2004
after LE works
1& Unit 1&4, Unit 4- Unit was
4, 2x50, ABB Alstom, synchronized on 3
October 2003 after
Korba LE works
CSPGCL/Chhattis
2 (East)
garh Unit 5- Unit was
TPS
synchronized on 3
5& 2 x 120 Unit 5 & 6- March 2005 after
6 BHEL, LE works

Unit 6- Unit was

synchronized on 8
October 2003 after
LE works

1,3 Panipat Unit 1- BHEL, Unit 1- Unit was

3 3x110, HPGCL/ Haryana synchronized on 4
&4 TPS
November 2008

3
The status presented in the table is as per the status given in ToR of the study.

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Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works3
Station
(TPS)

Unit 3 & 4- after LE works

Yet to be
Unit 3 – DPRs for
awarded
LE works is under
finalisation

Unit 4 – DPRs for

LE works is under
finalisation

Unit 1- Unit was

synchronized on 24
May 2008 after LE
works
4
1& 2 2x120 Ukai TPS GSECL/Gujarat BHEL Unit 2 – Unit was
synchronized on 24
February 2010
after LE works

Unit 1- Expected
date of Completion
Amarkan by October 2011
5 1& tak MPPGCL/Madhya
2x120 NASL Unit 2 – Unit was
2 Exten Pradesh
synchronized on 26
TPS
October 2010

Unit 9-
Synchronized in
September 2010.
Unit is under
stabilization after
R&M
6 9& UPRUNVL/Uttar
2x200 Obra TPS BHEL Unit 10 –Shut
10 Pradesh
down is expected
in October 2011.
LE works to be
completed in 2012-
13

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Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works3
Station
(TPS)

Completion of LE
7 Barauni works is expected
7 1x110 BESB/Bihar BHEL in 2012-13
TPS

Expected date of
Completion
8 Muzzaffu
1 1x110 KBUNL/Bihar BHEL November 2011
rpur after LE works

Procurement of
Yet to be
9 Bandel WBPDCL/West executing Agencies
5 1x210 awarded
TPS Bengal are under process

Procurement of
Koradi MSPGCL/Mahara Yet to be
10 6 1X210 executing Agencies
TPS shtra awarded
are under process

Total No of TPS- 10

Visits were undertaken to all these plants and discussions were held with concerned officials
dealing with Renovation and Modernization including plant/unit level engineers, operation
and maintenance department and commercial department to understand their experience
in planning, tendering, procurement, executing R&M program and O&M of the units.

Further, various project specific documents such as DPR, RLA studies, contract documents
with the vendors, performance of plant etc. were also collected from the state utilities
during the visits to understand the gap if any in the entire R&M process, approaches
followed by different states and utilities.

The units visited provided adequate depth to the analysis carried out in the study
as these units differed in terms of coverage, current performance, implementation
model, mode of funding etc. These factors are explained below:-

 Coverage of various R&M stages- Includes representation from all stages of R&M
across the selected units.

 Current Performance- Includes the performance of the plant post R&M viz-a-viz
that envisaged at the project planning stage. Both, plants that have already
completed R&M and those that are undergoing R&M were considered in the sample
set.

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 Implementation Model – Includes two models generally adopted in the Indian

market i.e. (i) OEM initiated; or (ii) Competitive Bidding (National/International).

 Mode of Funding4 – Includes – (i) Public funds; (ii) Grants; (iii) Soft Loans by
Multi-lateral donor agencies

 Specific Issues – Includes specific experience witnessed by a particular plant

different from the normal/routine

This enabled the project team to understand the type of risks faced by the utilities, its root
causes, its impact on the project, bearer of the risk and way of managing the risks.

Table below highlights in brief the unique attributes of the identified plants.

Table III-2: Attributes of the identified plants

S. No Plant Name Attributes of the identified plants

 R&M awarded on turnkey basis.

 Covers entire R&M life cycle – R&M of all three units

already completed

 Have R&M experience from multiple vendors for

different units (NASL, BHEL)
Unit 1,2&3 (3 x 110),
 Target Emissions not achieved in Unit 1 and 2 even
1 Bathinda Thermal
after R&M.
Power Station, PSPCL
 Heat rate continues to be unacceptably high. Since the
coal is transported to Punjab over a long distance from
the coal source in eastern India, the overall delivered
cost and consequently the variable cost becomes a key
factor in future operations of the plant after R&M if the
high heat rate persists.

 R&M experience of multiple units already completed.

 Covers entire R&M life cycle – R&M of all the four units
already completed.
Unit 1& 4 (2 x50) and
Unit 5 & 6 (2 x 120),  Post R&M performance of these units have been
2 satisfactory.
Korba (East) TPS,
CSPGCL  RLA included in the scope of the supplier and all the
related works needs to be undertaken within the
capped overall price of the contract.

 O&M supervision post R&M works included in the scope

4
Mode of funding has influence on the level of preparedness and system introduced for robust R&M
implementation. While a few funding entities have enforced mandatory lending covenant to be
adopted by the utility during the course of design and implementation of R&M in their plants, other
entities have not followed such stringent lending criteria.

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S. No Plant Name Attributes of the identified plants

of implementing agency as one of the measure to

ensure performance guarantee.

 Unsatisfactory R&M experience of Unit 1 and 2 led to

cancellation of R&M plans for Unit 3 and 4.

 Mode of funding- Unit 3 and 4 were proposed to be

Unit 1, 3 & 4 funded through soft loan from the World Bank
3 (3x110), Panipat
TPS, HPGCL  Contractual dispute between vendor and utility leading
to prolonged implementation period

 Case of unsuccessful contracting at first instance.

Project was later rewarded.

 Covers entire R&M life cycle – R&M of both units

already completed

 Initiated directly through OEM

 Post R&M outputs achieved have not been in line with

Unit 1& 2 (2x120), the envisaged targets.
4
Ukai TPS, GSECL
 Performance Guarantee Test has been delayed
incessantly

 Unsatisfactory performance of plant after R&M/LE

works led to the discontinuation of R&M /LE works of
Gandhinagar TPS Unit No.1 & 2.

 Frequent change in scope of work due to funding

constraints
Unit 1&2 (2x120),  Covers entire R&M life cycle – R&M of both the units
Amarkantak completed.
5
Extension TPS,
MPPGCL  R&M for different equipments executed through
different vendors

 R&M executed on piecemeal basis over a period of time.

 Covers different stages of R&M life cycle – R&M of Unit

9 is completed and Unit 10 is under execution.

 Multiple units (5) undertaken for R&M

Unit 9&10 (2x200),  Initiated directly through OEM

6
Obra TPS, UPRUNVL
 One of the few units wherein R&M works are going on
200 MW plant

 Contingency reserves for handling technical surprises

included in the overall budget for R&M

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S. No Plant Name Attributes of the identified plants

 Mode of funding- Grant provided by Planning

Commission / MOP under RSVY Fund.
Unit 7 (1x110),
7  R&M initiated through five-party MOU signed among
Barauni TPS, BSEB
BHEL, NTPC, BSEB, Govt. of Bihar and MoP (Govt. of
India).

 A new company, KBUNL, formed as a Joint Venture (JV)

of the State Power Utility (BSEB)/ State Government
(Government of Bihar) and public power utility (NTPC).

 R&M initiated through five-party MOU signed among

Unit 1 (1x110),
BHEL, NTPC, BSEB, Govt. of Bihar and MoP (Govt. of
8 Muzzaffurpur, KBUNL,
India).
Bihar
 Mode of funding- Part funding through Grant provided
by the Planning Commission / MOP under Rashtriya
Sam Vikas Yojana (RSVY) Fund and part funding by
KBUNL in Debt Equity ratio of 70:30

 Mode of Funding – through soft loan from World Bank

 R&M initiated through international competitive bidding

model

 High level of preparedness for robust R&M

Unit 5 (1x210),
9 implementation
Bandel TPS, WBPDCL
 Contingency reserves for handling technical surprises
included in the overall budget for R&M

 Several initial loan covenants imposed before

commencement of the R&M of the unit.

 Mode of Funding – through soft loan from World Bank

 R&M initiated through international competitive bidding

model

 High level of preparedness for robust R&M

implementation and technical surprise plan prepared in
Unit 6 (1X210),
10 advance to handle potential surprises during the R&M
Koradi TPS,MSPGCL
project execution that also required unit rates to be
sought from the vendors.

 Contingency reserves for handling technical surprises

included in the overall budget for R&M

 Entire R&M works divided into four different packages.

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The experience obtained by the team during these visits has been the basis for analysis
presented in this report and development of the risk guidelines.

In addition to the visit to these plants, the project team also participated in the CEA‟s R&M
Planning and Progress Review Meeting with the State and Central Generation Utilities
wherein the utilities highlighted the progress of their ongoing R&M schemes, the key issues
and concerns being faced.

3. Stakeholder Consultations
In order to identify risks involved in R&M project, the team also undertook extensive
stakeholder consultation to understand perspectives and concerns of various stakeholders.
The stakeholder group included the State Generating Stations, Central and State Electricity
Regulatory Commissions, Equipment Suppliers, Design Consultants, Implementation
Support Consultants, Funding Agencies and the CEA.

4. Expert Consultations
In addition to the above, the team also interacted with select experts in the Power Industry
to validate the findings and obtain additional perspectives.

5. Details of consultation in different states

Table below provides a list of entities consulted during the visits made to various states
across the country.

Table III-3: List of entities consulted

Entities Consulted (State Gencos, SERC, ISC,

S. No. State
TC, Suppliers)

Punjab State Electricity Regulatory Commission

1 Punjab (PSERC)

Bathinda Thermal Power Station

Chhattisgarh State Power Generation Company

Limited (CSPGCL)

2 Chhattisgarh Chhattisgarh State Electricity Regulatory

Commission (CSERC)

Korba (East) Thermal Power Station

Haryana Power Generation Corporation Limited

3 Haryana
(HPGCL)

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Entities Consulted (State Gencos, SERC, ISC,

S. No. State
TC, Suppliers)

Haryana Electricity Regulatory Commission (HERC)

Panipat Thermal Power Station

Gujarat State Electricity Corporation Limited

4 Gujarat (GSECL)
Ukai Thermal Power Station

Madhya Pradesh Power Generation Company

5 Madhya Pradesh Limited (MPPGCL)
Amarkantak Thermal Power Station

Obra Thermal Power Station

6 Uttar Pradesh NTPC (Consultant for Obra TPS)

BHEL (Vendor)

Bihar State Electricity Board (BSEB)

Bihar Electricity Regulatory Commission (BERC)

Barauni Thermal Power Station

7 Bihar
Kanti Bijlee Utpadan Nigam Ltd.
Muzzaffurpur Thermal Power Station

NTPC (ISC for Barauni Thermal Power Station)

West Bengal Power Development Corporation

Limited (WBPDCL)

8 West Bengal West Bengal Electricity Regulatory Commission

(WBERC)

Bandel Thermal Power Station

Maharashtra State Power Generation Company

9 Maharashtra Limited (MSPGCL)

Koradi Thermal Power Station

Bharat Heavy Electricals Limited (BHEL)

NTPC Alstom Power Services Limited (NASL)

Dongfang Electric (India) Private Limited
10 Delhi, NCR
TOSHIBA

SIEMENS

Development Consultants Private Limited

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Detailed list of officials consulted during the course of the project is provided in
Annexure III.

The information and perspectives obtained from all of the above sources were
collectively considered to synthesize the risk identification and mitigation
guidelines.

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Section IV

R&M Process Cycle

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IV R&M Process Cycle

In order to identify the risks and surprises experienced during R&M projects and to design
strategies to mitigate risk and technical surprises, it is essential to first understand various
sub-steps of the entire R&M process, the activities that are undertaken at each step and the
stakeholders involved during various stages of the R&M process cycle. Figure IV-1 maps out
the overall R&M process and stakeholders involved during each of the identified stage.

1. Identification Stage
During the identification stage the plant units are first identified to be diagnosed further
based on certain symptoms. At this stage the plant operators regularly monitor the key
plant unit parameters covering at least the following aspects to identify symptoms that may
necessitate R&M of power plants: (a) Plant Availability, (b) Plant Load Factor, (c) Auxiliary
Consumption, (d) Emission Factors, (e) Level of Outages, (f) Life of the plant etc, (g)
Frequency of annual overhaul; (h) frequency of capital overhaul etc.

The diagnosis at this stage is based on available plant records and design data. No
inspections and/or testing of material, plant or equipment is involved at this stage. Timely
identification and diagnosis of problems is of critical importance and form the foundation for
successful R&M of the plant in the future. This obviates the need for a comprehensive R&M
in one go (except for BTG) and ensures that necessary up-gradation is carried out during
the course of plant operation and annual/capital overhaul and maintenance.

2. Assessment Stage
Most of the equipment of a power plant is subjected to high temperature and pressure and
are designed for fatigue life of about 25 years of operation.

Due to ageing of the equipments and metallurgical deterioration of the materials after
prolonged use, it may become uneconomical or dangerous to operate the unit. However, by
undertaking preventive measures such as proper maintenance, refurbishment, rectification
or R&M of the plant it is possible to operate the unit safely, reliably and economically for
another 15-20 years.

Further, differences in the operational practices from design operation environment may
lead to premature equipment failure or lower than expected output. This calls for
systematic evaluation of the plant through undertaking of various technical studies and
tests. This includes the following:-

 Residual Life Assessment

 Complete Condition Assessment

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 Energy Audit

 Past History of Plant (including maintenance schedules, overhauls and assessment

of O&M practices)

The technical evaluation of the plant is followed by the economic evaluation of the plant to
decide on the most optimal option. These include:

 Plant retirement

 Maintain and operate for extended time and retire subsequently

 Capital Overhaul and refurbishment

 R&M and Life Extension (LE)

 R&M, LE and Up-rating

Detailed Project Report prepared for assessment of above options also includes a detailed
technical and economic analysis of the identified option. This also includes assessment of
the sources of fund and the phasing required for execution of R&M option.

Several options can be worked out for involvement of private players in the R&M process.
Some options often discussed include: (i) Lease, rehabilitate, operate and transfer; (ii) Sale
of plant; (iii) Joint venture between the private player and public/private utilities.

Based on the technical studies and the option selected for R&M, the scope of R&M Project is
prepared. The aim here is generally to define scope in as precise terms as possible however
often changes and surprises occur when the plant is actually opened up for implementing
the R&M. The utility often is faced with the issue of level of detailing that is required at the
planning stage itself vs. the time and resources that are available to be committed for
achieving marginal improvement in the scope assessment exercise.

Before the tenderization process begins, utility should also submit the details of the
assessment to the Appropriate Commission and seek its approval (often “in-principle”
approval, with the formal approval obtained post the R&M is executed and actual amount
incurred on the same is submitted).

3. Planning Stage
Once the scope of the project is finalised, the utility develops the design specification and
proposal package and determines the procurement/bidding strategy.

Planning stage covers the entire bid process management i.e. issue of tender(s), pre bid
meetings, evaluation of technical and commercial bids, selection of suitable bidder,
negotiation of contracts and award of R&M contracts to vendors/suppliers/OEMs.

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In India, in certain cases, the bidding stage is omitted. In such cases, the R&M process is
directly initiated through the OEM and awarded to the OEM for implementation as well.

4. Execution Stage
This stage covers the entire R&M project implementation stage which begins with the
receipt of equipments to the site and planning of shutdown of unit. This stage includes
effective monitoring of work, timely decision making with regard to bottlenecks faced,
ensuring the quality of work, inspection of material and smooth implementation of work.
Implementation support consultant hired by the utility plays a key role in managing all the
activities covered under this stage through a structured process.

5. Closure Stage
After the R&M work is completed, it is very essential to evaluate whether the goals and
objectives of the R&M project was achieved or not. For this post-R&M Performance
Guarantee Test is conducted. Further, Operation and Maintenance Training is imparted to
engineers for efficient operation of the unit that has undergone R&M. This is very important
as there are issues involved in effective interfacing of the new installations with the existing
ones, commercial issues linked to change in tariff; actual vs. planned performance outputs
etc.

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Figure IV-1: R&M Process Cycle

Identification Assessment Planning Execution Closure

• Identification of plant units • Selection of agencies / consultants for • Preparation of bid documents – • Arrival of Equipments • Post R&M Performance
technical studies/implementation support Technical and Commercial Guarantee Tests
• Monitor and maintain /quality assurance • Plan for Shutdown of Plants
record of key plant unit • Issue of tenders and evaluation of • Plant Performance Analysis
parameters • Plant Assessment bids • Start of execution of R&M
• RLA Studies Work • Follow-up Activities to meet
• Complete Plant Assessment • Selection of Bidders deficiencies
• Energy Audit
• Understanding prevailing O&M • Negotiation of R&M Contracts • Post R&M- Training and O&M
Practice of Plant
• Operator‟s Experience • Award of R&M Contract
• Past History of Plant
• Procurement Plan– Sequence of
• Evaluation of Alternatives procurement and follow up with
vendors
• Preparation of Scope of Work

• Identification of key technical constraints

• Finalize Scope of Work, Preparation of

Budget and Cost Benefit Analysis

• Sourcing of Fund Bidders/Vendors, OEMs

• Submission of R&M Project details to

Appropriate Commission
Funding Agency

29
Design Consultant/Implementation Support Consultant

Generating Company

Regulator Regulator

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Section V

Risk Identification and Mitigation

Framework

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V Risk Identification and Mitigation Framework

Planning and implementing R&M projects is often witnessed by occurrence of adverse

events that can derail the objectives of the project. Identifying and mitigating project risks
are crucial steps in managing successful R&M projects. Thus, a well structured and
documented Risk Management at each stage of the process is of utmost importance.

Section V of this report describes the key risk faced in implementing R&M mapped across
different stages of the R&M life cycle. The aim of this section is to describe the framework
on the basis which the risk assessment has been undertaken.

1. Elements of Risk Identification

In order to effectively manage the potential risks that can be encountered in a R&M
projects, it is important to understand the various elements of the risk which includes
nature of risk, root causes or factors leading such risk or unfavourable outcomes, bearer of
the risk, frequency of occurrence and its severity or impact on the plant/project
time/schedule and cost. Each of these elements is explained below:

1.1. Nature of Risk

The process of risk identification involves determining which risks are likely to affect the
R&M project and documenting the characteristics of each. Risk Identification should address
both internal and external risks. Internal risks are those that project team can control or
influence whereas external risks are those that are beyond project team‟s influence and
control.

Over the R&M life cycle, there could be various types of risk affecting the effective
implementation of R&M project. These include:

i. Management Risk: Risks associated with the incorrect/lack/delay in undertaking

appropriate decisions or actions by the management of the company impacting the
overall outcomes of the R&M works.

ii. Technical Risk: Risks associated with the inadequate technical assessment of the
R&M projects. This includes risks such as occurrence of technical surprises, non
achievement of post R&M guarantees etc.

iii. Operational Risk: Risk arising due to internal system processes of the company
i.e. due to limited capacity and skills of the personnel of the generating companies
in undertaking R&M works impacting implementation of the works on ground.

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iv. Institutional Risk: Risks associated with the governance of the generating
companies. This includes risks related to socio-political consideration that may
results in delay in obtaining the shutdown for undertaking both technical studies and
execution of R&M projects.

v. Market Risk: Risks arising primarily due to the actions or inaction of suppliers in
the market and are arising due to the overall market conditions which are beyond
the control of the generating company. This includes risks pertaining to limited
participation of suppliers in the bidding for R&M works, higher than expected price
discovery, delay in supply of material by the supplier etc.

vi. Regulatory Risk: Risks arising due to regulatory uncertainty or change in

regulations during the lifetime of R&M project. This includes risk associated with the
non-approval of the investment made by the generating company in undertaking
R&M works.

vii. Contractual Risk: Risks associated with the uncertainty arising from the
contractual disputes or interpretation due to weakly defined scope of works and
inability to devise a mechanism to resolve them at the earliest constraining the
overall execution of work.

viii. Funding Risk: Risks associated in mobilization of funds for undertaking R&M
project.

ix. Socio-Environment Risk: Risks arising due to the insensitivity towards the
habitations surrounding the power plant and compliance to the environmental
norms.

1.2. Frequency and Severity of Risk

Once the risk and its nature have been identified, it is important to assess the frequency or
likelihood of occurrence of risk and severity of impact. Frequency and severity of the risk
may differ from low to moderate to high leading to different consequences. However, a
distinction must be made between: (i) high frequency low impact risk; (ii) high frequency
high impact risk; (iii) low frequency low impact risk and (iv) low frequency high impact risk.
The concentration of risk mitigation should largely focus around (ii) and (iv) above, as
these risk could be catastrophic for the project.

1.3. Root Cause Analysis

This step involves identifying the root causes of occurrence of risk or a problem event faced
during the course of the R&M life cycle. The practice of root cause analysis is predicated on
the belief that problems are best solved by attempting to address, correct or eliminate root
causes, as opposed to merely addressing the immediately obvious symptoms. By directing
corrective measures at root causes, it is more probable that problem recurrence will be
prevented.

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1.4. Bearer of Risk

Identification of risk bearer involves listing out entities that are directly and indirectly
affected by the risk event. This helps in design of approaches that enable development of a
balanced projects with specific risks allocated to the entities that are best placed to manage
them.

2. Strategies for Addressing the Risk

Strategies to address a particular risk involve the following:

2.1. Risk Avoidance5

Risk avoidance implies not undertaking activities that trigger one or the other risk or
involve actions that either completely eliminate or reduce the likelihood of the occurrence
of risk. As such, it can be the most powerful technique for managing risk. This may include
preventive actions that may be required from the stakeholders involved in the R&M
process.

2.2. Risk Sharing/Transfer

It involves sharing some or all of the negative impact of the risk with other agency in form
of performance guarantees or a third party in form of insurance. Risk sharing could lead to
risk mitigation in certain cases as by sharing the risk with an agency which is able to
manage the risk well, can result in minimising the impact of the identified risk.

2.3. Risk Mitigation

Risk Mitigation involves reducing the severity of impact of the adverse events. This strategy
is used wherein either the risk cannot be avoided or the cost of avoidance is not small
enough, and hence needs to be considered upfront in the project cost estimates.

2.4. Risk Acceptance

This strategy is adopted because it is seldom possible to eliminate all the risks. If a risk is
identified and its impact or consequences are accepted, it then can also be classified as risk
management technique. Acceptance can be active (by developing a contingency reserve to
execute should the risk event occur, adjusting the time schedule) or passive (by accepting
a lower profit if some activities overrun)

In order to effectively manage the risks, one or combination of the techniques mentioned
above needs to be adopted.

5Risk Avoidance can also be defined as Preventive Risk Management. The concept is similar to
Preventive Maintenance in a thermal power plant that involves care and servicing by the plant
personnel for the purpose of maintaining equipment and facilities in satisfactory operating condition
by providing for systematic inspection, detection, and correction of incipient failures either before
they occur or before they develop into major defects.

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The following section of this report provides a description of potential risk events that may
be encountered in planning and implementing R&M of thermal power plants. Alongside, the
section also describes the risk features and strategies to address the risk based on the
framework presented above.

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Section VI

Risk Management Guidelines

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VI Risk Management Guidelines

This section describes the risks identified across different stages of R&M and the strategies
to deal with the identified risk. The risks categorized across different stages of the R&M life
cycle are indicated in the table below.

Table VI-1: Potential Risks involved in R&M Process

S. No Stage Category of Risk Risk

Reactive approach to identification of plant for

1 Management risk
R&M

Identification Lack of long term plan and awareness of

2 Management Risk
available market options

Lack of confidence and uncertainty with

3 Market Risk
regard to R&M projects

Delay in obtaining unit shutdown for

4 Institutional Risk
undertaking technical studies

5 Technical Risk Inadequate technical assessment/studies

Weak analytical framework for selection of

6 Management Risk
R&M options
Assessment
Appropriate Commission not apprised of the
7 Regulatory Risk
R&M project plan

Limited capacity of utilities in undertaking

8 Operational Risk
R&M works

9 Contractual Risk Weakly defined scope of work

10 Funding Risk Utility unable to mobilise funds

Low level of participation by the vendors in

11 Market Risk
the bidding process

12 Market Risk Higher than expected price discovery

Planning
Market and Rebidding/Re-award/Delay in award of R&M
13
Operational Risk packages/contract

Implementation contract awarded to vendor

14 Management Risk
involved in carrying out technical studies

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S. No Stage Category of Risk Risk

15 Management Risk Weak decision-making framework

16 Technical Risk Occurrence of technical surprises

Weak dispute resolution mechanism

17 Contractual Risk
constraining the execution of work

Mismatch (or delay) in supply of critical

18 Market Risk
equipment and the shutdown period
Execution
Weak Supervision, Quality Control And
19 Operational Risk
Assurance

Failure Of The Plant To Achieve Environmental

Socio- Standards And Plant Is Perceived To Have
20
Environmental Risk Negative Social/Environmental Impact On
Near-By Villages

Delay in provisioning of obtaining unit

21 Institutional Risk
shutdown for executing R&M works

Sustainability of R&M gains affected by weak

22 Operational Risk
O&M practices

23 Closure Technical Risk Post R&M guarantees not achieved

24 Regulatory Risk Non-approval of costs incurred during R&M

Absence of ex-post evaluation and feedback

25 Operational Risk
loop

The below section details out each of the above risk as per the R&M process cycle along
with the risk bearer, impact and strategy to manage the risk.

1. Identification Stage
During the identification stage the plant units are first identified to be diagnosed further
based on certain symptoms. At this stage the plant operators regularly monitor the key
plant unit parameters covering at least the following aspects to identify symptoms that may
necessitate R&M of power plants: (a) Plant Availability, (b) Plant Load Factor, (c) Auxiliary
Consumption, (d) Emission Factors, (e) Level of Outages, (f) Life of the plant etc, (g)
Frequency of annual overhaul; (h) Frequency of capital overhaul etc.

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The diagnosis at this stage is based on available plant records and design data. No
inspections and/or testing of material, plant or equipment is involved at this stage. Timely
identification and diagnosis of problems is of critical importance and form the foundation for
successful R&M of the plant in the future. This obviates the need for a comprehensive R&M
in one go (except for BTG) and ensures that necessary up-gradation is carried out during
the course of plant operation and annual/capital overhaul and maintenance.

1.1. Reactive Approach to Identification of Plant for R&M

(Management Risk)

1.1.1. Risk Description

This risk arises if timely decision is not undertaken to identify plant for R&M works. Ideally
decision to undertake comprehensive R&M should be based on the diagnosis of the early
warning symptoms. This includes diagnosis of the reasons for deterioration in plant
performance parameters such as Plant Availability, Station Heat Rate (SHR), Auxiliary
Consumption etc. and the ageing analysis of the unit i.e. the number of remaining years
left before the plant completes its economic/designed life of operation.

1.1.2. Root Cause Analysis

This risk can be attributed to the weak monitoring processes at the plant and at the
institutional level.

In most of the states in India, it is observed that the decision to undergo R&M is driven by
reactive signals (Refer box below) i.e. (i) Units identified by the CEA for undergoing R&M in
the plan period during the progress review discussions with the state; (ii) Regulatory
signals wherein the petitioned performance parameters are not approved by the Regulator
or the generating company has been cautioned by the Regulator; (iii) Tightening of
emission norms and notice from the State Pollution Control board etc.

Box VI-1: Approach adopted for identification of units for undertaking R&M

Example: Barauni Thermal Power Station (BTPS)

Unit 6 and Unit 7 of BTPS (2X 110 MW) were commissioned in 1983 and 1985
respectively. These units were identified by CEA for R&M works during 11th plan.
However, the performance of the plant deteriorated much before the end of economic life
of the plant. The cumulative performance of the units from 1998-99 to 2007-08 is given
below:

Cumulative Performance

Year Generation (MU) Auxiliary Overall

PLF Heat Rate
Consumption Efficiency
(%) (Kcal/kWh)
(%) (%)
Unit 6 Unit 7 Total

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1998-99 218 314 532 12.4 28.8 4608 18.8

1999-00 247 80.5 328 10.8 17.7 4681 18.4

2000-01 146 175 321 13.9 17.6 4424 19.7

2001-02 195 124 319 13.1 17.4 5127 16.9

2002-03 145 122 267 16.2 14.5 4637 18.7

2003-04 136 149 276 16.4 15 5050 17.8

2004-05 38.5 115 154 20.0 8.35 5253 16.4

2005-06 83.5 37.5 121 20.8 6.57 5404 16.1

2006-07 0 37.3 37.3 28.6 4.05 5198 16.5

2007-08 132 0 132 12.8 14.4 4450 19.3

Thus, the operational performance of the plant must be regularly monitored and
considered as a key parameter for undertaking decisions related to R&M of the plant. .
The early warning symptoms should be identified and acted upon.

Source:- DPR for R&M of 2X110 MW (Units 6&7) Barauni TPS

In several cases the decision to undertake R&M is taken either the plant is already
shutdown or the performance of the unit has been significantly deteriorated or the plant
has already outlived its economic/useful life.

1.1.3. Impact, Frequency and Severity of Risk

The impact of this risk is that it leads to deterioration in the condition of the plant and its
performance. More delayed is the decision to undertake R&M, higher is the adverse impact
on the performance of plant and resultant higher involvement of resources in terms of time
and cost for R&M of the plant. In case of extreme scenario this may even lead to plant
retirement.

The likelihood of occurrence of this risk is high in the Indian context as most of the utilities
adopt a reactive approach to R&M.

The severity of risk is moderate if the symptoms of deterioration in performance are

identified during the initial stages. However, the severity keeps on increasing with the
delay.

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1.1.4. Bearer of Risk

Utility/Plant Owner is the direct bearer of this risk. However, this also impacts the
consumer in the state as it disrupts the quantum of power to be supplied to the discom
which then has to resort to purchase of costly power from the short-term market.

1.1.5. Strategy to Manage the Risk

Strengthening of internal data acquisition, monitoring and alert systems to track

unit performance (Risk Avoidance)

Early diagnosis of the symptoms requires strengthening of data acquisition, monitoring and
alert system (Management Information System) within the plant level. This system then
interfaces with the Digital Control System (DCS) for automatic generation of management
reports. These reports then form the basis of tracking of performance and R&M decisions.

Based on the above, this risk can be completely avoided or its impact can be significantly
minimized. Some of the critical actions involve:

i. Adherence to the annual maintenance/overhaul schedule and capital overhaul

schedules.

ii. Regular collection of data pertaining to key performance parameters, reliability of

the plant and its individual components and condition; and flagging warning signals
in the management reports. Data related to emissions should also be collected to
facilitate monetizing of GHG emissions in future.

iii. Identification of the components causing forced outages along with reasons for such
failures

The overall mitigation strategy described above is based on proactive approach of the utility
towards performance improvement.

1.2. Lack of Long Term Plan and Awareness of Available Market

Options (Management Risk)
1.2.1. Risk Description

Key priorities of the state in the context of energy sector are: (i) to provide adequate and
affordable power to the consumers; (ii) be energy secure and environmentally benign; and
(iii) ensure financially sustainable utilities. The states and the power utilities in the country
must have long-term plan (Optimal Generation Plan) for achieving the above mentioned
goals. The decisions related to R&M must be a consequence of this long-term plan.

The risk arises when decisions related to R&M are taken up in isolation without considering
other available options.

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1.2.2. Root Cause Analysis

The root causes for the above behaviour are as follows:

 Lack of power sector vision at the state level and at the utility level

 Conventional focus on augmentation of new supply as a means to meet the increasing

power demand

 Lack of awareness of possible market options

1.2.3. Impact, Frequency and Severity of Risk

The risk results in sub-optimal investments decisions. In addition, this risk directly impacts
the long term sustainability of the plant in terms of performance and availability. As a
consequence, this also affects the financial performance of the generating company.

This trend has been observed in several states reviewed as part of this study. Hence, the
frequency of occurrence of this risk is high. The risk impacts the plant and utility
performance gradually, hence severity is moderate.

1.2.4. Bearer of Risk

Utility/plant owner is the direct bearer of the risk. However, non-performance also impacts
the consumers in terms of high tariff (if pass through under the regulatory mechanism).

1.2.5. Strategy to Manage the Risk

The rationale for R&M of a project should be established at the state level taking
into account all the alternative competing options. (Risk Avoidance)

R&M decision should take into account all the available market options including new power
plants (at same site or at a different location), procurement of power through medium and
long-term Case I bids, availability of supply from renewable energy sources, purchase from
open market etc. This should form the basis of the decision i.e. whether to: (i) Retirement;
(ii) Maintain and Operate for few years and eventually retire; (iii) Capital Overhauling and
Refurbishment; (iv) R&M and Life Extension; and (v) R&M, LE and Uprating.

The final decision of R&M should also be considered in consultation with the Discoms,
wherein the refurbished plant should fit with the Discoms long-term power procurement
plan.

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1.3. Lack of Confidence and Uncertainty with Regard to R&M

projects (Market Risk)

1.3.1. Risk Description

Due to limited experience sharing and success stories in India, a number of generating
companies are uncertain about the outcomes of the R&M. Hence, appreciation of benefits
associated with R&M is limited.

This leads to a risk wherein a utility does not consider R&M as an option, even though it
makes economic sense.

Box VI-2: Lack Of confidence and uncertainty with regard to R&M Projects

Uncertainty with regard to R&M projects

Example: Ukai Thermal Power Station Unit 1, Gujarat State Electricity

Corporation Limited (GSECL)

The post R&M performance of Ukai TPS unit 1 was not in line with that envisaged in DPR.
The performance of the unit during Pre and Post R&M and as envisaged in DPR is given
below

Norm as per Pre-R&M Actual Post R&M

Ukai TPS Unit 1
DPR (2005-06) ( 2009-10)

Auxiliary consumption (%) 9.20 10.70 10.85

Heat Rate (in Kcal/ Kwh) 2,482 2899 2848

PLF (%) 80 54.53 50.68

Under performance was due to high vibration of turbine and excessive boiler tube
leakages which led to delay in stabilisation of operation of Unit I of Ukai TPS (which was
subsequently addressed by BHEL). Although, the performance improved thereafter but it
still has to achieve sustainable benefits as provided in the DPR. Based on the post R&M
performance results, GSECL has decided not to undertake comprehensive R&M for other
units. The ongoing R&M program of Gandhinagar has also been scrapped.

Source:- CAG Audit Report No.4 (Commercial) for the year ended 31 March 2010 and
discussion with the utility

Non completion of R&M work by selected vendor

Example :- Obra A Thermal Power Station, Uttar Pradesh Rajya Vidyut Utpadan
Nigam Limited (UPRVUNL)

UPRVUNL entered into an agreement (February 2003) with M/s Techno Prom Export
(TPE), Russia for the refurbishment of 5 units of 50 MW capacity each of Obra „A‟ TPS for

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Rs 479.50 Crore, work being divided in three phases. TPE started the refurbishment of
Unit No.1 & 2 under Phase I (July 2003) but stopped the work (February 2006) mid way
without completing the contract. A MOU was further signed (April 2006) with TPE for
completion of work of Phase I by November 2006. TPE again failed to complete the work
within extended period up to January 2008. Agreement was terminated (March 2008) and
remaining work of Phase-I was got completed (May 2009) by other vendor.

Source:- CAG Audit Report

Uncertain outcomes have created apprehensions among the utilities with regard to
considering R&M as a viable option for generation.

1.3.2. Root Cause Analysis

The root causes include:

i. Limited experience of R&M related to larger size plants especially 210 MW.

ii. In certain cases, post R&M performance of the plants not in line with that envisaged
at the planning stage leading to the negative outlook of the utility with regard to
R&M.

iii. Non-performance of the contract and delay in execution of R&M project by the
suppliers leading to delayed or non-achievement of benefits of R&M

iv. Limited dissemination of successful cases

v. The success of R&M has been limited in case of earlier installed 120 MW sets in the
country due to their inherent design problems.

1.3.3. Impact, Frequency and Severity of Risk

This risk either results in delay or discarding of R&M as an option even when it would have
made economic sense. This also negatively impacts the entire R&M market in the country.

The severity of the above risk depends on case to case basis, however may range from low
to moderate. The frequency of the above risk is moderate to high.

1.3.4. Bearer of Risk

This risk impacts the entire R&M market including potential generating companies,
equipment suppliers, design consultants etc.

1.3.5. Strategy to Manage the Risk

A. Need for Experience Sharing (Risk Mitigation)

The generating companies and other stakeholders should disseminate their experience of
implementing R&M. This besides being hosted on their respective websites should also be

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disseminated through a common platform such as the CEA official website. The CEA should
initiate action in this regard.

BoxVI-3: Need for Experience Sharing

Example: Korba (East) Thermal Power Station- Unit 1 to 4 (4x50 MW) and Unit
5& 6(2x120 MW)

In case of the above plants, the achievement post R&M viz-a-viz the contracted
parameters has been encouraging. This is tabulated below:-

PERFORMANCE PARAMETERS (4X50 MW) KORBA EAST

As Per Contract
Agreement

Pre- Post-
Achieved as Per PG Test Results
Rehab Rehab

All All U#1 U#2 U#3 U#4

Units Units

1 Rated 40 MW 50 MW 50MW 50MW 50MW 50MW

Capacity(MW)

2 TG Heat Rate 2714 2319 2186.12 2257.4 2253 2188.1

kcal/kWh

3 Boiler Efficiency 83% 87.50% 89.03% 88.39% 88.97% 90.30%

4 Station Heat Rate 3270 2650 2455.54 2553.85 2532.31 2423.145

kcal/kWh

PERFORMANCE PARAMETER (2X120 MW) KORBA EAST

Guaranteed Parameters As per PG Test Results

U#5 U#6 U#5 U#6

1 Rated
120MW 120MW 120 MW 120MW
Capacity(MW)

2 TG Heat Rate
2087 2087 2096.96 2097.97
kcal/kWh

3 86.3(+/- 85.75(+/-
Boiler Efficiency 89.40% 88.13%
1%) 1%)

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4 Station Heat Rate

2418 2434 2346 2381
kcal/kWh

It is important that the generating companies and other stakeholders should

share their experience of implementing R&M so that other plants can also take
benefit of such experiences. This also results in confidence building towards
R&M interventions.

Source: Interaction of AF Mercados EMI team with the officials of CSPGCL

Pilot demonstrations in Bandel TPS Unit-5 (210 MW) and Koradi Unit 6 (210 MW) have
already been initiated through the support of the World Bank. It is expected that the
experience from these pilots would help in better design and implementation of R&M
programs in future.

B. Need to Develop Market for R&M in the Country (Risk Avoidance)

The CEA needs to facilitate development of R&M market in the country through appropriate
signals. This includes:

 Communicating the overall R&M market size to various stakeholders. This will
promote vendor development and interest in the R&M market from India and
outside.

 Initiate measure to address concerns of the stakeholders including bidders/suppliers

and technical consultants.

CEA has already initiated the above study with support from the World Bank.

2. Assessment Stage

Most of the equipment of a power plant is subjected to high temperature and pressure and
are designed for fatigue life of about 25 years of operation.

Due to ageing of the equipments and metallurgical deterioration of the materials after
prolonged use, it may become uneconomical or dangerous to operate the unit. However, by
undertaking preventive measures such as proper maintenance, refurbishment, rectification
or R&M of the plant it is possible to operate the unit safely, reliably and economically for
another 15-20 years.

Further, differences in the operational practices from design operation environment may
lead to premature equipment failure or lower than expected output. This calls for
systematic evaluation of the plant through undertaking of various technical studies and
tests. This includes the following:-

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 Residual Life Assessment

 Complete Condition Assessment

 Energy Audit

 Past History of Plant (including maintenance schedules, overhauls and assessment

of O&M practices)

The technical evaluation of the plant is followed by the economic evaluation of the plant to
decide on the most optimal option. These include:

 Plant retirement

 Maintain and operate for extended time and retire subsequently

 Capital Overhaul and refurbishment

 R&M and Life Extension

 R&M, LE and Up-rating

Detailed Project Report prepared for assessment of above options also includes a detailed
technical and economic analysis of the identified option. This also includes assessment of
the sources of fund and the phasing required for execution of R&M option.

Several options can be worked out for involvement of private players in the R&M process.
Some options often discussed include: (i) Lease, rehabilitate, operate and transfer; (ii) Sale
of plant; (iii) Joint venture between the private player and public/private utilities.

Based on the technical studies and the option selected for R&M, the scope of R&M Project is
prepared. The aim here is generally to define scope in as precise terms as possible however
often changes and surprises occur when the plant is actually opened up for implementing
the R&M. The utility often is faced with the issue of level of detailing that is required at the
planning stage itself vs. the time and resources that are available to be committed for
achieving marginal improvement in the scope assessment exercise.

Before the tenderization process begins, utility should also submit the details of the
assessment to the Appropriate Commission and seek its approval (often “in-principle”
approval, with the formal approval obtained post the R&M is executed and actual amount
incurred on the same is submitted).

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2.1. Delay in Obtaining Unit Shutdown for Undertaking Technical

Studies (Institutional Risk)

2.1.1. Risk Description

Robust baseline assessment through technical studies is the foundation for the success of
R&M project. In order to carry out comprehensive assessment of the remnant life and
condition of the plant, various standardised tests are required to be performed (destructive
and non-destructive) involving a shutdown of approx. 2 to 3 months.

This risk arises if the utility is not able to obtain requisite approvals from the relevant
authorities (State Government or Regulatory Commission) for shutdown of the plant for
carrying out such studies.

2.1.2. Root Cause Analysis

Significant energy and peak deficit scenario in most of the states coupled with lack of
planning with regard to procurement of power from other sources inhibits shutdown of
state owned units especially for carrying out such studies.

In certain cases this is driven by socio-political consideration that results in delay in

obtaining the shutdown.

2.1.3. Impact, Frequency and Severity of Risk

The above risk leads the following:

(i) Delay in initializing the R&M activity, causing further deterioration in the plant
condition and performance

(ii) Shorter shutdown period results in inadequate assessment of the condition of the
plant and residual life of various components derailing/impacting the entire R&M
project.

The likelihood of the occurrence of this risk is low to high depending upon the number of
units requiring simultaneous shutdown. It may not be difficult to obtain requisite approval
for one unit but in case more units are scheduled for such shutdown, obtaining requisite
approvals/permissions may be difficult.

The severity of the risk is low.

2.1.4. Bearer of Risk

Generating company is the direct bearer of this risk.

2.1.5. Strategy to Manage the Risk

This risk can be avoided through a combination of measure that should be initiated from
the Central Government, the Generating Company and the Distribution Utility. These are
explained below:

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A. Advance Planning for Scheduling of Technical Studies (Risk Avoidance)

The following steps are required at the plant level:

i. Efforts should be made to coincide the time period of technical studies with that of
annual maintenance/overhauling of the unit. Thereby, a separate shutdown may not
be required for carrying out the technical studies.

ii. In case a separate shutdown is required, it must be planned well in advance and
distribution utilities must be informed accordingly. This would provide sufficient time
to the distribution utility for arranging for additional power to meet the shortfall on
account of the above. The current power market provides several avenues for
procurement of power in the short and medium term, which should be considered.

iii. Further, efforts should be made to plan such studies during off-peak demand
months when the stress on the generating systems is low. This however, should be
considered in view of the market conditions. As in certain cases it is noticed that
when multiple plants undergo R&M during off-peak periods, the stress on the
suppliers increases resulting in delays. Hence, availability of the vendors should be
assessed before actual commencement.

B. Additional Allocation of Power to States from Unallocated Quota of Central Pool

for carrying out the studies (Risk Avoidance)

In order to obviate this risk the following is required:

i. As per clause 6.2 (ix) of the MoP Guidelines for R&M, the utilities may approach the
Government for additional allocation of power to the extent possible from
unallocated quota of central sector power stations during the period of shut down of
units for comprehensive life extension works.

In line with the above clause, it is required that the above dispensation is also
available to the plants at the time of undertaking technical studies such as RLA,
Condition Assessment, Steam Path Audit.

2.2. Inadequate Technical Assessment/Studies (Technical Risk)

2.2.1. Risk Description

Technical assessment is the most important and a resource intensive activity in terms of
time and manpower. It involves performance testing, destructive and non-destructive
evaluation of equipment, to diagnose the key concern areas in the power plant.

This risk arises on account of the following:

(i) Requisite studies or tests not performed

(ii) Assessment undertaken only for major components of the plant

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(iii) Proxy Assessment in case of multiple units, wherein studies are undertaken only for
one unit

2.2.2. Root Cause Analysis

The root causes for the above are:

i. Studies undertaken only for the major components of the plant- It is

observed that in many cases RLA/CA study is undertaken for boiler and turbine but
no study is undertaken to diagnose critical areas in BoP and auxiliaries. Further,
studies such as energy audit may not be undertaken at all, inhibiting identification of
energy efficiency measures for improved performance and also comparison of
performance of different components of plants in pre and post R&M scenario.

ii. Due to lack of past operating and performance data with the utility, it may difficult
to identify improvement areas for certain components in the unit/machine as every
component cannot be tested.

iii. Utilities may also not be keen to undertake detailed assessment as they generally
underestimate the importance of data or in interest of time these studies may not
be undertaken.

iv. In case of multiple units, it is sometimes assumed that since both units are
operating under same condition, assessment of any one of the units would suffice
the purpose. This also results in saving of time and cost during the initial stages
(Refer box below).

Box VI-4: Inadequate Assessment for R&M

During interactions with various officials both at the utility headquarters and the plant
level, it was observed that most of the utilities do not undertake comprehensive
assessment, and studies are being undertaken for the main plant only (BTG). In addition,
in case of multiple units undergoing R&M, studies are conducted only for one of the units
and scope for all units is prepared based on the same (Proxy Assessment).

One of the examples is Barauni Thermal Power Station (Unit 6 and 7) wherein the RLA
study for Boiler & Auxiliaries and Turbine & Auxiliaries was undertaken for only Unit 6. No
RLA/CA study was conducted for Electrical and C&I Systems or for common facilities.
Further, no such assessment was undertaken for Unit 7.

Based on the limited assessment scope of work was prepared for both the units.

Source: Interaction of AF Mercados EMI team with the officials of various utilities and DPR
for R& M of 2X110 MW (Units 6&7) Barauni TPS.

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2.2.3. Impact, Frequency and Severity of Risk

The impact of this risk is reflected in the form of surprises or additional scope of work at
the project execution stage leading to increase in cost and time of the project. The impact
on the project could be high as identification of additional scope not only increases the cost
of procurement but also leads to delay in execution leading to significant generation loss
and hence revenue to the utility.

The frequency of occurrence of this risk is high.

2.2.4. Bearer of Risk

The above risk impacts all the parties involved in the R&M activity including generating
company, supplier(s) and the Implementation Support Consultant (if applicable).

2.2.5. Strategy to Manage the Risk

Comprehensive Studies for the unit planned for R&M should be mandatory. The
scope of the study should cover both the Main Plant Equipment as well as the
Balance of Plant. (Risk Avoidance)

A comprehensive R&M assessment should aim to undertake the following for each unit
being considered for R&M or LE: (i) Data Gathering; (ii) Plant Walk-down; (iii) Energy
Audit; (iv) Pre-R&M Performance Testing; (v) Residual Life Assessment; (vi) Steam Path
Audit; (v) Stress Analysis of Critical Piping; (vi) Potentially Non-destructive and Destructive
Evaluation; and (vii) Review of O&M Practices6. (Refer Table VI-2below)

Table VI-2: Technical Study of Thermal Plants

Boiler Turbine/Generator Balance of Plants/Auxiliaries

 RLA Study  RLA Study

 Condition Assessment  Performance Testing  Condition Assessment Study
Study  Finite Element Analysis  Performance Testing
 Performance Testing  Steam Path Audit

Additionally, diagnostic studies should also review the procedures, training system and
other similar aspects.

6
In certain cases, wherein the assessment of O&M practices has revealed serious gaps, funding
agencies have insisted on development of an O&M improvement action plan that is accepted by the
Board of Directors by the generating company, and proposed for implementation as soon as the R&M
is completed.

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Further, in order, to minimize the impact of this risk it is advisable to undertake

comprehensive R&M assessment for each unit planned for R&M, and review both the main
plant equipment and the BoPs. The depth of the studies between different units or plants
could vary depending upon the condition of the plant, availability of historical operation and
maintenance records etc. For example, if regular maintenance of the plant is being
undertaken by the utility and comprehensive maintenance records have been well kept in
that case in-depth testing may not be required for all the components of the plant.

2.3. Weak Analytical Framework for Selection of R&M Options

(Management Risk)

2.3.1. Risk Description

Post the technical studies have been undertaken, the decision to

repair/improvement/replace/retrofit or combination of these measures (or retire) is based
on assessment of available options. This also includes economic evaluation or comparison
of options with regard to R&M, retirement or setting up of new power plant etc.

This risk arises if the utility is not able to identify and/or evaluate different options and
select the best possible option depending upon the conditions of the plant, financial
constraints etc.

2.3.2. Root Cause Analysis

The root causes of the above behaviour are:

(i) Poorly defined objectives for undertaking R&M

(ii) Inability to identify alternative option or combination of options

(iii) Focus only on the technical criteria, with limited focus on financial and economic
returns

(iv) Limited project appraisal skills

2.3.3. Impact, Frequency and Severity of Risk

The above risk leads to selection of sub-optimal option that may result in unmet objectives
and outcomes, and/or higher time and cost.

The likely occurrence of the risk is high and severity is moderate.

2.3.4. Bearer of Risk

The ultimate bearer of this risk would be consumers as the suboptimal decision would lead
have relatively high cost viz-a-viz benefit resulting in high consumer tariffs.

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2.3.5. Strategy to Manage the Risk

Comprehensive Identification and Assessment of Options including computation

of financial returns, payback period, shutdown time required and conformance to
the set objectives. (Risk Avoidance)

R&M should be goal oriented. Hence, objective for undertaking R&M should be decided
upfront. The objective for undertaking R&M could be any one or a combination of the
following (i) Availability improvement i.e. increased electrical output; (ii) efficiency
upgrading i.e. reduced fuel consumption, (iii) environmental control upgrading i.e.
emissions within new norms, (iv) life extension i.e. improved reliability. Based on the
identified objective/(s), options for R&M should be evaluated and selected.

A detailed cost benefit analysis by estimating the net present value (NPV), rate of return
(IRR), payback period and cost-benefit ratio, should be undertaken by the utility for
different options. Analysis should also include the impact on key parameters such as life,
PLF, heat rate, efficiency etc. Further, the robustness of the selected option should be
tested through scenarios such as time and cost over-run, shortfall in capacity, change in
shut-down, heat rate or a combination of adverse factors. The justification of the R&M
project needs to be established clearly demonstrating that the R&M project is competitive
against all feasible power generation supply options (Refer Box below).

It must be noted that there is no benchmark cost for R&M. The actual cost depends on a
variety of factors including:

 Periodicity and quality of regular maintenance and overhauls.

 Overdue maintenance works imply a larger scope of R&M works

 Age, technology and condition of the plant.

 Higher Costs of Energy Efficiency Measures and Modernization

Hence, net financial returns should be the determining factor rather than capital
expenditure incurred on R&M. Independent specialized entities could be considered for
undertaking such assessments.

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Box VI-5: Evaluation of different R&M options

Example:- Unit 6 of Koradi Thermal Power Station (KTPS) (210 MW), Maharashtra State Power Generation Corporation Limited
(MSPGCL)

Table below indicates the options considered for R&M by MSPGCL for KTPS Unit 6. Based on the assessment Option D was selected.

Description/
A B C D E F G
Option

One to one
Option B,
replacement Option B plus
along with life
for life replacement of
extension,
extension of complete
aims for Option B plus
the plant for turbine with
restoration for LP retrofit for complete
up to 20 years new reaction Insitu
design Increase in replacement of
with the type turbine Option D plus replacement of
capacity and Plant Capacity the main plant
present for increase in Generator the main plant
restoration of up to 215 MW with new plant
Scope operating Plant Capacity modification to with new plant
the design Unit and of 250 MW
capacity up to 215 MW, achieve 220 of 250 MW
Heat rate with Improvement capacity at
without and MW capacity capacity at
Boiler in Unit Heat adjacent
modification Improvement same location.
modification Rate beyond location
for existing in Unit Heat
for existing design Heat
coal quality, Rate beyond
coal quality
with design Heat
and Turbine
improvement Rate
refurbishment
in heat rate

Unit Capacity
196 210 215 215 220 250 250
(MW)

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Unit Heat
Rate
2476 2400 2370 2350 2350 2350 2350
(kCal/kWh)
PG Test value

Project
Capital cost 309 403 456 486 536 984 849
Rs. Cr.

Cost per MW
1.57 1.92 2.12 2.26 2.43 3.93 3.39
(Rs. Cr/MW)

Cost of
Generation 2.27 2.27 2.23 2.21 2.24 2.59 2.36
(Rs/kWh)

FIRR % at
minimum cost 11.74 11.65 12.86 13.2 12.39 7.82 8.28
of Generation

Pay Back
4.5 4.6 4.6 4.6 4.6 6.6 6.7
period

Shut down
period 5 6 6 6 6 4 18
months

Source: Detailed Project Report for KTPS (Unit 6)

Thus, various options for R&M should be comprehensively identified and evaluated, and best option selected.

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2.4. Appropriate Commission not apprised of the R&M Project Plan

(Regulatory Risk)

2.4.1. Risk Description

R&M project involves capital investment and hence regulatory approval for such investment
is essential to enable the generating company to recover the amount through tariffs. It is
thus, essential that the appropriate regulatory commission is apprise well in advance about
the plan for undertaking the R&M. In addition, the plan should be in accordance with the
regulations notified by the Commission from time to time.

The risk arises when the Appropriate Commission is not apprised about the R&M project.

2.4.2. Root Cause Analysis

This risk can be attributed to complacency resulting in oversight or lack of awareness of

regulatory requirement.

2.4.3. Impact, Frequency and Severity of Risk

The impact of this risk would be that the generating company may not be able to recover
the investment or the cost it incurs on undertaking R&M of the plant. This will also impact
the financial position of the generating company.

The likelihood of this risk is moderate and the severity is moderate.

2.4.4. Bearer of Risk

Utility is the bearer of the risk.

2.4.5. Strategy to Manage the Risk

Practice of obtaining in-principle approval from the Appropriate Commission

should be encouraged. (Risk Avoidance)

Review of the tariff regulations notified by various states indicates that in-principle approval
of R&M investment may not be a mandatory requirement; however experience suggests
that it is a desirable practice that helps avoid controllable risks at a later stage.

In accordance with the above, the generating company must provide all required
information to the regulator for obtaining such approval.

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2.5. Limited Capacity of Utilities in Undertaking R&M Works

(Operational Risk)

2.5.1. Risk Description

The risk arises due to the limited skills and expertise of the generating company to plan
and implement R&M. In addition, absence of dedicated cell/department at the company
level also contributes to the risk.

2.5.2. Root Cause Analysis

The risk arises on account of the following:

(i) Limited training of utility professionals in the area of planning and execution of R&M
projects

(ii) Inadequate exposure of the utility staff with regard to experience of other states in
India and outside in implementing R&M

(iii) Adequate personnel not dedicated to the R&M activity as most of the available
manpower is dedicated to the already ongoing and large new capacity
augmentation programs.

(iv) People working in R&M project get transferred to other departments in the middle
of the project.

Box VI-6: Limited capacities of the Utilities in undertaking R&M works

During interactions with various utilities undertaking R&M, it was observed that
“Adequate staff is not deployed for the project and Maintenance Engineers from running
plants are utilised as and when need arises diluting the efficacy of work.”

Adequate dedicated personnel is a pre-requisite for effective implementation of

R&M projects

Source: Interaction of AF Mercados EMI with officials of various utilities.

2.5.3. Impact, Frequency and Severity of Risk

Every stage of the R&M process cycle is impacted leading poor execution of project. The
frequency of this risk is high and severity is moderate.

2.5.4. Bearer of Risk

Besides the utility, vendors also bear this risk as they would not be able to perform their
works effectively.

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2.5.5. Strategies to Manage the Risk

Creation of dedicated R&M Cell and Engaging Specialised Consultants (Risk

Avoidance)

In order to effectively deliver a successful R&M project, the following steps are required:

A. Creation of dedicated R&M cell by the utility at the headquarter and at the
plant- In order to effectively deliver on the R&M project it is important to create a
separate R&M cell with adequate and dedicated manpower for the project. This team
should involve a mix of plant level officials dealing with the different plant level
departments like Boiler, Turbine, Electrical, C&I, CHP, Milling system and AHP etc.

Additionally, the cell should be able to mobilize staff from different departments as
required during the course of the assignment. To ensure timely decisions and approvals
within the organization it is important that this team is formed at both headquarters
and plant level.

B. Engaging of design and implementation support consultants-Specialized agencies

should be engaged by the utility (on the basis of competitive bidding) covering
assistance on all works from design to implementation. This could be either one agency
or multiple agencies.

The role of design consultants is to assist the utility in tasks related to conduct of
different studies, identification and selection of best feasible option for R&M, preparation
of DPR, scope finalization, preparation of tender documents, bid evaluation and
selection of vendor etc.

The role of implementation consultant includes review and approval of drawings,

coordination between the vendors and the utility, monitoring the progress of work as
per approved schedule, assistance to Owner in dealing with statutory authorities such
as Boiler Inspectorate Directorate, Pollution Control Board etc, monitoring of day to day
progress of the work, review of PG Test Report etc.

Further, to build the requisite capacity of the utility officials, scope of work of
consultants should also include training of utility/R&M cell officials on each of these
components/fields.

C. Avoidance of transfer of personnel involved in R&M Project in the middle of

R&M work- Abrupt transfers of personnel in the middle of R&M project creates
unnecessary distress and slows down progress till the new person gets acquainted with
the project. It is imperative to involve people selected for R&M Cell to work from the
beginning to end of the project so that timely decisions can be taken.

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2.6. Weakly Defined Scope of Work (Contractual Risk)

2.6.1. Risk Description

This risk arises if the scope of work is broad and does not clearly define the role and
responsibility of different stakeholders including the works to be performed by each party.

Further, if the scope of work or design specifications is prepared in a way to favour a

particular supplier or include propriety items.

2.6.2. Root Cause Analysis

The risk arises due to the lack of proper and detailed assessment of the requirement of
works at the start of the project by carrying out limited technical studies. It needs to be
acknowledged that the nature of R&M work is such that exact scope cannot be defined but
efforts are required to bridge this gap as much as possible. However, instead of bridging
this gap by specifying the scope as precise as possible, utilities prefer to insert clauses the
following clauses to safeguard their interest.

“Any item essentially required for system completion and commissioning of the units shall
be treated as included in the scope of works without any extra cost on this account”

Such clauses although included in the contract, in reality are not acceptable to the vendors
and also difficult for the utilities to make vendors adhere to such clauses. Further, scope is
kept broad or are prepared in manner to favour a particular supplier in cases where in there
exists a potential conflict of interest i.e. same organisation or consultant is involved in the
entire process of undertaking the technical studies, preparation of scope and its ultimate
execution.

2.6.3. Impact, Frequency and Severity of Risk

Lack of clarity in the roles and responsibilities of the involved parties in the scope of work
leads to contractual disputes causing delay in project execution. Also, such risk arises when
the actual execution of the project starts leading to increased shutdown period and hence
loss in revenue to the utility.

Further, ill defined scope of work and specifications tailored to favour a particular vendor
lead to increased cost of procurement of the works for the utility and discourages other
vendors in the market ultimately hampering the overall market development in a broader
context.

Contractual delays also impact the bottom line of the vendor and opportunity cost for the
utility. The likelihood of the occurrence of this risk is high and severity differs from
moderate to high.

2.6.4. Bearer of Risk

Both utility and vendor are the bearers of this risk.

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2.6.5. Strategy to Manage the Risk

Scope of Work to be as precise as possible (Risk Mitigation)

In order to mitigate this risk a multi-pronged approach is required which is explained

below:-

i. Role of Design Consultants- Besides their role in undertaking the technical studies, it
is required that design consultants should also be involved in preparing the final
scope of work for the study.

ii. Involvement of plant level officials- It is required that officials/engineers involved in

the operation and maintenance of the plant should be involved while finalizing the
scope of works as they have better knowledge of the condition of the plant than
anyone else.

iii. Involvement of engineering team-Engineering team of the utility shall also be

involved while finalizing the scope of works.

iv. Discussions with vendor/s- Suppliers (especially the original equipment suppliers)
should be consulted in the early planning process to understand the viability of
options for R&M envisaged including new technologies which can be used. However,
it is required that scope should not be biased towards any one or more supplier.
Further, in case of bidding, the bid clarification stage would provide the opportunity
to bidders to flag biases if any and would help in strengthening of the scope of
works. In case of nomination basis, direct discussion with the vendor can provide
inputs in finalization of scope.

v. Avoid proprietary items in the scope of work- While preparing specifications for
different components efforts shall be made to avoid proprietary items. For e.g.: - in
case of C&I systems, it is important to select Open System to minimize proprietary
hardware and software; and ensure compatibility with existing systems. In addition,
the customer support and service policy should also be taken into account during
assessment.

Involvement of multiple agencies as suggested above and conduct of comprehensive R&M

studies are vital components for preparation of best possible specifications of the project.

2.7. Utility Unable to Mobilise Funds (Funding Risk)

2.7.1. Risk Description

This risk arises when the utility is not able to arrange adequate funding for undertaking
R&M of the project or faces constraints in raising funds for the project.

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Box VI-7: Lack of funding for undertaking R&M (Thermal Power Station - BTPS)

Example: Barauni Thermal Power Station (BTPS)- Unit 4 and 5

Unit 4 and Unit 5 of BTPS (2x50 MW) were first identified by the CEA for R&M works in
1989 and 1991 respectively. However, due to lack of sufficient funds R&M works could not
be taken up at that stage.

These units were later shutdown in 1995-96. Finally, in 2008, the Bihar State Electricity
Board (BSEB) decided to take up these units for R&M. However, these were declared
unviable by the CEA, and considered for retirement under the 11 th five year plan.

Thus, due to funding constraints R&M plans could not materialize as per expected
schedule.

Source: CAG Report – 2009-10

2.7.2. Root Cause Analysis

This risk arises due to the poor financial condition of state generation companies makes it
difficult to obtain financing especially from commercial sources. Further, due to declining
profitability, it is difficult for state generating companies even to arrange for equity funds
from their internal reserves.

In addition to the above, most of the utilities are unable to justify the benefits envisaged
from R&M to the potential financiers. This occurs on account of three factors: (i) lack of
robust analysis of various possible options; (ii) lack of confidence of financiers on R&M due
to limited success stories in the country; and (iii) overwhelming focus of financiers on new
capacity addition (until recently).

2.7.3. Impact, Frequency and Severity of Risk

The overall impact is that utility is unable to materialize its plan for undertaking R&M. The
consequent delay on account of the above results in further deterioration in the plant
performance. This also has a cascading affect on the overall R&M market and leads to
creation of a vicious cycle, wherein projects do not get financed on account of limited
success stories and vice versa.

The likelihood of occurrence of this risk is low to moderate and severity of risk is high.

2.7.4. Bearer of Risk

Utility is the direct bearer of this risk. This also impacts the suppliers as they may not
receive timely payments for their works.

In the long run, this risk has repercussions on the entire R&M market.

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2.7.5. Strategy to Manage the Risk

Increased proliferation of innovative financing approaches /models coupled with

creation of awareness about benefits of R&M. Alongside, the assessment of R&M
should involve robust analysis of alternative approaches and computation of
financial returns. (Risk Mitigation)

In order to attract public or private investment for R&M projects different financing models
should be taken up by the state utilities. These include:

i. Lease, rehabilitate, operate and transfer (LROT):- Under this option, the
private promoter (PP) would take over the power station on a long -term lease, say
10 years or more wherein PP would invest and carry out the R&M of the power
station and would also take over its operation and maintenance. However, legal title
and ownership of the plant remain with the utility. After the completion of the
contracted lease period, either the lease may be renewed or the station may be
transferred to the power utility. For e.g. discussions with the MPPGCL officials
revealed that due to paucity of funds, R&M of Satpura TPS is being explored on
LROT basis.

ii. Sale of Plant: - Power utilities could offer power stations for outright sale to private
parties. However, the present value/worth of the plant have to be assessed which
could form the reserve price for the sale.

iii. Joint Venture between Power utility and public or private company: -In this
option, a new company would be formed as a joint venture (JV) of the state power
utility/ State Government and selected private/public collaborator. The JV Company
would then undertake the R&M/ LE works and also own, operate and maintain the
power station. The private collaborator could also be an equipment supplier. Each
partner shall hold minimum 26% equity in the JV Company. For e.g. BSEB
undertook the R&M of its Muzzaffurpur Plant (Unit 1 and 2 (2x110)) by forming a
new company, KBUNL, as a Joint Venture (JV) of the State Power Utility (BSEB)/
State Government (Government of Bihar) and public power utility (NTPC).

These models though discussed at various levels, the actual implementation of such models
has been limited. Therefore, it is required that such models must be actively considered by
the generating company for financing R&M projects.

In addition, awareness campaigns and outreach activities to communicate benefits of R&M

provide certainty on the market size, and involving potential vendors in the process is of
critical importance. Demonstration of successful pilots will also provide a strong fillip to the
R&M market in India.

The Indian power market particularly the new thermal capacity addition is facing
unprecedented challenges on account of acute shortage in domestic coal, slow production
of coal from the captive coal blocks and huge dependence on imported coal. All of the
above coupled with inflexible contractual structure for pass through of variation in the coal
prices is resulting in slow down of the new capacity addition. Thus, there is likely to be a

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very strong focus on increasing the efficiency of the existing generation fleet of the country.
Thus, R&M market is likely to gain momentum in the near future, with financiers also
preferring to finance projects that demonstrate visible improvement in the performance in
short time.

3. Planning Stage

Once the scope of the project is finalised, the utility develops the design specification and
proposal package and determines the procurement/bidding strategy.

Planning stage covers the entire bid process management i.e. issue of tender(s), pre bid
meetings, evaluation of technical and commercial bids, selection of suitable bidder,
negotiation of contracts and award of R&M contracts to vendors/suppliers/OEMs.

In India, in certain cases, the bidding stage is omitted. In such cases, the R&M process is
directly initiated through the OEM and awarded to the OEM for implementation as well.

3.1. Low Level of Participation by the Vendors in the Bidding

Process (Market Risk)

3.1.1. Risk description

This risk arises when the utility adopt the bidding process for selection of vendors and
receives a poor response to its bid(s).

3.1.2. Root Cause Analysis

This risk arises due to the following reasons:-

1. Limited firms involved in the R&M market as most of the domestic and foreign
companies have focused on new capacity addition in comparison to R&M projects.

2. Limited new vendor development initiatives - Insufficient/inadequate market signals

to the prospective vendors. Most of the utilities in the past have preferred to
execute R&M directly through OEMs.

3. Stringent qualification requirements and guarantees impending larger participation.

3.1.3. Impact, Frequency and Severity of Risk

The utility is forced to select vendor from the limited pool of options available. Low
competition also results in a higher price discovery. The risk has a broader market impact
in terms of the development of competitive R&M market in the country.

The likelihood of occurrence of this risk was high in the past but with more utilities
resorting to competitive bidding framework as opposed to only OEM based model, situation

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is now gradually changing. With the increase in the participation of international players in
the Indian R&M market, the likelihood of this risk is expected to be low. The severity of risk
is moderate.

3.1.4. Bearer of Risk

Utility is the direct bearer of this risk. This also impacts the potential vendors who are
discouraged from entering into the R&M market.

3.1.5. Strategy to Manage the Risk

Focussed efforts should be taken up to involve potential players in the R&M

market by the utilities and the CEA. (Risk Mitigation)

The following interventions should be taken up:

i. Qualification requirements in the tender documents should be designed in a manner

that encourages participation of players including the new players. These should not
be overly stringent.

ii. The level of guarantees should not be excessive and should be based on fair balance
between risk and rewards. Review of contractual documents and interaction with
stakeholders indicates that „performance specifications‟ are preferred as target
parameter over „design specifications‟ experience. This permits defining the target
performance relative to the present operating and design conditions and provide
flexibility to the bidder to investigate alternatives for achieving (or overachieving)
the targets. In certain cases, a combination of design and performance
specifications has also been used.

iii. Pre-bid meetings and two stage bidding process can be adopted by the utility to
address the concerns of the suppliers prior to submission of price bid. Any concern
related to scope of work or technical specifications or quantities or performance
requirements or guarantees etc should be clarified during the pre-bid stage. The bid
documents should be easily accessible and available for the bidders to examine.

iv. Utilities should make efforts to reach out to the potential vendors and disseminate
information about the bid.

v. CEA should prepare a model bidding document incorporating the qualification

requirements that can be appropriately modified by the utilities on a case to case
basis depending upon their local conditions. This document shall be prepared in
consultation with different stakeholders including suppliers. Such model contract or
document would be very instrumental in promoting competition in the market and
would also reduce the bid response time.

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Box VI-8: Vendor Participation in R&M Bidding Process

Example 1: Vendor Participation for Koradi TPS Unit 1 & 2 (2005) Vs Koradi TPS
Unit 6 (2012) – Maharashtra Power Generation Corporation Ltd. (Mahagenco)

During 2004, Mahagenco had planned to undertake R&M works for Unit 1 and 2 of Koradi
Thermal Power Station. A global tender was floated for participation of vendors for R&M
for Unit-1&2 R&M and LE Works in January 2005. Around four companies purchased the
tenders but only 2 companies finally submitted the bids. Subsequently, the process was
scrapped since for all units below and equal to 110 MW since investment in new capacity
was considered to have better returns.

In case of Koradi Unit 6 (210 MW), participation of the vendors have been encouraging.
The process has been supported by the World Bank with robust assessment and analysis
of options. A participatory process has been undertaken for finalization of specifications.
Also, two stage bidding process has been involved to address concerns of all the potential
vendors.

All of the above have enable to create a balanced risk profile of the project resulting in
higher vendor participation. In case of BTG around 8-10 companies purchased the tender
and around 4 companies finally submitted the bids. In case of Electrical package around
5 companies purchased the tender and around 2 companies finally submitted the bids.
Similarly, large number of BoP vendors purchased and participated in the bid for BoP
works.

Source: Interactions of AF Mercados EMI with the officials of the KTPS, Mahagenco

Example 2: Stringent Qualification leading to low Vendor participation – Case of

Bandel

TPS (Unit 5), West Bengal Power Generation Corporation Ltd.

In case of BTG package only one out of the four bidders qualified after the first stage bid
opening. Based on the discussions with the bidders, further refinements in technical
design and performance requirements were made and a decision was undertaken to re-
bid on a single stage basis. The single stage bids attracted two bids.

Qualification requirements should be such that it encourages wider

participation and further refinements may be made if the need arises during the
bidding stage.

Source: Interactions of AF Mercados EMI with the officials of the Bandel TPS, WBPDCL

3.2. Higher than Expected Price Discovery (Market RISK)

3.2.1. Risk Description

This risk arises if the price discovered through competitive process or through nomination
basis is significantly higher as compared to that envisaged during the Planning Stage.

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3.2.2. Root Cause Analysis

This risk arises due to the following factors:-

i. Lower vendor participation or selection of vendor through nomination basis, lead to

limited bargaining power of the utility resulting in high procurement cost

ii. Realistic assessment of cost of various components not undertaken at the DPR
stage.

iii. Weakly defined scope of work and uneven sharing of risks between the utility and
vendor. Clauses such as the following: “Anything not mentioned above, but required
for safe, efficient, reliable and requirement by the engineer-in-charge has to be
carried out by the bidder within the same time frame and with no financial
implication” increase the risk perception leading to increased risk premium or price
for absorbing/sharing higher risk.

iv. Stringent performance guarantees imposed/expected from the vendors ultimately

leads to high prices for the project.

v. Pre-R&M condition of the equipment is not well-established. Usually, the information

provided is not enough to determine clearly the design of the equipment and its
performance, and its operating history.

vi. Time gap between the technical studies and commencement of actual
implementation, as the units do not get maintenance priority in the interim resulting
in deterioration in plant performance.

vii. Lack of drawings and historical data of the plant discourages vendors and/or
increases their risk perception towards the proposed R&M of the unit/plant as they
are not able to sufficiently familiarize with the condition of plant before bidding. This
is ultimately reflected in the price of R&M.

3.2.3. Impact, Frequency and Severity of Risk

The impact of the above risk results in the following:

i. Compromises on the scope of work - Evidences are available wherein in order to

reduce the price discovered the earlier set scope of work has been reduced. This
includes dropping uprating option, up gradation of BoP dropped etc.

ii. Reevaluation of option – In view of the higher price discovery, the utility may re-
evaluate the options and may drop R&M of the plant.

The likelihood of occurrence is moderate. With increase in participation the likelihood of

occurrence of this risk may be low. The severity of the risk is moderate to high.

3.2.4. Bearer of Risk

This risk is borne by the Utility and Vendor.

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3.2.5. Strategy to Manage the Risk

The contracts should aim at balancing the risk and benefits between the utility
and the implementation vendor. Adequate flexibilities in the contract to be
provided to accommodate reasonable/acceptable changes. At all stages, the
decision to go ahead for R&M should be re-evaluated and considered in the light
of proposed changes. (Risk Mitigation)

In order to mitigate this risk following steps are required:-

i. Discussions with Vendor/s- Suppliers should be consulted during the preparation

of DPR (and cost estimates) to understand the viability of options for R&M envisaged
including new technologies which can be used and to understand the market prices
of various components.

ii. Proper Communication with the Vendors- This is the most important step as
this would enable the vendor to realistically evaluate its cost and benefit and
associated risks involved in the project. This includes the following:

a. Provision of previous year data pertaining to plant performance, results of

technical studies etc. to the prospective vendors along with the bidding
documents.

b. Suppliers interested in bidding for the project should be encouraged to

undertake plant visits to understand or review the site conditions. During
capital overhaul bidders must be encouraged to undertake their own
assessment/studies and accordingly be asked to bid for the project.

c. Conduct of pre-bid meetings and two stage bidding process can be adopted
by the utility to address the concerns of the suppliers prior to submission of
price bid.

iii. While preparing DPR of the project some contingency should be provided for price
discovery and scenario analysis should be undertaken to understand the maximum
price increase that can be allowed so that the identified/selected option remain the
best possible option and viable. If the price discovered is such that it makes the
option unviable, utility should try to select the second best possible option. Thus, at
all stages, the decision to go ahead for R&M should be re-evaluated and considered
in the light of proposed changes.

iv. Utility may also decide for rebidding (although it has its own risks) the project with
suitable modifications with regard to change in qualification criteria to increase
participation, change in the selected R&M option etc. However, efforts should be
made for suitable negotiations with the lowest bidder before resorting to such
option.

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v. Striking a right balance between the performance guarantees and penalties- There
should be adequate sharing of risks between the utility and the supplier, shifting
additional risk (beyond what the supplier has direct control on) only increases the
overall price of the contract.

Box VI-9: Higher than expected price discovery

Example 1: Koradi TPS Unit 1 and 2 (2x120MW), MSPGCL

MSPGCL re-evaluated the R&M Option for Unit 1 and Unit 2 of KTPS after the
price discovered was higher than the expected price.

MSPGCL planned to undertake R&M works for Unit 1 and 2 of Koradi Thermal Power
Station in 2004. The Feasibility report of Unit-1&2 was approved by the CEA with cost
estimation of Rs. 128 and 132 Crores respectively. The erstwhile MSEB accorded its
approval for Unit-1&2 for total estimated cost of Rs. 260 Crores with 15% variation above
the estimated cost, under single tender for both the Units.

Accordingly, KTPS published a global tender for Unit-1&2 R&M and LE Works in January
2005.BHEL and NASL submitted the bids. Price bids were opened in September2005
wherein the total cost of the project was Rs 492 Crores (Rs. 2.05 Crores per MW) with a
payback period of 18 years and Life extension of 15 years.

With these facts MAHAGENCO appointed a financial consultant for economic study in
respect of Expenditure on LE works of Unit 1 to 4 Vs setting up of a new 500 MW power
project. The following results were obtained:

R&M of Unit- New 500 MW

Particular Unit R&M of Unit-1to 4
1&2 Unit

Project IRR % 11.62 9.78 12.97

NPV Rs Cr. 69 28 250

Accordingly, the plans to undertake R&M for Unit 1 & 2 of KTPS were
abandoned.

Example 2: Barauni TPS Unit 6 and 7(2x110 MW), BSEB

The initial price offer submitted by BHEL was considered high and therefore in order to
accommodate the R&M activity within the sanctioned (available grant/budget), the scope
of R&M was adjusted wherein the option of uprating (planned initially) and modernization
of certain BoP items was dropped.

Source: Interaction of AF Mercados EMI team with the officials of BSEB

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3.3. Rebidding/Reward/Delay in Award of R&M Packages/Contract

(Market and Operational Risk)

3.3.1. Risk Description

This risk arises if the utility undertakes significant time in awarding the contract or has to
rebid any of its contract or packages. There are examples wherein this risk has originated
from the vendor side as well as from the utility‟s side.

Box VI-10: Rebidding of R&M Package

Example 1: Amarkantak TPS, Chachai (Power Station), Power House II(Unit 3 and
4), Madhya Pradesh Power Generating Company Limited

Units 3 and 4 of Power House II (2x120) were commissioned in 1977 and 1978
respectively. Comprehensive refurbishment of the PH-II was initiated in 1996. The contract
was awarded in 1999 to Ansaldo Energia, Italy, which was terminated in 2002 on account
of non performance.

Fresh tenders were invited in 2002 for major R & M works. Due to high cost of main
package (TG and boiler), the project was considered techno-economically unviable and
was, thus, dropped. Subsequently, the scope was reframed and it was decided in late 2003
to split the work into smaller packages and administrative approval was provided by the
erstwhile State Electricity Board in 2004.

The Company invited tenders (April 2004) from BHEL on single tender basis, against which
BHEL offered (on 6 June 2005) to do the work at Rs.105.96 Crore. The Company reduced
(between February 2005 and November 2005) the scope of work, in view of fund
constraint. The negotiations were held (November/ December 2005) and BHEL agreed to do
the work at a reduced cost.

In the meantime, another firm NTPC Alstom Limited (NASL) on their own expressed
(November 2005) their interest to participate in the R & M of TG sets and quoted a lower
price. The Company, however, decided (January 2006) to invite fresh tenders. The
Company invited (March 2006) fresh tenders, against which BHEL did not participate and
the only tender received was from NASL. Letter of Intent was issued (May 2007) to NASL at
a total cost of Rs.59.80 Crore.

Thus, the repeated revision of scope of work coupled with several negotiations resulted in
delayed award of R & M work of TG sets,

Source: CAG Report Audit Report and iinteraction of AF Mercados EMI with officials of
MPPGCL

Example 2: Panipat TPS- 1 (Unit 4x110 MW), Haryana Power Generation

Corporation Limited (HPGCL)

Comprehensive R & M Scheme was adopted by the erstwhile Haryana State Electricity

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Board for rehabilitation of the four Units of 110MW each at PTPS. Competitive bids were
invited (August 1995) and the contracts were awarded (23 May 1997) to ABB Kraftwerke
Berlin GmbH (now Alstom Power). However, the work could not be completed as planned
due to dispute, wherein the contract was terminated by the vendor. Several attempts were
made to resolve the dispute however all of them were unsuccessful. Subsequently, the
pending works were completed through another vendor.

Source: HPGCL Petition for Approval of Tariff for the year FY 2012-13

Example 3:Delay in Award of Contract- Case of Obra B (5x200MW),UPRVUNL

In 1998, UPRVUNL invited bids for refurbishment of 5 x 200 MW units of Obra „B‟ TPS
Power plant Performance Improvement Limited (PPIL), was found to be the lowest bidder
and it was decided (November 2001) to issue Letter of Intent to the firm. In the mean time
second lowest bidder M/s Alstom Power India Limited reduced (December 2001) its earlier
offer to less that offered by the PPIL. The decision was hence deferred and subsequently
the work was awarded to BHEL at a higher cost than that originally offered by the vendors.

Source: CAG Report Audit Report (Commercial) for the year ended 31 March 2009

3.3.2. Root Cause Analysis

This risk arises due to the following factors:

i. Qualification requirements, specifications desired or scope of work etc. are not

clearly specified or utility has been constantly reassessing its options and changing
the scope.

ii. Bid responses are in a manner wherein comparison of different bids is not possible.

iii. Discovery of higher than expected prices and subsequent modification in scope,
qualification requirement etc.

iv. Supplier issues - Delay in start of work or non-availability of manpower or dispute

among sub-contractors.

3.3.3. Impact, Frequency and Severity of Risk

This risk leads to significant delay in execution of project, cost overruns and risk of change
in baseline parameters. Likelihood of occurrence is moderate to high, and severity is high.

3.3.4. Bearer of risk

This risk is borne by both the Utility and the Vendor.

3.3.5. Strategy to Manage the Risk

A. Rebidding should ideally be avoided through robust project preparation,

however in cases where it still emerges as the only option, potential bidders

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should be encouraged to assess the current plant condition and assume the
responsibility of the task. (Risk Acceptance)

i. The specialized design and implementation support consultants should be

accountable and responsible for clearly examining the qualification requirements,
scope of work etc, and must flag these issues at the start to avoid such situations.

ii. Pre-bid meetings and two stage bidding process can be adopted by the utility to
address concerns of the suppliers and incorporating their suggestions to improve
specifications.

iii. Requisite safeguards should be adequately provided for in the contract through bank
guarantees and liquidated damages.

iv. Potential conditions that may lead to rebidding/reward should be comprehensively

assessed and incorporated in the next bidding round. In cases where work has been
partially performed (by the earlier selected bidder), the information should be
shared with potential bidders so that they assume the responsibility of the work. The
potential bidders should also be encouraged to visit the site for undertaking their
own assessment.

B. Management should undertake timely decision with regard to award of

contract by formulating qualification requirements and evaluation procedures
along with appropriate timelines before seeking interest from the vendor (Risk
Avoidance)

i. To avoid such situations, it is required that qualification requirements and evaluation

procedures along with appropriate timelines should be clearly formulated before
seeking interest from the vendor. Role of design consultant in clearly specifying such
requirements becomes essential. Further, ISC should facilitate timely decision by
providing adequate advice with regard to evaluation and selection of successful
bidder to enable decision making at the utility‟s end.

3.4. Management Risk: Implementation Contract Awarded to

Vendor Involved in Carrying out Technical Studies

3.4.1. Risk Description

This risk arises if the same entity is involved in formulation of technical specifications/scope
of work and execution of R&M project.

3.4.2. Root Cause Analysis

The Original Equipment Manufacturer (OEM) is generally the first point of contact in case of
any R&M based requirement on account of various reasons – availability of engineering
drawings and familiarity with the plant. In India, this risk is accentuated from the fact that

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only a select few OEM were responsible for commissioning of power plants during 1980s
and 90s (those that will require R&M).

Directly initiating the process with the OEM is considered safe, convenient and saves time
and effort of the utility.

3.4.3. Impact, Frequency and Severity of Risk

Lack of independent assessment and presence of potential conflict of interest may not lead
to the best possible outcome for the utility. The likelihood of occurrence is high, with
moderate severity.

3.4.4. Bearer of Risk

The utility is the direct bearer of this risk.

3.4.5. Strategy to Manage the Risk

A single entity should not be allowed to assume the role of design consultant as
well as the supplier. (Risk Avoidance)

Independent assessment through specialized agencies to develop the technical

specifications and the scope of work should be mandatory. Further potential conflict of
interest wherever possible should be avoided.

4. Execution stage

This stage covers the entire R&M project implementation stage which begins with the
receipt of equipments to the site and planning of shutdown of unit. This stage includes
effective monitoring of work, timely decision making with regard to bottlenecks faced,
ensuring the quality of work, inspection of material and smooth implementation of work.
Implementation support consultant hired by the utility plays a key role in managing all the
activities covered under this stage through a structured process.

4.1. Weak Decision-Making Framework (Management Risk)

4.1.1. Risk Description

This risk arises if there is significant delay in undertaking decisions with regard to various
issues arising during the execution of the work. This could be related to the possible
surprises upon the opening of machines which may require contract modifications;
difference in the interpretation of scope and responsibility by vendors and employer etc.

4.1.2. Root Cause Analysis

This risk arises due to the following:

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i. Lack of planning and ownership of the R&M project by the utility officials due to
either frequent change in the officials handling R&M works, lack of technical and
professional management skills to address the issue/situation, lack of accountability
structure etc.

ii. Lack of authority of the officials involved

4.1.3. Impact, Frequency and Severity of Risk

This leads to contractual disputes and delay in execution of the work. The frequency of
occurrence is moderate and severity of this risk is high.

4.1.4. Bearer of Risk

This risk affects all the parties involved in the R&M implementation including the utility,
supplier and the implementation support consultant.

4.1.5. Strategy to Manage the Risk

Creation of clearly defined decision making and reporting structures with

nominated officials authorized to undertake decisions (Risk Mitigation)

Decision making and reporting structure with regard to the R&M project should be clearly
specified. This should include roles, responsibility and authority of various officials involved
in R&M. For timely decision making it is important that these structures should be defined
in a way wherein relatively smaller issues (could be defined in terms of value of money
involved) or issues involved in day to day execution with the vendor can be undertaken at
the plant level and larger issues can be reported to the top management for their action.

Further, contract review meetings to assess the progress and deviations if any from the
schedule of work should be held weekly. The minutes of the meetings prepared should
clearly specify the responsibility and the timelines to address the issues. Requisite follow up
of the actions shall also be undertaken regularly.

Here in the role of Implementation Support Consultant is of utmost important as it is

required to facilitate smooth coordination and timely action for resolving of pending issues.

Alongside, empowered team of both the utility and the suppliers should be nominated to
ensure timely resolution of disputes and issues, as and when they arise. In a number of
successful examples of large projects being implemented, a key governing philosophy of
the host entity has been that “Success of the contractor/supplier is success of the projects”.
Hence, a collaborative atmosphere needs to be created wherein both the utility and the
supplier work as partners.

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4.2. Occurrence of Technical Surprises (Technical Risk)

4.2.1. Risk Description

A thermal power plant undergoing R&M, despite undertaking comprehensive prior plant
assessment might face unforeseen events once the unit is shutdown and opened up for
R&M. Such unforeseen events are called Technical Surprises. As the units are very old or
nearing the useful life of operation, such technical surprises are quite common. The utility
due to such surprises is faced with unexpected change or unforeseen additions in the scope
of work leading to cost and time overruns.

4.2.2. Root Cause Analysis

This risk arises due to the following:

i. Nature of work of R&M is such that certain surprises are encountered when the
machine is actually opened. Even with careful planning and implementation, some
unforeseen situations are likely to arise. In most cases, the strategy to deal with
such surprises is not planned for leading to distress.

ii. Inadequate assessment and weak scope of work.RLA and other tests are conducted
for main plant and equipments whereas in case of rest of areas like Balance of Plant
(BoP) the scope is generally derived, without any actual condition assessment for
BoP items.

iii. Huge time lag between the technical studies (RLA, DPR preparation) and actual
award of contract (and commencement of R&M work). This entire process normally
takes ~3-4 years. The units in the interim get low maintenance priority leading to
rapid deterioration in the plant condition not captured in the studies and hence the
scope of work. In case of units that are already shutdown, cannibalization of the
material/spares to other unit has also been observed as a common practice.

Box VI-11: Time gap between studies and Execution of Work

Table below presents the time gap between the completion of RLA study and execution
of work.

Completion Actual Date of Start of

Plant (Unit)
of RLA study Work

Bathinda Unit 3 (110 MW), PSPCL March 2001 January 2010

Bathinda Unit 4 (110 MW), PSPCL December November 2011

2001

Ukai TPS, Unit 2 (120 MW), GSECL April 2003 August 2008

Barauni TPS, Unit 6 (110 MW), BSEB May 2006 November 2009

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Bandel TPS, Unit 5 (210 MW), WBPDCL December Expected to start soon
2006

Source: CEA and interaction of AF- Mercados EMI with various utilities

iv. Refurbishment of old equipment or spares may not be possible due to technological
obsolescence. This is true especially in case of old units of 110/120 MW units
wherein the manufacturers have stopped manufacturing the spares (especially
electrical) due to technological obsolescence.

v. Identification of additional scope of work at the execution stage not in the nature of
surprise but required for better operation of plant at the later stage.

4.2.3. Impact, Frequency and Severity of Risk

The impact of the above risk results in the following:

i. Scope deviation: Additional scope of work to be addressed.

ii. Contractual disputes due to weakly defined scope of works, and non-agreement
between the utility and vendor.

iii. Situation of indecisiveness due to inflexible contracts making it difficult for any
alteration at the execution stage.

iv. Delay in execution of work and increase in cost of the project.

In addition to the above, the finances of the utility are directly impacted in absence of any
strategy to deal with such surprises.

The frequency of occurrence and severity of this risk is high.

4.2.4. Bearer of Risk

Both Utility and Vendor are affected by this risk.

4.2.5. Strategy to Manage the Risk

In order to mitigate this risk a multi-pronged approach is required. This includes:

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A. Undertaking comprehensive assessment through technical studies with clearly

defined scope of work (Risk Mitigation)

Effective assessment at the start of the project is the key to minimise technical surprises.
The nature and occurrence of technical surprises depend upon the depth with which
technical studies are being undertaken. In order to minimize technical surprises, the
foremost step is to undertake comprehensive assessment of both main plant equipment
and the bops through technical studies for each unit planned for R&M. Based on the
technical studies, efforts should be made to define the scope as clear as possible along with
the roles and responsibilities of each of the stakeholder.

B. Creation of technical surprise plan (Risk Acceptance)

A well defined technical surprise plan should be prepared for effectively handing technical
surprises. This includes a list of possible surprises, ensuring availability of spare parts to
minimize delays, addressing upfront the likely contractual aspects of additional supplies and
works etc. Further, in the bid documents bidders should be required to submit prices of
such components/works which may need to be procured during implementation to handle
surprises (unit rate contracts of such equipment).

C. Establishing a clear decision making framework (Risk Mitigation)

After the occurrence of technical surprises the indecisiveness on the part of the utility can
result in significant delay in the execution of work. It is important to specify the decision
making process with clearly defined roles and responsibilities along with requisite authority
of different officials to enable timely resolution of the issues encountered during the R&M.

Box VI-12: Occurrence of Technical Surprises

Example1: Muzaffarpur TPS, KBUNL

Low Temperature Super Heater (LTSH): Only 50% coil replacement was mentioned
in the DPR and R&M work order. This was done to reduce cost. Replacement of LTSH
supply tubes was not included in the DPR and in the work order. While executing R&M it
was found that about thirty nos. of LTSH supply tubes were missing. Discussions were
held with the contractor and ultimately it was decided that KBUNL would place separate
purchase orders for these tubes.

Thus, comprehensive assessment of the plant is essential for understanding the exact
condition of equipment before placing the order or preparation of specifications.

Turbine Side Valves: As per R&M contract, all valves were to be refurbished by the
contractor. However, requirement of spares for refurbishment of valves was unknown
during the contracting stage. When the valves were opened by contractor it was found
that additional spares were required.

An associated issue was that most of the valves were obsolete and now not being
manufactured by the contractor or their sub-vendors. Hence, replacement was the only
option.

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Example 2: Obra B TPS (Unit 9 to 13) , UPRVUNL

Only main plant equipment has been considered for undertaking R&M while majority of
the auxiliaries i.e. motors and cables have not been refurbished or changed impacting the
quality of R&M works.

Site accessibility and space constraint are important factors for delay of R&M works in
Obra, which were not considered before the start of the project. Due to space constraints
crane cannot move between the units and therefore R&M works for Unit 10 & 11 were
taken together. ESP of unit 11 had to be dismantled so that the crane could move and
work on Unit 10 can be undertaken. This was not envisaged at the assessment stage.

Thus comprehensive assessment and planning before the execution of R&M works is
necessary to avoid technical surprises.

Example 3: Additional Scope of Work in Ukai TPS (Unit 1 and 2), GSECL

In case of Ukai TPS additional work over and above R&M work was identified such as (i)
Rewinding & Recaging of HT motors, (ii) Supply of IP Inlet Gland Box & Accessories, (iii)
Supply of spares for ESP fields 1&2 of Unit 2 etc. Since these works were considered
essential for future performance of the plant and there was no provision for
addition/alteration of R&M, separate purchase orders were placed by the company.

Source: Interaction of AF Mercados EMI with officials of various utilities

4.3. Weak Dispute Resolution Mechanism Constraining the

Execution of Work (Contractual Risk)

4.3.1. Risk Description

This risk arises if there is occurrence of any disputes including contractual which impacts
the execution of work.

4.3.2. Root Cause Analysis

This risk arises due to the following:

i. This arises due to misinterpretation of the scope of work by either party i.e. utility or
supplier.

ii. Delay on part of supplier or claim of compensation by the supplier for any additional
work outside the scope of work.

iii. Delay in decision making by the utility or delay in providing shutdown of the plant

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4.3.3. Impact, Frequency and Severity of Risk

The impact of the above risk is that it impacts the harmony in work and results in halting of
the work or delay in execution of work. The frequency of occurrence of this risk is moderate
and severity is high.

4.3.4. Bearer of Risk

Both Utility and Vendor are affected by this risk.

4.3.5. Strategy to Manage the Risk

Creation of Dispute Resolution Committee at the start of project to address

disputes between the Utility and the Contractor in a timely manner (Risk
Mitigation)

In order to resolve disputes between the contractor, sub-contractor and utility, it is

important to create a Dispute Resolution Mechanism. Under this mechanism a dispute
Resolution Committee (DRC) should be formed at the start of the project with fair
participation from both utility and contractor. The institutional set up, powers and roles
along with the time schedule (within which case can be referred from the occurrence of the
dispute, hearing of the dispute and the final decision) of the DRC should be specified in the
tender document itself. Any dispute which cannot be amicably settled between the parties
can be referred to the DRC. However, until the dispute is resolved, the contractor should
proceeds with the work and contract in discussion with the utility and implementation
support consultant.

4.4. Mismatch or Delay in Supply of Critical Equipment and the

Shutdown Period (Market Risk)

4.4.1. Risk Description

Various sub-activities within the R&M have to be planned and timed according to the
available shutdown period. Accordingly, the schedule of supply of critical equipment has to
be synchronized with the shutdown period to ensure completion of work in the minimum
possible time. This risk arises when there is delay in supply of key components and
equipments by the supplier and delivery schedule of the equipments is not in sync with the
shutdown of the plant.

Box VI-13: Delay in Supply of Material during Execution

Example1:Ukai TPS, Unit 1 (110 MW), GSECL

There were significant delays in supply of material by the vendor during the execution of
the project leading to increased shut down period. Also, material with regard to
Mainstream and HRS line was not supplied by the contractor until the end of the
shutdown period and hence it could not be replaced. The material during the interim

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period was kept as inventory since it required a separate shutdown (outage) for
installation.

Thus, supply of key components/material should be ensured before the

shutdown of the plant and should be according to a proper project schedule.

Source: Interactions of AF Mercados EMI with the officials of the GSECL

Example2: PTPS, Unit 1 (110 MW), HPGCL

There was significant delay in supply of material by the contractor leading to delay in
execution of the project. As per the schedule, R&M and up-rating of Unit-I was to be
taken up from November 2006 but due to the delay in supply of material it could be
taken up from September 2007.

Accordingly, applicable Liquidated Damages were levied on the contractor for

delay in completion of works.

Source: CAG Audit Report and Interactions of AF Mercados EMI with the officials of the
HPGCL

Example 3: Mismatch between the delivery of material and the shutdown period:
Case of Obra B Units 9 to 13, (5X200 MW), UPRVUNL

R&M work for Obra B Units 9 to 13 was awarded to BHEL in May 2006 with a completion
period of 30 months. However, till August 2012, work on only Unit 9 has been completed
and work on Unit 10 and 11 is still in progress.

Since the delivery of material was not linked with the shutdown period of the units, the
Contractor had supplied the entire material for all the five units during 2006 to 2010
leading to expiry of Warranty Period of material (24 months) even before the work on
different units could commence. This is expected to have significant repercussion on the
overall quality of execution of R&M project

Thus, supply of material must be linked with the shut down schedule of units.

Source: CAG Audit Report and Interactions of AF Mercados EMI team with the officials of
UPRVUNL.

4.4.2. Root Cause Analysis

This risk arises due to the following:

i. One of the major issues faced by the suppliers is the difficulty in procurement of
sub-vendor items. This difficultly stems from the following: (a) non existence of
original vendors for such items; (b) non-availability of original equipment details,
specifications etc; (c) Obsolete design and (d) inadequate information available
about modification done/spares used earlier. This leads to delay in supply of
material on a timely basis.

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ii. Non-performance on part of the vendor due to its overbooked manufacturing

capacity.

iii. Technological obsolescence may require customized manufacturing for certain

components leading to delay in supply of components.

iv. In-adequate planning on part of the utility.

4.4.3. Impact, Frequency and Severity of Risk

The impact of the above risk is that it results in

i. Delay in implementation of project and hence longer shutdown period.

ii. Non-installation of certain components impacting the performance and quality of

R&M works executed.

The frequency of occurrence and severity of this risk is high.

4.4.4. Bearer of Risk

Both Utility and Vendor are affected by this risk.

4.4.5. Strategy to Manage the Risk

A. Availability of key components should be ensured before the start of the

project and should be in accordance with the pre-defined plan finalized before
the commencement of work (Risk Mitigation)

The planning for pre shutdown activities should be done meticulously. Availability of key
components along with the sequential delivery of the components should be ensured before
start of implementation/before shutdown is provided. Further, delivery of materials should
be linked to the shutdown period of the plant.

B. Provision of Penalties for delay in completion of work (Risk Sharing/Transfer)

Adequate penalties should be built into the contracts for delay in completion of works by
the vendor. This would provide right signals to the vendor for timely completion of work
and would also compensate the utility to some extent for the potential loss 7.

Box VI-14: Lack of Penalty Clause for Delay in Completion of Work

Example:- Obra „A‟ TPS (Unit No 1&2), UPRVUNL

Instrumentation Limited (I.L), Kota was awarded the work of upgrading C&I system for

7
A review of supply contracts of various plants indicates that such penalties are generally included in the contract,
however in some cases omissions have also been observed.

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Obra „A‟ TPS (Unit No 1&2) however the company could not complete the work as per the
planned schedule.

The delay on the part of I.L, Kota in completing the work of unit No.1 &2 as per the
schedule (October 2008) resulted in potential loss of generation to the utility for the
delayed months (work completed in January 2009). Further, due to absence of the
penalty clause in the agreement no penalty could be imposed on I.L., Kota such delays.

Thus, penalty clauses related to delay in completion of work should be included

in the contracts by the utilities to ensure adherence to timely completion of
work and to safeguard its financial interest.

Source:- CAG Audit Report

C. Sequential delivery of materials to the R&M site (Risk Mitigation)

Sequential delivery of materials should be agreed upon by both the utility and vendor and
built into the contract. In the contract clauses, provision for non-acceptance and
disallowance of material to the project site if not delivered sequentially should be included
in order to avoid unnecessary delay in R&M work.

4.5. Operational Risk: Weak Supervision, Quality Control and

Assurance

4.5.1. Risk Description

The process of quality control involves setting up the specification of equipment and service
upfront and ensuring that the delivered material/service is in compliance with the stated
targets. This is often performed through random inspections and test.

The process of quality assurance involves reviewing the practices adopted by the vendor
supplying the material or service to examine the extent to which the quality will be, is being
or has been controlled.

This risk arises if material supplied or work performed by the vendor is of substandard
quality. This risk also arises due to the weak quality procedures of contractor with regard to
its subcontractors.

4.5.2. Root Cause Analysis

This risk arises due to the following:

i. Lack of expertise in assessing the quality of material/service supplied by the supplier

ii. Quality audits not performed by the utility at the supplier‟s site

iii. Lack of assessment of the vendor‟s quality procedures with regard to its sub-vendor

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iv. Lack of appreciation on the necessity of formal quality control and quality assurance
procedures

4.5.3. Impact, Frequency and Severity of Risk

Substandard equipment and installation service has a direct impact on the long term
performance and life of the plant.

The frequency of occurrence and severity of this risk is moderate.

4.5.4. Bearer of risk

Utility is the direct bearer of this risk.

4.5.5. Strategy to Manage the Risk

Approval of detailed quality plans and Engaging Quality Control and Quality
Assurance Consultants by the Utility (Risk Mitigation)

The detailed Quality Plans for both manufacturing and field activities should be submitted
separately by the contractors to the utility for approval before the start of the project. The
approved quality plan should then form as an integral part of the Contract document. The
contractor must submit the quality plan for the project including the Quality Plan proposed
for each sub-contracted item along with the procedures followed by the contractor to
finalize and assess the quality assurances of the sub-contractors.

Implementation Support Consultants (ISC) or Independent Quality Assurance Consultants

(QAC) should be appointed to confirm that implementation is as per the design
requirements and that the documented quality plans are being adhered to. Consultants
would also certify quality of materials and works before the payments are made as per
contractual milestones. The QAC would also be responsible for the inspection of material
quality at the workshop/facility of supplier.

Box VI-15: Need for Quality Control and Quality Assurance

Example 1: Quality Issues Encountered During the R&M

One of the utilities visited by AF Mercados EMI complained about the quality of material
supplied by the sub vendor with regard to gear box and spares supplied for Wagon
tippler. Gear box supplied by the sub-vendor was required to be replaced within 2 years
of its installation due to its poor performance. Also, spares supplied for Wagon tippler
were of inferior make/quality.

Example 2: Case of Koradi TPS (Unit 6), Maharashtra and Bandel TPS (Unit 5),
West Bengal

The R&M project plan for the above plants indicates the following:

“Independent Implementation Support And Quality Assurance Consultants, working in

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collaboration with the concerned power generation utility, would be appointed for
monitoring implementation progress as well as quality. These consultants would act as
owner‟s engineers for the power generation utility and validate all design details, material
supplies and works executions. The consultants would also support decision making
process to handle surprises during the course of R&M implementation”

Thus, the process of having independent QAC has been considered and ensured
as part of the implementation process.

Source: Interactions of AF Mercados EMI with the Utility Officials and Review of
documents collected during the site visits

4.6. Failure to Comply with Environmental Standards and Perceived

Negative Externalities (Socio-Environmental Risk)

4.6.1. Risk Description

Thermal power plants lead to gaseous emissions containing carbon dioxide, oxides of
sulphur and nitrogen, and solid particulate matter (ash). Besides, the waste water
discharges contains the pollutants. These power plants, thus results in air, water, noise
pollution and land degradation.

The risk arises if the units undergoing R&M are not able to achieve the target emission
standards even if efficiency gains are achieved. Further, the risk also arises if rehabilitation
work is perceived to have negative environmental and social impact by the immediate
habitants.

4.6.2. Root Cause Analysis

This risk arises due to the following:

i. No assessment with regard to environmental and social impact being undertaken by

the utility to improve environmental performance of the plant and to address
associated social and health issues.

ii. Most of the units do not have requisite infrastructure for environmental monitoring
and some are unable to install/ replace existing Electrostatic Precipitators (ESPs)
due to paucity of funds or lack of space

iii. Environmental norms are increasingly becoming stringent.

4.6.3. Impact, Frequency and Severity of Risk

The above risk leads to the following:

i. Non- compliance of environmental regulations may lead to closure of the plant

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ii. May lead to delayed execution/ or no execution due to agitation or demonstration

from the community or civil societies.

The frequency of occurrence is high and severity is moderate as it may lead to closure of
the generating unit/plant.

4.6.4. Bearer of Risk

Both generating company and supplier are direct bearers of the risk.

4.6.5. Strategy to Manage the Risk

A. Renovation of ESP system of the power plant (Risk Mitigation)

i. In order to meet the statutory environmental regulations there is a need to renovate

ESP system of the power plant. This includes the following

a. Retrofitting of existing ESPs with additional pass in parallel or additional fields

in series to enhance the collection area within the available space.

b. Renovation of the existing ESPs by increasing their height and increasing the
electrode spacing wherever the existing ESP height is 9 mtrs.

c. Application of moving electrode type ESP

d. Retrofitting of ESPs with bag filters.

B. Undertaking socio-environment impact assessment to assess the impact of the

project (Risk Mitigation)

i. Utility should carry out Rapid Social Impact Assessment Study to identify potential
adverse impacts of the Thermal Power Plant on the immediate habitations and
screening or the social development issues of the immediate habitations. Further,
Environmental Audit and Due Diligence Studies should also be carried out to
improve environmental performance of the plant (pollution prevention and control
measures, waste minimization, occupational health and safety) and develop
strategies to mitigate environment risk and liabilities.

ii. Appropriate CSR framework or policy shall be formulated by the generating

company for the sustainable development of the inhabitants surrounding the power
plant and to address negative externalities from the plant, if any.

iii. Generating company should engage with the local community and efforts should be
undertaken to disseminate project impact assessments and benefits to nearby
villages by deploying an appropriate strategy for communication.

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Box VI-16: Formulation of CSR policy

Example: Formulation of CSR policy by Rajasthan Rajya Vidyut Utpadan Nigam Limited
(RVUN)

RVUN, Government of Rajasthan has framed a CSR policy with an aim to contribute to the socio-
economic development of the local community and society surrounding the power generating
stations.

As per this policy, fund for carrying out CSR activities for power stations for new/extension projects
will be Rs. 2.5 lakhs, 2lakhs and 1.5 lakhs per MW (one time) for coal based thermal power projects
on supercritical technology, subcritical technology and gas based thermal projects respectively.
Further, fund for power stations in operations will be 0.25% of the total annual Operation and
Maintenance charges/cost allowed by Rajasthan Electricity Regulatory commission.

Thus, such policy should be framed by other generating stations also.

Source:- CSR Policy, 2011, RVUN

4.7. Delay in Provisioning of Unit Shutdown for Executing R&M

Works (Institutional Risk)

4.7.1. Risk Description

This risk arises if the utility is not able to provide timely shutdown for executing R&M either
due to grid conditions or delay in obtaining timely approvals from the relevant authorities
(State Government or Regulatory Commission) for shutdown of the plant for execution of
R&M works.

4.7.2. Root Cause Analysis

Significant energy and peak deficit scenario in most of the states coupled with lack of
planning with regard to procurement of power from other sources inhibits shutdown of
state owned units for executing R&M works. In certain cases this is driven by socio-political
consideration that results in delay in obtaining the shutdown.

4.7.3. Impact, Frequency and Severity of Risk

The above risk leads to the following:

(i) Contractual disputes and delay in execution of work.

(ii) Change in Baseline parameters due to time gap between the studies and actual
execution.

(iii) Deterioration in the material quality already supplied by the vendor

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BoxVI-17: Delay in obtaining shutdown for R&M works during execution

Example: Amarkantak Thermal Power Station, Chachai (Unit 3 and 4)

While the material for boiler was supplied by the vendor, delay in providing shutdown for
the unit led to deterioration of the new equipment which further delayed the execution of
R&M.

Source: Interactions of AF Mercados EMI with the officials of MPPGCL

(iv) Deterioration in condition of plant and occurrence of technical surprises

The likelihood of the occurrence of this risk is low to high depending upon the number of
units requiring simultaneous shutdown. It may not be difficult to obtain requisite approval
for one unit but in case more units are scheduled for such shutdown, obtaining requisite
approvals/permissions may be difficult.

Severity of risk varies from low to high depending upon the delay in obtaining the
approvals for shutdown.

4.7.4. Bearer of Risk

Both generating company and supplier are the bearers of the risk.

4.7.5. Strategy to Manage the Risk

This risk can be avoided through a combination of measure that should be initiated from
the Generating Company and the Distribution Utility. These are explained below:

A. Advance Planning for Scheduling of Shutdown for Execution of Works (Risk

Avoidance)

Shutdown for executing R&M works must be planned well in advance and distribution
utilities must be informed accordingly. This would provide sufficient time to the distribution
utility for arranging for additional power to meet the shortfall on account of the above. The
current power market provides several avenues for procurement of power in the short and
medium term, which should be considered.

B. Additional Allocation of Power to States from Unallocated Quota of Central Pool

(Risk Avoidance)

As per clause 6.2 (ix) of the MoP Guidelines for R&M, the utilities may approach the
Government for additional allocation of power to the extent possible from unallocated quota
of central sector power stations during the period of shut down of units for comprehensive
life extension works.

Utilities can approach the central government well in advance to procure power in line with
the above clause/guideline.

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C. Implementation of partial R&M activities during Annual shutdown periods

(Risk Avoidance)

R&M can also be implemented during planned shutdown for annual maintenance over two
to three years time period especially if the work does not includes opening up of steam
turbine and significant repairs in the boiler and the generator. In case of Tanda (4x110
MW) and Talcher thermal power station (4x60, 2x110 MW) of NTPC, R&M was taken up
during annual shutdowns over 3-4 years without substantially enhancing the routine
shutdown period. However, it must be noted that for executing R&M works during annual
shutdown period spread over many years, a proactive approach coupled with
comprehensive planning is required at the utilities end.

5. Closure stage

After the R&M work is completed, it is very essential to evaluate whether the goals and
objectives of the R&M project was achieved or not. For this post-R&M Performance
Guarantee Test is conducted. Further, Operation and Maintenance Training is imparted to
engineers for efficient operation of the unit that has undergone R&M. This is very important
as there are issues involved in effective interfacing of the new installations with the existing
ones, commercial issues linked to change in tariff; actual vs. planned performance outputs
etc.

5.1. Sustainability of R&M Gains Affected by Weak O&M Practices

(Operational Risk)

5.1.1. Risk Description

O&M practises being followed by state owned generation companies in India are weak. Most
of the state owned generating companies do not adhere to the schedule of annual
maintenance and periodic capital overhaul of the plant leading to deterioration in the
condition and performance of the plant. Most of the DPRs (pre-R&M study) reviewed by
team corroborate the above fact.

This risk arises when owning to weak O&M practices the performance gain become difficult
to sustain wherein the benefits of the R&M are soon wiped off.

Box VI-18: Weak O&M practices of various State Generation Companies in India

Most of the utilities do not adhere to the Maintenance Schedule and periodic Capital
Maintenance Schedule.

PTPS, HPGCL - Annual Maintenance of majority of Units at PTPS has been delayed. The
delay ranging from 107 to 328 days in respect of most of the units was found during the
CAG review period from 2005-06 to 2009-10.

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GSECL- Annual Maintenance/Overhauling (AOH) (part of O&M) of Units of majority of TPS

was carried out with a delay up to 11 months from the date on which AOH was due to be
taken up.

BSEB - Annual Maintenance has not been undertaken at regular intervals. For Barauni
TPS Unit 6 the first and last capital maintenance was done during October 1988-
November 1989 and for unit 7 during July 1992-May 1993 respectively.

UPRVUNL- Against scheduled Annual Maintenance of 88 units, maintenance of only 43

units was carried out in time. Inordinate delays observed in case of (i) Obra „A‟ & „B‟: 21
to 58 months, (ii) Parichha: 24 to 34 months, (iii) Panki: 19 to 22 months, Harduaganj:
17 to 20 months and (iv) Anpara „A‟ & „B‟: 13 to 20 months in various units.

In most of the states the shutdown of the units for planned maintenance depends upon
the power availability situation of the state and thus, annual maintenance of majority of
units is delayed in many states.

Poor O&M practices impacts the long term performance of plant and leads to its
continual deterioration.

Source: CAG Audit Reports and Interaction of AF Mercados EMI with officials of various
utilities

5.1.2. Root Cause Analysis

This risk arises due to the following:

i. Lack of proactive approach in operating and maintaining the plant

ii. Lack of awareness about the new techniques, processes and procedures

iii. Lack of sufficient funds due to which mandatory spares are not being purchased and
stocked in advance by the utility

iv. Difficulty in obtaining shutdown the unit for annual maintenance or periodic capital
overhaul due to significant energy shortages in the state.

BoxVI-19: Delay in capital overhaul post R&M of the unit

Example:- Korba East TPS Unit 5 (120 MW), CSPGCL

The capital overhaul of the unit is yet to be undertaken (as on October 2012) after the
completion of R&M of the unit in 2005.

Source: Interaction of AF Mercados EMI with officials of CSPGCL

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5.1.3. Impact, Frequency and Severity of Risk

The above risk leads to the gradual deterioration of the condition and performance of the
plant and hence the gains expected from undertaking R&M may not be achieved over a
longer period of time.

The likelihood of the occurrence and severity of this risk is high leading to suboptimal
utilisation of R&M investment.

5.1.4. Bearer of Risk

Generating company is the direct bearer of the risk.

5.1.5. Strategy to Manage the Risk

Preparation and implementation of O&M action plan on priority basis and

engaging specialised agency for O&M of the plant, post R&M. (Risk Mitigation)

i. O&M practices of the plant should be reviewed at the start of the project and based
on the assessment a long term O&M action plan should be formulated. This should
include the time schedule and maintenance requirements for each component,
institutional structure, resource requirements in terms of both financial and
personnel etc. Further, the plan so formulated should be approved at the highest
authority and credible actions should be taken to implement the plan on priority.

Box VI-20: Adequate skills to undertake O&M, post R&M of the plant

During interactions with various officials both at the utility headquarters and the plant
level, it was observed that most of the utilities lack adequate skills and expertise in
operation and maintenance of plant. The schedules are not followed, there are no
documented processes, and limited up-gradation has happened over the years.

In certain cases, this has resulted in degradation of plant performance post R&M. Thus, it
is important to ensure that O&M practices are strengthened and a robust plan is
developed upfront and followed.

Source: Interaction of AF Mercados EMI with officials of various utilities

ii. Contractor should revise the existing O&M manual as per the new system/unit
requirements.

iii. Adequate training should be provided by the contractor before handing over the
plant to the utility.

iv. The list of mandatory spares along with its unit prices should be included in the total
price of the R&M contract. This mitigates the financial risk with regard to
procurement of mandatory spares post R&M of the project.

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v. Generating company can also outsource O&M of the plant; post R&M to a specialized
agency. There are models available for participation of private players in O&M.

Box VI-21: Experience of Engaging Specialised Company for O&M of Coal based
Power Plant in India

Example 1: Sterlite Energy engaging, Evonik Energy Services India (now Steag
Energy Service India Ltd.) for their 4x600 MW TPS at Jharsuguda, Orissa

As per the agreement signed between the parties, Steag would be responsible for smooth
and reliable operations and maintenance for 4x600 MW Coal based Power Plant at
Jharsuguda. Further, as per the contract Steag would also bring in its proprietary plant
management system and latest fault prediction systems which would ensure that the
downtime for maintenance is reduced to a minimum. Health, Safety and Environmental
systems would also be given high priority.

Thus, the contract not only enables the company to ensure better O&M practices but also
enables access to the state of the art technologies, systems and processes.

Example 2: Comprehensive O&M services by DESEIN

DESEIN is currently handling total Operation & Maintenance of many plants in India &
Abroad. This includes :

i. 1 x 29.4 MW and 1 x 19 MW Coal / Lignite based Power Station at Dalmiapuram,

Trichy, Tamil Nadu of Dalmia Cement Bharat Ltd., (contract continuing since 2005

ii. 2 x 15 MW Coal based Power Station at Butibori, Nagpur of Indorama Petrochemicals

Ltd., (contract of O&M continuing since 2007)

iii. 2 x 43 MW coal fired power plant for Action Ispat & Power Pvt. Ltd. at Jharsuguda,
Orissa (continuing since 2011)

Source: Compiled from various sources and media articles8

vi. Generating company can also include O&M supervision in the contract of executing
agency. However, a right mix of balance needs to be ensured between performance
and guarantees. In the case of Korba East TPS (Unit 1 to 6), O&M supervision was
included in the contract of executing agency to meet and sustain the guaranteed
performance for a period of three years.

8
http://www.business-standard.com/india/news/vedantaevonik-ink-rs-14000-crore-omdeal/392724/,
last accessed on 12th September 2012
http://steag.in/pdf/STEAG%20Energy%20Services%20(India)%20Pvt.%20Ltd.%20%20%20Profile.p
df, last accessed on 12th September 2012
http://www.desein.com/Services/om-services.php, last accessed on 12th September 2012

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BoxVI-22: O&M supervision included in the contract of executing agency

Example: Korba East Thermal Power Station, CSPGCL: Unit 1 to 4(4x50 MW) and
Unit 5 and 6 (2x120 MW)

Table below presents the post refurbishment performance of units in O&M guarantee
period.

The Post Refurbishment performance of units (Plant Utilization Factor - 80%)

O&M guarantee period First Year Second Year Third Year

Unit 1 to 4(4 X50 MW) 93.02% 90.47% 93.58%

U# 5 (120 MW) 73.91% 83.65% 79.64%

U# 6 (120 MW) 80.17% 77.37% 74.55%

Source: Interaction of AF Mercados EMI with officials of CSPGCL and data collected
during the visits

5.2. Post R&M Guarantees not Achieved (Technical Risk)

5.2.1. Risk Description

Performance guarantee test are conducted to test the performance of the plant viz-a-viz
the guaranteed parameter, within a specified period of time after commissioning of the
plant. A review of contract indicates that in most cases the following guaranteed
parameters have been adopted: (i) plant availability; (ii) ESP outlet emission level; (iii)
boiler efficiency; (iv) turbine heat rate, and (v) rated capacity.

This risk arises if the performance test fails and the requisite performance guarantees are
not achieved or if the supplier do not undertake the performance guarantee test or delays it
incessantly.

5.2.2. Root Cause Analysis

The root causes for the above are as follows:

i. Failure on part of supplier to honor the commitments.

ii. Lack of confidence on the achievement of the requisite targets leading to delay in
conducting of PG test.

5.2.3. Impact, Frequency and Severity of Risk

The risk results in the following impacts:

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i. R&M benefit not achieved as envisaged during the assessment stage.

ii. Contractual disputes

iii. Levy of performance guarantee penalties on the supplier

iv. Problems in regulatory approval and recovery of costs incurred on the R&M of the
plant

v. Consequent financial loss to the utility.

vi. Non-achievement of performance post R&M may lead to cancellation of future R&M
works by the utility

The frequency of occurrence is moderate and severity of this risk is high.

5.2.4. Bearer of Risk

Both generating company and supplier are the bearers of this risk.

5.2.5. Strategy to Manage the Risk

Rectification or replacement of components to meet guaranteed parameters at no

extra financial cost to utility and Levy of Liquidated Damages for shortfall in
performance (Risk Mitigation)

i. Supplier should be asked to rectify/replace the components affecting the

performance of the plant at no extra financial cost to the utility.

ii. In case of non-achievement of performance guarantees, utility should levy the

requisite penalties as provided in the contract.

iii. Performance Guarantees Test should be a critical milestone defined in the contract.

While the impact of this risk is seen towards the end of the R&M exercise a number of
actions indicated in the previous sub-sections also contribute towards non-achievement of
the guaranteed parameters. Hence, preventive actions as indicated earlier in this section
are critical to avoid such situations.

Box VI-23: Post R&M Guarantees Not Achieved

Example 1: Performance Guarantee Tests not Performed by the Contractor (Ukai

TPS - Unit 1 and 2), GSECL

R&M works of Unit Nos.1 & 2 have been completed and units have been handed over to
GSECL. However, Unit 1 and 2 have not been able to operate at the rated capacity of
120 MW and guaranteed parameters are yet to be achieved. Further, PG tests are yet to
be performed by the contractor, which have been pending for a long time (approx. 1.5
years). There have been several efforts to facilitate this including assistance of the CEA,

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however still the PG test remain pending.

In light of the underachievement of guaranteed parameters and excessive time

undertaken in execution, R&M works for Gandhinagar TPS Unit No.1 & 2 were
discontinued by the company and it was decided that only need based R&M would be
undertaken by the company in future.

Source: Interaction of AF Mercados EMI with officials of GSECL

Example 2: Under Achievement of Guaranteed Parameters (PTPS Unit 1),

HPGCL

The R&M and up-rating of Unit – I from 110 MW to 117.8 MW was awarded in August
2005. The Unit was synchronized in November 2008 and was declared for commercial
operation in April 2009

However, the desired improvements in the performance of the unit have not been
achieved post R&M. The annual heat rate of Unit 1 was 3342 kCal/kWh for FY 2006-07
before refurbishment and after R&M, heat rate of 2916 kCal/kWh could be achieved
against the contracted provision of around 2346 kCal/kWh.

Heat Rate
Plant Specific Oil Aux.
(Kcal/kWh)
Load Consumption Power Availability No. of
Year
Factor Cons. factor (%) Tripping
(ml/kWh) HERC
(%) (%) Actual
Norm

Pre R&M

2002-03 58.09 6.26 11.66 - 3718 72.88 100

2003-04 63.09 4.5 11.04 - 3479 82.54 142

2004-05 52.59 5.13 12.2 3500 3554 71 112

2005-06 59.4 4.97 12.05 3450 3508 80.5 75

2006-07 62.63 3.11 11.67 3450 3342 89.16 55

Post R&M

2009-10 79.08 1.95 10.37 2930 3047 83.67 70

2010-11 48.90* 4.08 10.09 2750 3112 54.68 28

2011-12 79.27 2.89 11.24 3050 2916 93.91 32

*Unit 1 was shut down from 1/3/2010-23/8/2010.

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Note: Unit has been up-rated from 110 MW to 117.8 MW w.e.f. 07.04.200 and unit was
under shutdown for R&M from Sept. 2007 to Oct 2008

In light of the underachievement of guaranteed parameters for Unit 1 and similar

previous experience for Unit 2, the company decided not to undertake comprehensive
R&M for Unit 3 and 4.

Source: Interaction of AF Mercados EMI with officials of HPGCL.

5.3. Non-Approval of Costs Incurred During R&M (Regulatory Risk)

5.3.1. Risk Description

The capital cost incurred during the R&M is considered as part of the overall regulatory
asset base of the utility wherein the regulator admits the cost based on prudence check and
approves a tariff to be charged from the consumer for recovery of such costs. This risk
arises if the regulator does not approve the expenditure incurred by the utility for
undertaking R&M works on account of gaps/inadequacies in the submission.

5.3.2. Root Cause Analysis

This root cause of this risk is that the expenditure incurred by the utility is high as
compared to what was in-principally approved by the regulator or in the DPR of the project
and utility is unable to justify that the excess expenditure incurred is not due to the
inefficiency of the generating company but due to factors non-attributable to the generating
company.

5.3.3. Impact, Frequency and Severity of Risk

This risk would lead to non-recovery of cost incurred by the generating company leading to
financial losses.

The likelihood of occurrence of this risk is low if adequate planning is undertaken. The
severity is high if the risk goes unaddressed.

5.3.4. Bearer of Risk

Generating company is the direct bearer of the risk.

5.3.5. Strategy to Manage the Risk

Involvement of Regulator should be ensured from the inception of the project

with regular updates about the progress of the project. (Risk Avoidance)

The need for apprising the regulator about the R&M plan is important as the recovery of the
cost incurred towards R&M is approved by the Regulator. This involves

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 Obtaining in-principle approval from the Regulator during the initial stages for
upfront commitment on the capital cost and plant performance

 Updating the regulator on progress and achievement of critical milestones

 Updating the regulator in case of abnormal or unexpected changes leading to cost

and time overruns

 Ensuring coordination with the distribution company (through the Regulatory) since
it is the primary off-taker of the power from the project.

 Obtaining the final approval for admittance of the capital cost

 Notifying the regulator about the outcomes, performance achieved vis-à-vis the
guaranteed parameters.

5.4. Absence of Ex-Post Evaluation and Feedback Loop (Operational

Risk)

5.4.1. Risk Description

Post evaluation of R&M works is essential to understand the impact/effectiveness of the

program. Such evaluations though largely missing would not only facilitate stakeholder
feedback towards the scheme, but also enhance understanding of the ground level barriers,
implementation challenges besides facilitating designing of effective R&M programs in
future.

This risk arises if the generating company does not undertake ex-post evaluation of the
R&M works and fails to incorporate the experience or unable to improve upon the execution
of R&M works for its ongoing units. Also, this leads to lack of institutional memory when the
staff involved in R&M moves out.

5.4.2. Root cause analysis

Undertaking post evaluation of projects is not considered as a standard practice by the

generating company and this risk can also be attributed to complacency on part of the
generating company.

5.4.3. Impact, frequency and severity of risk

The impact of this risk is that the generating company would not be able to improve upon
the execution of R&M projects based on its learning or experiences.

The likelihood of occurrence of this risk is high. Severity of this risk is low and it would also
impact future R&M projects of the company.

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5.4.4. Bearer of risk

Generating company is the direct bearer of the risk.

5.4.5. Strategy to manage the risk

Experience gained must be documented and incorporated in subsequent units

planned for R&M works (Risk Mitigation)

Generating company must undertake ex-post evaluation of the R&M works and should
document its experiences. This is important especially in case company is undertaking R&M
works on multiple units. The learning/experiences gained from the first unit must be
incorporated in the implementation plan of the subsequent units even if it requires
modification in the scope of work of other units.

In addition to the above, dissemination of ex-post evaluation provides experiential learning

to other utilities as well, and enables them to design their R&M program effectively.

Box VI-24: Absence of post evaluation of R&M works

During interactions with various officials both at the utility headquarters and the plant
level, it was observed that most of the utilities do not undertake ex-post evaluation or
document their experience of the works.

Source: Interaction of AF Mercados EMI with officials of various utilities.

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Section VII

Risk Heat Matrix and Management

Plan

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VII Risk Heat Matrix and Management Plan

This section presents the risk heat matrix and the risk management plan emerging from
the discussions in the preceding section.

1. Risk Heat Matrix

The risk heat matrix is divided into four tiers wherein

 Tier 1: presents risks which have high likelihood of occurrence and also have high
severity. This is the most important Tier as the risks identified in this tier are the
most critical once. Highest priority should be accorded for managing these risks else
it would be difficult to implement R&M project effectively.

 Tier2: presents risks which have high severity with low or moderate likelihood of
occurrence. This also includes risks which have high likelihood of occurrence with
moderate severity. Tier 2 category risks are second priority risks which also needs
to be attended as any change in operating environment can activate these risks
towards Tier 1.

 Tier 3: presents risks which have moderate severity with low or moderate likelihood
of occurrence. This also includes risk with high likelihood of occurrence with low
severity.

 Tier 4: presents risks which have low severity with low likelihood of occurrence.
These risks are of least importance for the project and do not have much material
impact on the project.

Figure below presents the risk heat matrix for a typical R&M project.

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Figure VII-1: Risk Heat Map for a typical R&M Project

S. No Risk Type Risk Code

Risk Heat Matrix Weak decision-making framework 1

Reactive approach to identification of plant for R&M 2
21
A Management Risk Lack of long term plan & awareness of available market options 3
(Significant)

20 9
1 8
Implementation contract awarded to vendor involved in
4
High

18 carrying out technical studies

6
Weak analytical framework for selection of R&M options 5
23 24 7
14 Inadequate technical assessment/studies 6
Materiality of Impact

2
B Technical Risk Occurrence of technical surprises 7
11 22
16 Post R&M guarantees not achieved 8
(Moderate)
Medium

3
Sustainability of R&M gains affected by weak O&M practices 9
5
12 4
19
Absence of ex-post evaluation and feedback loop 10
17 15 C Operational Risk
25 Limited capacity of utilities in undertaking R&M 11
Weak Supervision, Quality Control And Assurance 12
13 10
(Insignificant)

Delay in obtaining unit shutdown for undertaking technical

13
studies
Low

D Institutional Risk
Delay in provisioning of unit shutdown for executing R&M
14
works
Lack of confidence and uncertainty with regard to R&M
15
projects
Low Medium High
(Unlikely) (Possible) (Probable) Low level of vendor participation in the bidding process 16
E Market Risk
Likelihood of Occurrence Higher than expected price discovery 17
Management Risk Technical Risk Operational Risk Institutional Risk
Mismatch/delay in supply of critical equipment and the
18
shutdown period
Market Risk Regulatory Risk Contractual Risk Funding Risk Appropriate Commission not apprised of the R&M project plan 19
F Regulatory Risk
Market and Operational Risk Socio-Environmental Risk
Non-approval of costs incurred during R&M 20
Weakly defined scope of work 21
G Contractual Risk Weak dispute resolution mechanism constraining the
22
execution of work
Degree of Severity of Risk (High to Low)
H Funding Risk Utility unable to mobilize funds 23
Market
Low/ I Rebidding/Reward/Delay in award of R&M packages/contract 24
Tier I Tier II Tier III &Operational Risk
Low
Socio-Environment Failure to Comply with Environmental Standards & Perceived
J 25
Risk Negative Externalities

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2. Risk management plan

Table below summaries the key risk, the category of risk, the bearer, frequency, severity and the strategies proposed to deal with such risk.

Table VII-1: Risk Management Plan

Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

IDENTIFICATION STAGE

Moderate if
symptoms are
identified during Utility/Plant
Reactive approach the initial stages. Owner is the Strengthening of internal data acquisition, monitoring
Management
1 to identification of High However, the direct bearer. and alert systems to track unit performance and
Risk
plant for R&M magnitude of Also, impacts the diagnose early warning symptoms (Risk Avoidance)
impact increases consumers.
as the delay
increases.

Lack of long term

Utility/Plant
plan (Optimal The rationale for R&M of a project should be established
Owner is the
Management Generation Plan) at the state level taking into account all the alternative
2 High Moderate direct bearer.
Risk and awareness of competing options. The decision should involve multiple
Also, impacts the
available market stakeholders including the Discoms (Risk Avoidance)
consumers.
options

Lack of confidence Entire R&M A. Need for Experience Sharing and Dissemination
Depends on case market including
and uncertainty Ranges from (Risk Mitigation)
to case basis, may potential
3 Market Risk with regard to moderate to
range from low to generating
success of R&M high.
moderate companies, B. Need to Develop Market for R&M in the Country by
projects
equipment communicating the overall market size and address

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

suppliers, design concerns of various stakeholders (Risk Avoidance)

consultants etc.

ASSESSMENT STAGE

Ranges from A. Advance Planning for Scheduling of Technical

low to high Studies so as to either coincide the timing with the
depending annual/capital overhaul or provide advance notice to
Delay in obtaining
upon the the discom for such shutdown (Risk Avoidance)
Institutional unit shutdown for Generating
4 number of Low
Risk undertaking company
units B. Additional Allocation of Power to States from
technical studies
requiring Unallocated Quota of Central Pool for carrying out
simultaneou the RLA studies, Condition Assessment and Steam
s shutdown Path Audit (Risk Avoidance)

Impacts all the

Comprehensive Studies for the unit planned for R&M
parties including
should be mandatory. The scope of the study should
generating
cover both the Main Plant Equipment as well as the
company,
Inadequate Balance of Plant. The assessment should cover review of
supplier(s) and
5 Technical Risk technical High High O&M processes as well. Proxy assessment i.e. in case of
the
assessment/studies multiple units undergoing R&M, studies are conducted
Implementation
only for one of the units and scope for all units is
Support
prepared on the basis of the same, should be avoided.
Consultant (if
(Risk Avoidance)
applicable).

Weak analytical Comprehensive Identification and Assessment of

Management framework for Options including computation of financial returns,
6 High Moderate Consumers
Risk selection of R&M payback period, shutdown time required and
options conformance to the set objectives.(Risk Avoidance)

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

Appropriate
Practice of obtaining in-principle approval from the
Commission not
7 Regulatory Risk Moderate Moderate Utility Appropriate Commission should be encouraged.(Risk
apprised of the
Avoidance)
R&M project plan

Creation of dedicated R&M Cell by the utility at the

headquarters and the plant level. The nominated
officials should be exposed to the current practices and
Limited capacity of must be trained on R&M aspects through specialist
Operational utilities in Utility and entities. (Risk Avoidance)
8 High Moderate
Risk undertaking R&M Vendors
Engaging Specialised Consultants especially design and
works
implementation support consultants. (Risk Avoidance)

Avoidance of transfer of personnel involved in R&M

Project in the middle of R&M work

Scope of Work to be as precise as possible including

Contractual Weakly defined Differs from Utility and roles and responsibilities of each entity involved in the
9 High
Risk scope of work moderate to high Vendor contract. General statements should be avoided (Risk
Mitigation)

Utility is the
direct bearer.
Increased proliferation of innovative financing
Also impacts the
approaches /models coupled with creation of awareness
suppliers. In the
Utility unable to Low to about benefits of R&M through pilot studies to be taken
10 Funding Risk High long run, this risk
mobilise funds moderate up. Alongside, the assessment of R&M should involve
has
robust analysis of alternative approaches and
repercussions on
computation of financial returns. (Risk Mitigation)
the entire R&M
market.

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

PLANNING STAGE

Utility is the
Low level of
direct bearer. Focussed efforts should be taken up to involve potential
participation by the
11 Market Risk Low Moderate Also impacts the players in the R&M market by the utilities and the
vendors in the
potential CEA.(Risk Mitigation)
bidding process
vendors.

The contracts should aim at balancing the risk and

Moderate,
benefits between the utility and the implementation
with increase
vendor. The price is an outcome of inherent risks in the
Higher than in
Utility and contract. Adequate flexibilities in the contract to be
12 Market Risk expected price participation Moderate to high
Vendor provided to accommodate reasonable/acceptable
discovery the
changes. At all stages, the decision to go ahead for R&M
likelihood
should be re-evaluated and considered in the light of
may be low
proposed changes.(Risk Mitigation)

A. Rebidding should ideally be avoided through robust

project preparation, however in cases where it still
emerges as the only option, potential bidders should
be encouraged to assess the current plant condition
Rebidding/Reward/
Market and Ranges from and assume the responsibility of the task.(Risk
Delay in award of Utility and
13 Operational moderate to High Acceptance)
R&M Vendor
Risk high B. Management should undertake timely decision with
packages/contract
regard to award of contract by formulating
qualification requirements and evaluation
procedures along with appropriate timelines before
seeking interest from the vendor. (Risk Avoidance)

14 Implementation High Moderate Utility To avoid conflict of interest, a single entity should not
Management
contract awarded be allowed to assume the role of design consultant as

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

Risk to vendor involved well as the supplier. (Risk Avoidance)

in carrying out
technical studies

EXECUTION STAGE

Affects all the

parties including
the utility, Creation of clearly defined decision making and
Management Weak decision-
15 Moderate High supplier and the reporting structures with nominated officials authorized
Risk making framework
implementation to undertake decisions related to R&M (Risk Mitigation)
support
consultant.

A. Undertaking comprehensive assessment through

technical studies with clearly defined scope of work
(Risk Mitigation)
Occurrence of Utility and B. Creation of technical surprise plan including unit
16 Technical Risk High High
technical surprises Vendor rates for specific items, contingency fund allocation
to deal with exigencies. (Risk acceptance)
C. Establishing a clear decision making
framework.(Risk Mitigation)

Weak dispute
resolution Creation of Dispute Resolution Committee at the start of
Contractual Utility and
17 mechanism Moderate High project to address disputes between the Utility and the
Risk Vendor
constraining the Contractor in a timely manner (Risk Mitigation)
execution of work

Mismatch (or Utility and A. Availability of key components should be ensured

18 Market Risk High High
delay) in supply of Vendor before the start of the project and should be in

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

critical equipment accordance with the pre-defined plan finalized

and the shutdown before the commencement of work.(Risk Mitigation)
period
B. Provision of Penalties for delay in completion of
work. (Risk Sharing/Transfer)

C. Sequential delivery of materials to the R&M site

(Risk Mitigation)

Weak Supervision, Approval of detailed quality plans and Engaging Quality

Operational
19 Quality Control And Moderate Moderate Utility Control and Quality Assurance Consultants by the
Risk
Assurance Utility. (Risk Mitigation)

Failure to comply A. Renovation of ESP system of the power

Socio- with environmental Generating plant. (Risk Mitigation)
20 Environmental standards and High Moderate company and
Risk perceived negative supplier B. Undertaking socio-environment impact assessment
externalities to assess the impact of the project. (Risk Mitigation)

Low to high
A. Advance Planning for Scheduling of Shutdown for
Delay in depending Low to high
Execution of Works (Risk Avoidance)
provisioning of upon the depending upon
Institutional obtaining unit number of the delay in Utility and B. Additional Allocation of Power to States from
21
Risk shutdown for units obtaining the Vendor Unallocated Quota of Central Pool (Risk Avoidance)
executing R&M requiring approvals for
C. Implementation of partial R&M activities during
works simultaneou shutdown.
Annual shutdown periods. (Risk Avoidance)
s shutdown

CLOSURE STAGE

Operational Sustainability of Generating Preparation and implementation of O&M action plan for
22 High High
Risk R&M gains affected Company units undergoing R&M. This should be adopted through

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Frequency
Category of Severity of Bearer of the
S. No Risk of Strategy to Manage the Risk
Risk Impact risk
Occurrence

by weak O&M a Board Resolution and followed thereafter. (Risk

practices Mitigation)

Engaging specialised agency for O&M of the plant, post

R&M. (Risk Mitigation)

Rectification/replacement of components to meet

Post R&M Generating guaranteed parameters at no extra financial cost to
Technical Risk
23 guarantees not Moderate High company and utility. (Risk Mitigation)
achieved supplier Levy of Liquidated Damages for shortfall in
performance. (Risk Mitigation)

Non-approval of Involvement of Regulator should be ensured from the

Generating
24 Regulatory Risk costs incurred Low High inception of the project with regular updates about the
Company
during R&M progress of the project. (Risk Avoidance)

Absence of ex-post Experience gained must be documented and

Operational Generating
25 evaluation and High Low incorporated in subsequent units planned for R&M
Risk company
feedback loop works. (Risk Mitigation)

A holistic assessment of the risks has been made (in the earlier section) by identifying risks occurring in different stages of R&M cycle i.e. in
identification, assessment, planning, execution and closure stage and by understanding the impact of the risk, its frequency of occurrence, its
severity and the bearer of the risk. It is essential that the identified risks in these guidelines are evaluated by each generating
company before implementing R&M projects and formulate appropriate strategies in line with that suggested in these guidelines to
manage the identified/evaluated risks.

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Section VIII

Conclusion and Way Forward

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VIII Conclusion and Way Forward

R&M market is still at a nascent stage in India. It is faced with different kind of risks that needs
to be carefully identified for each stage of R&M process cycle and should be effectively addressed
to minimise their impact. Effective implementation of R&M projects requires meticulous planning
of various components/tasks. This includes undertaking in-depth technical studies for each of the
unit proposed for execution of R&M, financial and economic evaluation of available options,
creation of dedicated R&M cell with adequate manpower both at the plant level at the
headquarters. Minimising delays in selection/award of contract is the most crucial step in the
entire R&M process cycle as it creates a vicious circle wherein delays lead to further deterioration
in the condition of plant, leading to occurrence of technical surprises having both cost and time
implication and revenue loss to the utility due to loss in potential generation. This not only
impacts the utilities but also have negative impacts on the other stakeholders, impacting the
entire R&M market.

Ensuring the sustainability of R&M gains is critical. Various studies in the past have identified
serious gaps in the O&M practices of the state utilities which negates the benefits likely from the
R&M. Hence, adoption of a well defined O&M improvement/action plan along with R&M is of
utmost importance.

The role of R&M in bridging the demand supply gap through generation optimisation is well
recognised in the Indian context. This is increasingly becoming more important in view of the
shortage of fuel experienced in recent times and the necessity to optimally utilize this scarce
resource. An approach that balances the risks of various parties involved is much desired.

In addition to the above, an attitudinal change that emphasizes on participatory approach

between the utility and the supplier(s) is most important– the success of contractor should be
viewed as the success of the project. Platforms for interaction among stakeholders to exchange
knowledge, information and experience through various modes is as much important as the need
for redressal/removal of barriers faced by various stakeholders during the R&M process.

In summary, the guidelines developed as part of this report aims to provide guidance to the
utilities to minimize the risk experience during planning and execution of R&M. It is expected
that the suggestions proposed for mitigating/avoiding various risk will go a long way in
promoting the R&M market in the country.

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Annexure

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ANNEXURE I – Scope of Work

The detailed scope of work is given below:

1. STUDY ON STRATEGIES TO HANDLE RISKS DURING R&M

INTERVENTIONS:

There are various risks which are associated with the R&M interventions at thermal power
stations for their Life Extension. Under this activity, the Consultant shall undertake the following
activities as mentioned below:

a. Reviewing the past experiences of developing and implementing R&M with Life Extension
Projects. The Consultant shall review the experience of R&M and Life Extension in Indian
thermal power stations (list enclosed below) to identify the various risks encountered
while carrying out such R&M works.

b. Studying and analyzing the risks identified in detail and the consequences of such risks
on R&M projects. The Consultant shall study and analyze the various risks associated with
development and implementation of R&M projects in technical, commercial, contractual
and market aspects including but not limited to following risks:

 Policy and Regulatory Risks including recovery of Capital Cost and its impact on
post R&M Tariff

 Project Schedule and Time Over-run Risks along with its impact on Estimated R&M
Cost due to time over-run and provisions in contractual arrangements;

 Cost Over-run Risks including change in scope and provisions in contractual

arrangements;

 Risks during execution phase including resources risks ;

 Political Risks if any ;

 Post R&M Performance Risks and associated mitigation measures i.e. Liquidated
Damages, etc.

c. Conducting meetings and interaction with the concerned stakeholders such as State
Generating Stations, Central and State Electricity Regulatory Commissions, Equipment
Suppliers, Design Consultants, Funding Agencies and CEA to analyze the identified risks.

d. Based on the above study and interactions with stakeholders, the Consultant shall
develop strategies to mitigate the risks and prepare “Guidelines for Risk Identification and
Mitigation in R&M Projects in Thermal Power Stations in India”.

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2. STUDY ON STRATEGIES TO HANDLE TECHNICAL SURPRISES

IN R&M INTERVENTIONS

The Consultants shall undertake the following activities on strategies to handle technical
surprises in R&M Interventions:

a. Reviewing the past experiences of developing and implementing R&M with Life
Extension Projects. The Consultant shall review the experience of R&M and Life
Extension in Indian thermal power stations (list enclosed below) to identify the
technical surprises encountered by the utilities while carrying out the R&M works.

b. Interacting with State Generating Companies, various Suppliers and Design

Consultants to collect information on surprises experienced in R&M works of thermal
power stations and suggestions for addressing them. Based on the interaction, the
Consultant shall study the identified technical surprises and experiences at thermal
power stations in India in detail and develop strategies to address and mitigate such
technical surprises.

c. On the basis of this study and interaction with Suppliers and Design Consultants, the
Consultant shall develop “Guidelines for Early Identification of Potential Surprises in
R&M Projects and Ways of Addressing Them”.

3. REVIEW OF INTERNATIONAL BEST PRACTICES IN R&M

a. The Consultant shall review the international best practices in developing and
implementing the R&M projects considering the energy efficiency and rehabilitation
of thermal power stations. The various best practices to be reviewed by the
Consultant shall inter-alia include the following:

 Selection of Unit/Plant for R&M along with objectives of carrying out R&M,

 Advanced technological options for EE R&M such as turbine up-gradation,

efficient and environment friendly furnace-boilers, coal utilization etc.

 Finalisation of Scope of Work for R&M,

 Procurement Process for Selection of Consultant/Contractor,

 Funding of R&M Projects,

 Cost Benefit Analysis,

 Implementation of R&M Projects including shut down time,

 Environmental safeguards,

 Measures for Guaranteed Performance post R&M.

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b. Based on the above review, the Consultant shall recommend and suggest alternate
cost-effective options for R&M under Indian conditions with respect to the following
parameters:

 Augmentation of project capacity,

 Technical feasibility,

 Cost effectiveness,

 Efficiency Improvement,

 Environmental safeguards.

c. The Consultant shall recommend best ways and means through which these
International practices can be adopted by the generating companies in India.

d. On the basis of review of international best practices, the Consultant shall identify
the measures that can be used to mitigate the risks and handle technical surprises
in the thermal power stations in India.

e. Based on the review of the international best practices, the Consultant shall also
develop standard menu of options for energy efficiency focused rehabilitation and
life extension of 210 MW and above units in thermal power stations in India.

4. STUDY FOR IDENTIFYING THE POTENTIAL REDUCTION IN

GREEN HOUSE GAS(GHG) EMISSIONS ON ACCOUNT OF
IMPLEMENTATION OF ENERGY EFFICIENT R&M AND
SUGGESTING POSSIBLE FRAMEWORK FOR MONETIZING THE
GHG EMISSIONS REDUCTION

a. The Consultant shall suggest the GHG emissions reduction potential under various
technological options considering the advanced technologies of EE R&M of thermal
power stations.

b. The Consultant shall also suggest the various possible frameworks for monetizing
the GHG emissions reduction potential in the National and International markets.

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List of units to be considered for review of R&M experience with LE works

Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works9
Station
(TPS)

Unit 1- Unit was

synchronized on 8
February 2007 after
LE works
Unit 1 -
Unit 2- Unit was
NASL,
synchronized on 5
1, 2 Bathinda
1 3 x 110 PSPCL/Punjab October 2005 after
&3 TPS
LE works
Unit 2&3-
BHEL Unit 3 –
Synchronization
expected by
November 2011
after LE works

Unit 1- Unit was

synchronized on 31
March 2004 after LE
works
Unit 1&4,
1& Unit 4- Unit was
ABB
4, 2x50, synchronized on 3
Alstom,
October 2003 after
Korba (East) LE works
2 CSPGCL/Chhattisgarh
TPS Unit 5- Unit was
synchronized on 3
5& 2 x 120 March 2005 after LE
Unit 5 &
6 works
6- BHEL,
Unit 6- Unit was
synchronized on 8
October 2003 after
LE works

Unit 1- Unit 1- Unit was

1,3 BHEL, synchronized on 4
3 3x110, Panipat TPS HPGCL/ Haryana
&4 November 2008
after LE works
Unit 3 &4-

9
The status presented in the table is as per the status given in ToR of the study.

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Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works9
Station
(TPS)

Yet to be Unit 3 – DPRs for LE

awarded works is under
finalisation

Unit 4 – DPRs for LE

works is under
finalisation

Unit 1- Unit was

synchronized on 24
May 2008 after LE
works
4 1&
2x120 Ukai TPS GSECL/Gujarat BHEL Unit 2 – Unit was
2
synchronized on 24
February 2010 after
LE works

Unit 1- Expected
date of Completion
by October 2011
5 1& Amarkantak MPPGCL/Madhya
2x120 NASL Unit 2 – Unit was
2 Exten TPS Pradesh
synchronized on 26
October 2010

Unit 9-
Synchronized in
September 2010.
Unit is under
stabilization after
R&M
6 9& UPRUNVL/Uttar
2x200 Obra TPS BHEL Unit 10 –Shut down
10 Pradesh
is expected in
October 2011. LE
works to be
completed in 2012-
13

Completion of LE
7 works is expected in
7 1x110 Barauni TPS BESB/Bihar BHEL 2012-13

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Name of
Thermal
S. Unit Capacity Name of Executing Completion of LE
Power
No No (MW) Utility/State Agency Works9
Station
(TPS)

Expected date of
Completion
8
1 1x110 Muzzaffurpur KBUNL/Bihar BHEL November 2011
after LE works

Procurement of
Yet to be
9 WBPDCL/West executing Agencies
5 1x210 Bandel TPS awarded
Bengal are under process

Procurement of
Yet to be
10 6 1X210 Koradi TPS MSPGCL/Maharashtra executing Agencies
awarded
are under process

Total No of TPS- 10

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Annexure II– Draft Guidelines for Risk Identification and

Mitigation in R&M Projects in Thermal Power Stations in India

1.0 Background

1.1 Renovation & Modernisation (R&M) including Life Extension (LE) of existing old power
plants is one of the most cost effective option to achieve additional generation from
existing old units at low cost with short gestation period.

1.2 The importance of R&M was recognised by the Government of India way back in 1984
when Phase-I R&M Programme for 34 thermal power stations in the country was launched
by the CEA as a Centrally sponsored scheme. Since then R&M option has been effectively
utilised over the various plan periods. As per the National Perspective Plan of CEA, under
12th Plan, LE works have been identified on 72 thermal units of total capacity 16,532 MW
and R&M works have been identified on 23 units (4,971 MW). Further, LE works for 31
units (4,527 MW) and R&M works for 16 units (4,010 MW) are slipped over to 12th plan.

1.3 Planning and implementing R&M projects is often witnessed by occurrence of adverse
events that can derail the objectives of the project. Identifying and mitigating project
risks are crucial steps in managing successful R&M projects. Thus, a well structured and
documented Risk Management at each stage of the process is of utmost importance.
Mitigation of the identified risks can significantly alter the risk profile of the R&M projects
making them an attractive proposition for all stakeholders in the sector.

1.4 With the above background, the objective of these guidelines is to serve as guidance in
identifying and addressing the key risks faced in design and implementation of R&M in the
country.

2.0 Intent of the Guidelines for Risk Identification and

Mitigation Measures in R&M

2.1 The intent of these guidelines is to identify risks constraining the large scale
implementation of renovation and modernization programme of coal based thermal power
plants in the country. A holistic assessment of the risks has been made by identifying
risks occurring in different stages of R&M cycle i.e. in identification, assessment,
planning, execution and closure stage and by understanding their root causes and impact.

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2.2 Various strategies have been suggested to effectively manage the risk which includes
strategies for risk mitigation, risk avoidance, risk sharing and risk acceptance.

3.0 Stages of R&M Process Cycle

3.1 In order to identify the risks and surprises experienced during R&M projects and to design
strategies to mitigate risks it is essential to first understand various sub-steps of the
entire R&M process and the activities that are undertaken at each step.

3.1.1 Identification Stage

During the identification stage the plant units are first identified to be diagnosed further
based on certain symptoms. At this stage the plant operators regularly monitor the key
plant unit parameters covering at least the following aspects to identify symptoms that
may necessitate R&M of power plants: (a) Plant Availability, (b) Plant Load Factor, (c)
Auxiliary Consumption, (d) Emission Factors, (e) Level of Outages, (f) Life of the plant
etc, (g) frequency of annual overhaul; (h) frequency of capital overhaul etc. The
diagnosis at this stage is based on available plant records and design data. No inspections
and/or testing of material, plant or equipment is involved at this stage.

3.1.2 Assessment Stage

During this stage systematic evaluation of the plant is being undertaken through
undertaking of various technical studies and tests. This includes the following:- (a)
Residual Life Assessment (b) Complete Condition Assessment (c) Energy Audit (d) Past
History of Plant (including maintenance schedules, overhauls and assessment of O&M
practices). The technical evaluation of the plant is followed by the economic evaluation of
the plant to decide on the most optimal option. This includes (a) Plant retirement (b)
Maintain and operate for extended time and retire subsequently (c) Capital Overhaul and
refurbishment (d) R&M and Life Extension (e) R&M, LE and Up-rating. Detailed Project
Report prepared for assessment of above options also includes a detailed technical and
economic analysis of the identified option. This also includes assessment of the sources of
fund and the phasing required for execution of R&M option. Based on the technical
studies and the option selected for R&M, the scope of R&M Project is prepared. Before the
tenderization process begins, utility is expected to submit the details of the assessment to
the Appropriate Commission and seek its in-principle approval.

3.1.3 Planning Stage

This stage covers the entire bid process management i.e. Issue of tender(s), pre-bid
meetings, evaluation of technical and commercial bids, selection of suitable bidder,
negotiation of contracts and award of R&M contracts to vendors/suppliers/OEMs, as
applicable.

3.1.4 Execution Stage

This stage covers the entire R&M project implementation stage which begins with the
receipt of equipments to the site and planning of shutdown of unit. This stage includes

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effective monitoring of work, timely decision making with regard to bottlenecks faced,
ensuring the quality of work, inspection of material and smooth implementation of work.
Implementation support consultant hired by the utility plays a key role in managing all
the activities covered under this stage through a structured process.

3.1.5 Closure Stage

After the R&M work is completed, it is very essential to evaluate whether the goals and
objectives of the R&M project was achieved or not. For this post-R&M Performance
Guarantee Test is conducted. Further, Operation and Maintenance Training is imparted to
engineers for efficient operation of the unit that has undergone R&M.

4.0 Risk Identification and Management Strategies in the

Identification Stage of R&M

4.1 The following sections describe the risks identified across different stages of R&M and the
strategies to manage the identified risk.

4.2 Reactive approach to Identification of Plant for R&M (Management Risk)

4.2.1 Risk Description

This risk arises if timely decision is not undertaken to identify plant for R&M works.
Ideally decision to undertake comprehensive R&M should be based on the diagnosis of the
early warning symptoms. This includes diagnosis of the reasons for deterioration in plant
performance parameters such as Plant Availability, SHR, auxiliary consumption etc. And
the ageing analysis of the unit i.e. the number of remaining years left before the plant
completes its economic/designed life of operation. This risk can be attributed to the weak
monitoring processes at the plant and the institutional level. The impact of this risk is that
it leads to deterioration in the condition of the plant and its performance. More delayed is
the decision to undertake R&M, higher is the adverse impact on the performance of plant.

4.2.2 Strategy to Manage the Risk

In order to avoid the above mentioned risk, the utility should strengthen its internal data
acquisition, monitoring and alert systems to track unit performance. Some of the critical
actions in this regard includes:-

i. Adherence to the annual maintenance/overhaul schedule and capital overhaul

schedules.

ii. Regular collection of data pertaining to key performance parameters, reliability of

the plant and its individual components and condition; and flagging warning signal
in the management reports. Data related to emissions should also be collected to
facilitate monetizing of GHG emissions in future.

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iii. Identification of the components causing forced outages along with reasons for such
failures

4.3 Lack of Long Term Plan and Awareness of Available Market Options
(Management Risk)

4.3.1 Risk Description

Key priorities of the state in the context of energy sector are: (i) to provide adequate and
affordable power to the consumers; (ii) be energy secure and environmentally benign;
and (iii) ensure financially sustainable utilities. The states and the power utilities in the
country must have long-term plan (Optimal Generation Plan) for achieving the above
mentioned goals. The decisions related to R&M must be a consequence of this long-term
plan. The risk arises when R&M decisions related to R&M are taken up in isolation without
considering other available options. The risk results in sub-optimal investments decisions.

4.3.2 Strategy to Manage the Risk

The rationale for R&M of a project should be established at the state level taking into
account all the alternative competing options. The R&M decision by the utility should take
into account all the available market options including new power plants (at same site or
at a different location), procurement of power through medium and long-term Case I
bids, availability of supply from renewable energy sources, purchase from open market
etc. The final decision of R&M should also be considered in consultation with the Discoms,
wherein the refurbished plant should fit with the Discoms long-term power procurement
plan.

4.4 Lack of Confidence and Uncertainty with Regard to R&M Projects (Market Risk)

4.4.1 Risk Description

Due to limited experience sharing and success stories in India, a number of generating
companies are uncertain about the outcomes of the R&M. Hence, appreciation of benefits
associated with R&M is limited. This leads to a risk wherein a utility does not consider
R&M as an option, even though it makes economic sense.

4.4.2 Strategy to Manage the Risk

To mitigate the above mentioned risk there is a need for experience sharing. The utilities
and other stakeholders should disseminate their experience of implementing R&M. This
besides being hosted on their respective websites may also be disseminated through a
common platform such as the CEA official website.

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5.0 Risk Identification and Management Strategies in the

Assessment Stage of R&M

5.1 Delay in obtaining Unit Shutdown for Undertaking Technical Studies

(Institutional Risk)

5.1.1 Risk Description

In order to carry out comprehensive assessment of the remnant life and condition of the
plant, various standardised tests are required to be performed (destructive and non-
destructive) involving a shutdown of approx. 2 to 3 months. This risk arises if the utility is
not able to obtain requisite approvals from the relevant authorities (State Government or
Regulatory Commission) for shutdown of the plant for carrying out such studies. The
above risk leads to delay in initializing the R&M activity and also results in inadequate
assessment of the condition of the plant and residual life of various components
derailing/impacting the entire R&M project.

5.1.2 Strategy to Manage the Risk

In order to avoid this risk utility should undertake advance planning for scheduling of
technical studies. This includes planning the studies in a manner that time period of
technical studies coincide with that of annual maintenance/overhauling of the unit.
Further, in case a separate shutdown is required, it must be planned well in advance and
distribution utilities must be informed accordingly. This would provide sufficient time to
the distribution utility for arranging for additional power to meet the shortfall on account
of the above.

5.2 Inadequate Technical Assessment/Studies (Technical Risk)

5.2.1 Risk Description

This risk arises on account of the following: (a) Requisite studies or tests not performed
(b) Assessment undertaken only for major components of the plant (c) Proxy Assessment
in case of multiple units, wherein studies are undertaken only for one unit. The impact of
this risk is reflected in the form of surprises or additional scope of work at the project
execution stage leading to increase in cost and time of the project.

5.2.2 Strategy to Manage the Risk

In order to avoid this risk the utility should undertake comprehensive studies for the unit
planned for R&M should be mandatory. The scope of the study should cover both the Main
Plant Equipment as well as the Balance of Plant.

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5.3 Weak Analytical Framework for Selection of R&M Options (Management Risk)

5.3.1 Risk Description

This risk arises if the utility is not able to identify and/or evaluate different options and
select the best possible option depending upon the conditions of the plant, financial
constraints etc. The above risk leads to selection of sub-optimal option that may result in
unmet objectives and outcomes, and/or higher time and cost.

5.3.2 Strategy to Manage the Risk

In order to avoid this risk the utility should undertake Comprehensive Identification and
Assessment of Options including computation of financial returns, payback period, and
shutdown time required in conformance to the set objectives.

5.4 Appropriate Commission not Apprised of the R&M Project Plan (Regulatory Risk)

5.4.1 Risk Description

The risk arises when the Appropriate Commission is not apprised about the R&M project.
The impact of this risk would be that the generating company may not be would not be
able to recover the investment or the cost it incurs on undertaking R&M of the plant. This
also impacts the financial position of the utility.

5.4.2 Strategy to Manage the Risk

In order to avoid this risk utility may obtain in-principle approval from the Appropriate
Commission.

5.5 Limited Capacity of Utilities in Undertaking R&M works (Operational Risk)

5.5.1 Risk Description

The risk arises due to the limited skills and expertise of the utility to plan and implement
R&M. This risk impacts every stage of the R&M process cycle leading to poor execution of
project.

5.5.2 Strategy to Manage the Risk

In order to avoid this risk utility should create a separate dedicated R&M Cell both at the
level of headquarter and at the plant. Further, the utility may also engage specialised
agencies i.e. Design and implementation support consultants to assist the utility in all
works from design to implementation. The utility should also avoid transfers of personnel
involved in the R&M project from the beginning.

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5.6 Weakly Defined Scope of Work (Contractual Risk)

5.6.1 Risk Description

This risk arises if the scope of work is broad and does not clearly define the role and
responsibility of different stakeholders including the works to be performed by each party.
It also arises, if the scope of work or design specifications is prepared in a way to favour
a particular supplier or include propriety items that restrict entry of other vendors. This
risk leads to contractual disputes causing delay in project execution, increased shutdown
period and hence loss of revenue for the utility.

5.6.2 Strategy to Manage the Risk

In order to mitigate this risk multi-pronged approach is required wherein the utility may
involve design consultants, plant level officials, engineering team while finalising the
scope of work. In addition, efforts should be made to prepare scope of work as precise as
possible. Utility should also consider interacting with the suppliers (especially the original
equipment suppliers) to understand the viability of options for R&M envisaged including
new technologies which can be considered. However, it is required that scope should not
be biased towards any one supplier and should not include proprietary items. Further,
conducting comprehensive R&M studies is a pre-requisite for preparation of best possible
specifications for the project.

5.7 Utility Unable to Mobilise Funds (Funding Risk)

5.7.1 Risk Description

This risk arises when the utility is not able to arrange adequate funding for undertaking
R&M of the project or faces constraints in raising funds for the project. This risk arises
due to the poor financial condition of state utilities making it difficult to obtain financing
especially from commercial sources. Also, under conditions of financial stress it is difficult
for state generating companies to arrange funds from their internal reserves. The overall
impact is that utility is unable to materialize its plan for undertaking R&M. The
consequent delay on account of the above results in further deterioration in the plant
performance.

5.7.2 Strategy to Manage the Risk

In order to mitigate this risk different financing models should be taken up by the state
utilities to attract public or private investment for R&M projects. These include: (a) Lease,
rehabilitate, operate and transfer (LROT), (b) Sale of Plant, (c) Joint Venture between
Power utility and public or private company. Alongside, the assessment of R&M should
involve robust analysis of alternative approaches and computation of financial returns.

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6.0 Risk Identification and Management Strategies in the

Planning Stage of R&M

6.1 Low Level of Participation by the Vendors in the Bidding Process (Market Risk)

6.1.1 Risk Description

This risk arises when the utility adopt the bidding process for selection of vendors and
receives a poor response to its bid (s). This risk may arise due to the limited interest of
vendors in the R&M market viz-a-viz market for new plant capacity,
insufficient/inadequate market signals to the prospective vendors, and stringent
qualification requirements and guarantees impending larger participation. The impact of
the risk is that the utility is forced to select vendor from the limited pool of options
available. Low competition also results in a higher price discovery.

6.1.2 Strategy to Manage the Risk

In order to mitigate this risk focussed efforts should be taken up to involve potential
players in the R&M market by the utilities and the CEA. The following interventions should
be taken up:

i. Qualification requirements in the tender documents should be designed in a

manner that encourages participation of players including the new players. These
should not be overly stringent.

ii. The level of guarantees should not be excessive and should be based on fair
balance between risk and rewards.

iii. Pre-bid meetings and two stage bidding process can be adopted by the utility to
address the concerns of the suppliers prior to submission of price bid. Any concern
related to scope of work or technical specifications or quantities or performance
requirements or guarantees etc should be clarified during the pre-bid stage. The
bid documents should be easily accessible and available for the bidders to
examine.

iv. Utilities should make efforts to reach out to the potential vendors and disseminate
information about the bid.

v. The Utilities should adopt the model bidding document that CEA is in process of
developing.

6.2 Higher than Expected Price Discovery (Market Risk)

6.2.1 Risk Description

This risk arises if the price discovered through competitive process or through nomination
basis is significantly higher as compared to that envisaged during the Planning Stage.
This risk arises due to the following: (a)the lack of competition in the market; (b)

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Unrealistic assessment of cost of various components at the DPR stage; (c) Weakly
defined scope of work and uneven sharing of risks between the utility and vendor; (d)
Stringent performance guarantees imposed/expected from the vendors ultimately leads
to high prices for the project; (e) Pre-R&M condition of the equipment is not well-
established to determine clearly the design of the equipment, its performance and
operating history; (f)Time gap between the technical studies and commencement of
actual implementation, as the units do not get maintenance priority in the interim
resulting in deterioration in plant performance.

The impact of the above risk results in compromises on the scope of work and may also
lead to re-evaluation of R&M options.

6.2.2 Strategy to Manage the Risk

The contracts should aim at balancing the risk and benefits between the utility and the
implementation vendor. Adequate flexibilities should be considered in the contract to
accommodate reasonable/acceptable changes. At all stages, the decision to go ahead for
R&M should be re-evaluated and considered in the light of proposed changes.

In order to mitigate this risk following steps are required:-

i. Proper Communication with the Vendors- This is the most important step as
this would enable the vendor to realistically evaluate its cost and benefit and
associated risks involved in the project. This includes the following:

a. Provision of previous year data pertaining to plant performance, results of

technical studies etc. to the prospective vendors along with the bidding
documents.

b. Suppliers interested in bidding for the project should be encouraged to

undertake plant visits to understand or review the site conditions.

c. Conduct of pre-bid meetings and two stage bidding process can be adopted
by the utility to address the concerns of the suppliers prior to submission of
price bid.

ii. While preparing DPR of the project some contingency should be provided for
higher price discovery. Alongside, scenario analysis should be undertaken to
understand the maximum price increase that can be allowed so that the
identified/selected option remain the best possible option and viable. If the price
discovered is such that it makes the option unviable, utility should try to select the
second best possible option. Thus, at all stages, the decision to go ahead for R&M
should be re-evaluated and considered in the light of proposed changes.

iii. Utility may also decide for rebidding (although it has its own risks) the project with
suitable modifications with regard to change in qualification criteria to increase
participation, change in the selected R&M option etc. However, efforts should be
made for suitable negotiations with the lowest bidder before resorting to such
option.

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iv. Striking a right balance between the performance guarantees and penalties- There
should be adequate sharing of risks between the utility and the supplier, shifting
additional risk (beyond what the supplier has direct control on) only increases the
overall price of the contract.

6.3 Rebidding/Reward/Delay in Award of R&M Packages/Contract (Market and

Operational Risk)

6.3.1 Risk Description

This risk arises if the utility takes significant time in awarding the contract or has to rebid
any of its contract or packages. This risk could originate from the vendor side as well as
from the utility‟s side. This risk leads to significant delay in execution of project, cost
overruns and risk of change in baseline parameters.

6.3.2 Strategy to Manage the Risk

i. In order to avoid this risk, management should undertake timely decision with regard
to award of contract by formulating qualification requirements and evaluation
procedures along with appropriate timelines before seeking interest from the vendor

ii. Rebidding should ideally be avoided through robust project preparation, however in
cases where it still emerges as the only option, potential bidders should be
encouraged to assess the current plant condition and assume the responsibility of the
task.

6.4 Implementation Contract Awarded to Vendor involved in carrying out Technical

Studies (Management Risk)

6.4.1 Risk Description

This risk arises if the same entity is involved in formulation of technical

specifications/scope of work and execution of R&M project. Lack of independent
assessment and presence of potential conflict of interest may not lead to the best
possible outcome for the utility.

6.4.2 Strategy to Manage the Risk

In order to avoid this risk a single entity should not be allowed to assume the role of
design consultant as well as the supplier to avoid potential conflict of interest.

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7.0 Risk Identification and Management Strategies in the

Execution Stage of R&M

7.1 Weak Decision-Making Framework (Management Risk)

7.1.1 Risk Description

This risk arises if there is significant delay in undertaking decisions with regard to various
issues arising during the execution of the work. This could be related to the possible
surprises upon the opening of machines which may require contract modifications;
difference in the interpretation of scope and responsibility by vendors and employer etc.
This leads to contractual disputes and delay in execution of the work.

7.1.2 Strategy to Manage the Risk

In order to mitigate this risk it is required to create clearly defined decision making and
reporting structures with nominated officials authorized to undertake decisions.

7.2 Occurrence of Technical Surprises (Technical Risk)

7.2.1 Risk Description

A thermal power plant undergoing R&M might face unforeseen events once the unit is
shutdown and opened up for R&M. Such unforeseen events are called Technical
Surprises. The utility due to such surprises is faced with unexpected change or
unforeseen additions in the scope of work leading to cost and time overruns.

7.2.2 Strategy to Manage the Risk

In order to manage this risk a multi-pronged approach is required. This includes:

i. Undertaking comprehensive assessment through technical studies with clearly defined

scope of work (Risk Mitigation)

ii. Creation of technical surprise plan (Risk Acceptance)

A well defined technical surprise plan should be prepared for effectively handing technical
surprises. This includes a list of possible surprises, ensuring availability of spare parts to
minimize delays, addressing upfront the likely contractual aspects of additional supplies
and works etc. Further, in the bid documents bidders should be required to submit prices
of such components/works which may need to be procured during implementation to
handle surprises (unit rate contracts of such equipment).

iii. Establishing a clear decision making framework (Risk Mitigation)

After the occurrence of technical surprises, the indecisiveness on the part of the utility
can result in significant delay in the execution of work. It is important to specify the
decision making process with clearly defined roles and responsibilities along with requisite

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authority of different officials to enable timely resolution of the issues encountered during
the R&M.

7.3 Weak Dispute Resolution Mechanism constraining the Execution of Work

(Contractual Risk)

7.3.1 Risk Description

This risk arises if there is occurrence of any disputes including contractual which impacts
the execution of work. This risk arises due to the following:

i. Misinterpretation of the scope of work by either party i.e. utility or supplier.

ii. Delay on part of supplier or claim of compensation by the supplier for any additional
work outside the scope of work.

iii. Delay in decision making by the utility or delay in providing shutdown of the plant

The above impacts the harmony in work and results in halting of the work or delay in
execution of work.

7.3.2 Strategy to Manage the Risk

This risk can be mitigated through creation of Dispute Resolution Committee at the start
of project to address disputes between the Utility and the Contractor in a timely manner

7.4 Mismatch (or delay) in Supply of Critical Equipment and the Shutdown Period
(Market Risk)

7.4.1 Risk Description

This risk arises when there is delay in supply of key components and equipments by the
supplier and delivery schedule of the equipments is not in sync with the shutdown of the
plant. The impact of the above risk is that it results in delay in implementation of project
and hence longer shutdown period.

7.4.2 Strategy to Manage the Risk

This risk can be managed through the following

i. Availability of key components should be ensured before the start of the project and
should be in accordance with the pre-defined plan finalized before the commencement
of work. (Risk Mitigation)

ii. Provision of Penalties for delay in completion of work - Adequate penalties should be
built into the contracts for delay in completion of works by the vendor. (Risk
Sharing/Transfer)

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iii. Sequential delivery of materials to the R&M site (Risk Mitigation)

7.5 Weak Supervision, Quality Control and Assurance (Operational Risk)

7.5.1 Risk Description

This risk arises if material supplied or work performed by the vendor is of substandard
quality. This risk also arises due to the weak quality procedures of the contractor with
regard to its subcontractors. Substandard equipment and installation service has a direct
impact on the long term performance and life of the plant.

7.5.2 Strategy to Manage the Risk

In order to mitigate this risk detailed Quality Plans for both manufacturing and field
activities should be submitted separately by the contractors to the utility for approval
before the start of the project. The approved quality plan should then form as an integral
part of the Contract document. The contractor must submit the quality plan for the
project including the Quality Plan proposed for each sub-contracted item along with the
procedures followed by the contractor to finalize and assess the quality assurances of the
sub-contractors.

Implementation Support Consultants (ISC) or Independent Quality Assurance Consultants

(QAC) should be appointed to confirm that implementation is as per the design
requirements and that the documented quality plans are being adhered to. Consultants
would also certify quality of materials and works before the payments are made as per
contractual milestones. The QAC would also be responsible for the inspection of material
quality at the site of supplier.

7.6 Failure to Comply with Environmental Standards and Perceived Negative

ExternalitieS (Socio-Environmental Risk)

7.6.1 Risk Description

The risk arises if the units undergoing R&M are not able to achieve the target emission
standards even if efficiency gains are achieved. Further, the risk also arises if
rehabilitation work is perceived to have negative environmental and social impact by the
immediate habitants. The risk leads to the following:

i. Non- compliance of environmental regulations may lead to closure of the plant

ii. May lead to delayed execution/ or no execution due to agitation or demonstration

from the community or civil societies.

7.6.2 Strategy to Manage the Risk

In order to meet the statutory environmental regulations utility may consider renovating
the ESP system of the power plant. Further, formulation of CSR policy by the utility and

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undertaking socio-environment studies could be considered to improve the socio-

environment performance of the plant.

The Utility should engage with the local community and efforts should be undertaken to
disseminate project impact assessments and benefits to nearby villages by deploying an
appropriate strategy for communication.

7.7 Delay in Provisioning of Unit Shutdown for Executing R&M works (Institutional
Risk)

7.7.1 Risk Description

This risk arises if the utility is not able to obtain timely approvals from the relevant
authorities (State Government or Regulatory Commission) for shutdown of the plant for
execution of R&M works. The above risk leads to the following:

i. Contractual disputes and delay in execution of work.

ii. Change in baseline parameters due to time gap between the studies and actual
execution.

iii. Deterioration in condition of plant and occurrence of technical surprises

7.7.2 Strategy to Manage the Risk

This risk can be avoided through a combination of measure that should be initiated from
the Central Government, the Generating Company and the Distribution Utility. These are
explained below:

i. Advance Planning for Scheduling of Shutdown for Execution of Works

This would provide sufficient time to the distribution utility for arranging for
additional power to meet the shortfall on account of the above. The current power
market provides several avenues for procurement of power in the short and medium
term, which should be considered.

ii. Additional Allocation of Power to States from Unallocated Quota of Central Pool for
carrying out the studies

As per clause 6.2 (ix) of the MoP Guidelines for R&M, the utilities may approach the
Government for additional allocation of power to the extent possible from unallocated
quota of central sector power stations during the period of shut down of units for
comprehensive life extension works.

Utilities can approach the central government well in advance to procure power in
line with the above clause/guideline.

iii. Implementation of partial R&M activities during Annual shutdown periods

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R&M can also be implemented during planned shutdown for annual maintenance over
two to three years time period especially if the work does not includes opening up of
steam turbine and significant repairs in the boiler and the generator.

8.0 Risk Identification and Management Strategies in the

Closure Stage of R&M

8.1 Sustainability of R&M Gains affected by Weak O&M Practices (Operational Risk)

8.1.1 Risk Description

This risk arises when owning to weak O&M practices the performance gain become
difficult to sustain wherein the benefits of the R&M are soon wiped off. The above risk
leads to the gradual deterioration of the condition and performance of the plant and
hence the gains expected from undertaking R&M may not be achieved over a longer
period of time.

8.1.2 Strategy to Manage the Risk

In order to mitigate this risk utility may review its O&M practices of the plant at the start
of the project and based on the assessment a long term O&M action plan may be
formulated and implemented on priority basis. The Utility may also consider the option of
outsourcing O&M of the plant; post R&M to a specialized agency.

8.2 Post R&M Guarantees not achieved (Technical Risk)

8.2.1 Risk Description

This risk arises if the performance test fails and the requisite performance guarantees are
not achieved or if the supplier do not undertake the performance guarantee test or delays
it incessantly. The risk results in the following impacts:

i. R&M benefit not achieved as envisaged during the assessment stage.

ii. Contractual disputes

iii. Levy of performance guarantee penalties on the supplier

iv. Problems in regulatory apprOval and recovery of costs incurred on the R&M of the
plant

v. Consequent financial loss to the utility.

vi. Non-achievement of performance post R&M may lead to cancellation of future R&M
works by the utility

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8.2.2 Strategy to Manage the Risk

In order to mitigate this risk supplier should be asked to rectify/replace the components
to meet guaranteed parameters at no extra financial cost to utility and utility may also
levy the Liquidated Damages for shortfall in performance

8.3 Non-Approval of Costs Incurred During R&M (Regulatory Risk)

8.3.1 Risk Description

This risk arises if the regulator does not approve the expenditure incurred by the utility
for undertaking R&M works on account of gaps/inadequacies in the submission. This risk
would lead to non-recovery of cost incurred by the generating company leading to
financial losses.

8.3.2 Strategy to Manage the Risk

In order to avoid this risk involvement of Regulator should be ensured from the inception
of the project with regular updates about the progress of the project.

8.4 Absence of Ex-Post Evaluation and Feedback Loop (Operational Risk)

8.4.1 Risk Description

Post evaluation of R&M works is essential to understand the impact/effectiveness of the

program. This risk arises if the generating company does not undertake ex-post
evaluation of the R&M works and fails to incorporate the experience or unable to improve
upon the execution of R&M works for its ongoing units. Also, this leads to lack of
institutional memory when the staff involved in R&M moves out. The impact of this risk is
that the generating company would not be able to improve upon the execution of R&M
projects based on its learning or experiences.

8.4.2 Strategy to Manage the Risk

In order to mitigate this risk experience gained must be documented and incorporated in
subsequent units planned for R&M works. In addition to the above, dissemination of ex-
post evaluation provides experiential learning to other utilities as well, and enables them
to design their R&M program effectively.

9.0 Implementation of the Guidelines

9.1 The identified risks and suggested strategies presented in these guidelines should be
considered by the utilities for implementation after suitably modifying it as per their local
conditions or set up of their power plants.

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9.2 The utilities should evaluate the risks identified before the commencement of the R&M
and formulate appropriate strategies in line with that suggested in these guidelines to
manage the identified/evaluated risks.

9.3 It is expected that these guidelines would serve as a guide for the utilities to improve
planning and execution of R&M projects by minimizing the risk experience during various
stages of the R&M.

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ANNEXURE III – List of Officials Consulted during the Project

S. No. Name Organisation

1 Mr. V. K. Shrivastava CSERC

2 Mr. Vinay Pandey CSERC

3 Mr. SS Tillu CSPGCL

4 Mr. Rangare CSPGCL

5 Mr. SK Sohni CSPGCL

6 Mr. Pradeep Anwekar CSPGCL

7 Mr. AK Shah CSPGCL

8 Mr. Barpalli CSPGCL

9 Mr. Nanavati MPPGCL

10 Mr.Maansingh MPPGCL

11 Mr. NK Saxena MPPGCL

12 Mr. Malviya MPPGCL

13 Mr. Anand Tiwary MPPGCL

14 Mr. PS Chundawad MPPGCL

15 Mr. Udit Agarwal MPPGCL

16 Mr. VM Pathak MPPGCL

17 Mr. KL Sharma MPPGCL

18 Mr. T. K. Chakraborty WBERC

19 Mr. AK Ghoshal WBPDCL

20 Mr. D Mukherjee WBPDCL

21 Mr. D Chattopadhyay WBPDCL

22 Mr. D. K. Maiti WBPDCL

23 Mr. Dipanker Sen Gupta WBPDCL

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S. No. Name Organisation

24 Mr. Alok Sarkar WBPDCL

25 Mr. SB Waghmare MSPGCL

26 Mr. Pathak MSPGCL

27 Mr. RH Bidkar MSPGCL

28 Mr. Ajay.G Telang MSPGCL

29 Mr. Sameer Joshi MSPGCL

30 Mr. Sudesh N. Bhadange MSPGCL

31 Mr. Tiwari MSPGCL

32 Ms. Leena Patel MSPGCL

33 Mr. M. L. Pandey UPRVUNL

34 Mr. Mishri Ram ISC, Consultant to UPRVUNL, NTPC

35 Mr. R. K. Diwedhi BHEL

36 Mr. J K Karathia GSECL

37 Mr. A K Kaul GSECL

38 Mr. Dave GSECL

39 Mr. SV Jain GSECL

40 Mr. Mittal GSECL

41 Mr. KD Parmar GSECL

42 Mr. SS Jha KBUNL

43 Mr. S K Rai KBUNL

44 Mr. Anil Kumar KBUNL

45 Mr. BVRK Murthy KBUNL

46 Mr. L N Mishra BSEB

47 Mr. U N Singh BSEB

48 Mr. A.K. Verma BSEB

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S. No. Name Organisation

49 Mr. A K Jha BSEB

50 Mr. Ahagesh Chowdhary BSEB

51 Mr. K A P Singh BSEB

52 Mr. Rajeev Singh BSEB

53 Mr. R L Pandit BSEB

54 Mr. S K Singh BSEB

55 Mr. P Yadav BSEB

56 Mr. Shahabuddin Ahmed Consultant, BSEB

57 Mr. R K Agarwal ISC to BSEB, NTPC

58 Mr. Shuddhasattwa Sarkar NTPC

59 Mr. K. P. Singh BERC

60 Mr. Gurinderjit Singh PSERC

61 Mr. Suresh Singla PSERC

62 Mr. K. C. Garg HPGCL

63 Mr. R. S. Kaushal HPGCL

64 Mr. Kuchhal HPGCL

65 Mr. B. B. Gupta HPGCL

66 Mr. Jai Pal HPGCL

67 Mr. R. K. Jindal PSPCL

68 Mr. J. R. Goyal PSPCL

69 Mr. Manjeet Singh PSPCL

70 Mr. P K Sinha NASL

71 Mr. Vivek Srivastava BHEL

72 Mr. Diwedi BHEL

73 Mr. Prabhat Verma Doosan Power Systems India Pvt. Limited

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S. No. Name Organisation

74 Mr. Subrata Kumar Kundu Seimens Power Engineering Pvt. Ltd.

75 Mr. KC Darwin Toshiba India Private Limited

76 Mr. Munish Atri Toshiba India Private Limited

77 Mr. S K Das Gupta Development Consultants Private Limited

78 Mr. GC Nundy Development Consultants Private Limited

79 Mr. Dipak Kumar Sarkar Development Consultants Private Limited

80 Mr. Chen Weimin Dongfang Electric (India) Private Limited

81 Mr. N Saha Dongfang Electric (India) Private Limited

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References

1. National Perspective Plan for Renovation, Modernization and Life Extension of Thermal Power
stations (up to 2016-2017), Central Electricity Authority, December 2009.

2. Quarterly Review Report on Renovation, Modernization and Life Extension of Thermal Power
Stations, Central Electricity Authority, 1st Quarter of 2012-13, (April – June; 2012) during
12th Plan.

3. Presentation on “Renovation &Modernization and Life Extension of Thermal Power Stations In

India”, Mr. Bhai Lal, Central Electricity Authority, October 2011

4. Report on “Guidelines for Renovation and Modernization/Life Extension Works of Coal/Lignite

Based Thermal Power Stations”, Central Electricity Authority, October 2009.

5. Project Document on “India: Coal Fired Generation Rehabilitation Project”, Global

Environment Facility, April 2009.

6. Presentation on “Constraints to Acceleration of Renovation and Modernization (R&M) of Coal

fired Power Generation Units in India”, Mikul Bhatia, Energy Specialist, World Bank, Indo-
German Symposium on Energy Efficiency, May 2008.

7. Presentation on “Renovation and Modernization (R&M)/Life Extension (LE) of power plants

and financing”, Mr. Naveen Kumar, Executive Director, Power Finance Corporation Ltd.,
Conference on Renovation & Modernization of Power Plants: New Delhi, October, 2011.

8. Report on “Strengthening Operations and Maintenance Practices In State-Sector Coal-Fired

Power Generation Plants in India”, Sustainable Development Network, South Asia Region,
Energy Sector Management Assistance Program (ESMAP), March, 2009.

9. Presentation on “India Power Sector – Case for Plant Life Extension with Energy Efficient
R&M”, Mr. Sarajit Sen, Managing Director, Power Service, Doosan Power Service India Pvt.
Ltd., Conference on Renovation & Modernization of Power Plants: New Delhi, October, 2011.

10. Report on “Scaling Up Renovation and Modernization of Thermal Power Plants in India – Key
Findings of a Survey and Roundtable Consultation” USAID, World Bank and Asia Pacific
Partnership on Clean Development and Climate, September 2009.

11. Report on “Regulatory Study to Encourage Energy Efficiency through Investment in

Rehabilitation of Coal fired Generation Plant in India” IPA and KPMG funded by Energy Sector
Management Assistance Program (ESMAP), October 2008.

12. Report on “Review of Tendering Procedures and Documents Followed by Public Utilities for
Renovation &Modernization Projects” Evonik Industries, September 2009.

13. Report on “Renovation and Modernization of Thermal Power Plants in India, Planning and
Implementation Guidelines”. USAID, June 2010.

14. Report on “Renovation and Modernization of Power Plants in India- USD 6.5 Billion
Opportunity”, Infraline Energy, April 2012

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15. Presentation on “Improvement of Power Plant Economics and Investment Opportunities”, Mr.
N.K.Srivastava, NTPC Limited, Conference on Renovation & Modernization of Power Plants:
New Delhi, October, 2011.

16. Presentation on “International Practices of Renovation and Modernization of Thermal Power

Plants”, Stratos Tavoulareas, ECO-Asia Clean Development and Climate Program, Workshop
on Rehabilitation of Coal-fired Power Plants, Noida, September 2008

17. Presentation on “Improvement of Power Plant Economics and Investment Opportunities” by

BHEL, Conference on Renovation & Modernization of Power Plants: New Delhi, October, 2011

18. Presentation on “Energy Efficiency-Focused Renovation and Modernization (R&M) of Coal-

fired Generation Units in India”, Mr. Chandrasekeren Subramaniam and Ms. Mani Khurana,
October 2011.

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