Kozhikode: The Murugappa Group's Carborundum Universal Ld (CUMI) — a leading materials engineering company — is caught in an energy and political conundrum after the Opposition Congress accused Kerala's LDF government of taking kickbacks to extend its ownership of its captive power plant when the 30-year contract ends on December 30, 2024. The proposal is to extend the contract by another 25 years.

Two senior Congress leaders, Leader of the Opposition V D Satheesan and the former Leader of the Opposition Ramesh Chennithala, who raised the allegation, argued that instead of extending the contract, the state should hand over the 12-megawatt (MW) small hydropower project at Pathanamthitta's Maniyar village to KSEBL, the state-owned power distribution company, as mandated in the contract.

But Industries Minister P Rajeev told Onmanorama that the government has agreed to extend the contract in principle because the hydroelectric project is a captive plant partially meeting the energy needs of CUMI's factories in Kerala. "Chennithala is making a mistake by comparing captive power plants with independent power producers, whose primary business is selling energy," said Rajeev.

CUMI is using up all the energy generated from the Maniyar plant, and yet it is meeting only 17 per cent of the company's energy requirement in Kerala, said the minister. In the initial years, the plant was meeting 30 per cent of CUMI's energy needs. "But back then, CUMI's investment in the state was only Rs 350 crore. It has now increased to Rs 700 crore with multiple factories in Kalamassery (in Ernakulam) and Koratty (in Thrissur)," said Rajeev, the MLA from Kalamassery.

Rajeev said the government has in principle agreed to extend the ownership contracts of all captive power plants in the future, too, as long as the industries continue their operations and generate employment in the state.

KSEB officials said CUMI has threatened to exit Kerala if the ownership of the power project is not renewed. The industries minister said CUMI has submitted a seven-point proposal to expand its footprint and increase its investment in Kerala if the ownership of the power plant is extended.

When asked if there was a chance for CUMI to exit Kerala if the power plant was not given to them, the minister told Onmanorama, "They have already said that."

Rajeev said CUMI had a bad experience with KSEBL earlier, too. A few years ago, KSEB permitted CUMI to set up a 3-MW hydel power plant. CUMI hired a private consultant who found that the proposed site had the potential for a 21-MW hydel power plant, not 3 MW. KSEB cancelled the proposal, saying a higher capacity plant was not acceptable to it, said the minister. "CUMI lost the project because it was honest," he said.

A senior KSEBL official and leader of the officers' association said CUMI's proposal bordered on blackmailing, and the contract had no provision to extend it. "But in the state's economic interest, the government can take any decision," he said.

Powershift and power policy
Carborundum was established in 1954 as a joint venture between Carborundum (US), Universal Grinding Wheel (UK), and the Murugappa Group (India). It came to Kerala in 1964, setting up a brown-fused alumina plant at Edappally in Ernakulam. Today, CUMI operates several plants in Ernakulam and at Koratty in Thrissur, manufacturing materials such as silicon carbide, alumina-zirconia, and graphene. Its products are used in automotive, aerospace, construction, metal fabrication, steel, cement, petrochemicals, glass, and power industries.

In 1990, the EK Nayanar's Left government changed the energy policy to allow private players to set up small, mini, and micro hydropower projects in the state.

In 1991, CUMI was awarded the contract under the built, own, operate, and transfer (BOOT) scheme to set up the 12MW captive plant at Maniyar in Pathanamthitta's Vadasserikkara grama panchayat. It completed the reservoir, dam and powerhouse work and commissioned the plant in December 1994. According to the BOOT agreement, signed in 1991, CUMI should hand over the plant, including the machinery, mechanical installation and buildings, free of charge to KSEBL after 30 years from the date of commissioning. The contract did not have any provision for an extension.

However, on October 11, 2021, CUMI wrote to the principal secretary of the power department to extend the ownership of the Maniyar power plant, citing loss of production and excess investment during the 2018 and 2019 floods.

Since then, KSEBL has been vehemently opposing CUMI's request. On December 20, 2022, KSEBL's then CMD Rajan N Khobragade wrote to the department principal secretary, listing two serious violations of the agreement by CUMI and arguing that transferring the hydroelectric project to KSEBL's control would reduce the burden on consumers by around Rs 140 crore in 10 years.

Khobragade said the BOOT agreement mandated CUMI to use up the power it generated from the Maniyar plant before buying from power exchanges. But CUMI banked the entire power it generated from Maniyar with KSEBL and bought cheaper power from the exchange when prices were lower than the tariff set by the Kerala State Electricity Regulatory Commission (KSERC). "CUMI unfairly benefited from open access and burdened other consumers in the state," he wrote.

According to the Chief Engineer's letter, KSEBL also found that CUMI did not suffer any production loss during the floods and submitted no documents to substantiate its claim of additional investment at the plant.

KSEBL is eyeing CUMI's power plant because it easily has a life of another 10 years without making any additional capital investment, and after that, a minor renovation can give it 40 more years.

Also, CUMI's power plant sits on the channel (tail race) that carries water away from the Sabarigiri hydroelectric power. "So CUMI's plant has water throughout the year for power generation. Governments usually do not allow private projects at tail race," said the KSEBL official quoted above.

The KSEBL Chief Engineer told the government that if the ownership of Carborundum's captive power plant is extended, "it will be considered as an unfair practice and would set a precedence" for other captive power producers (CPPs) and independent power producers (IPPs), wrote KSEBL's Chief Engineer (commercial and tariff) to the top power official in May 2022.

Already, Viyyat Power Pvt Ltd, which has been running a small hydroelectric plant at Iruttukanam since 2004 under the BOOT scheme, has approached the government to extend the contract citing the loss incurred during the floods and landslides of August 2018, the official said in the letter.

Chennithala's attack on Rajeev
Armed with the two letters, Chennithala said KSEBL could generate power at 50 paise per unit from the Maniyar plant because it would get it free of cost, and the ultimate beneficiaries would be the people of Kerala. "But once again, it has been proven that the ruling authorities have no qualms in collaborating with big capitalists to fleece the people and trample on Kerala's interests," Chennithala said in a press conference in Kozhikode on December 13.

The senior Congress leader also said that Minister Rajeev should have no role in the negotiation and mocked electricity minister K Krishnankutty's silence on the matter.

Politically, Rajeev is an influential CPM leader from Kalamassery, and Krishnankutty belongs to Janata Dal (Secular), a small party in the LDF.

Spirit of the contract
Because of the rising energy cost, Rajeev said that owning captive power plants gives industries a competitive edge. But Kerala has only two such captive plants: CUMI's 12-MW facility at Maniyar, established under a BOOT (Build, Own, Operate, & Transfer) agreement with the EK Nayanar government in 1991, and Indsil Hydro Power and Manganese Ltd's 21-MW hydropower plant at Rajakkad in Idukki, set up in 1994 under a BOOT agreement with the K Karunakaran-led UDF government.

Unlike CUMI's contract, Rajeev said the agreement with Indsil, which operates a ferroalloy smelter in Palakkad, has a renewal option. "Indsil's BOOT contract will be renewed upon expiry, as long as it continues operations and generates employment in Kerala," the minister said.

CUMI's contract, being the first of its kind, may have lacked a renewal clause due to an oversight.

Drawing a parallel between CUMI's captive hydropower plant and Viyyat Power's 4.5-MW facility at Ambazhachal in Idukki was inappropriate as the two are fundamentally unrelated in purpose or context, said Rajeev. Viyyat, an independent power producer, would have recovered its investment and made a profit during the BOOT period, he said. So, once the contract expires, the power plant will be transferred to KSEB as per the agreement, the minister said. However, captive power plants are intended to serve the industries as long as their units remain operational.

Other states attract companies by promising a free and uninterrupted power supply and giving them tax breaks, he said. "Here, the opposition is asking us to take away their captive power plants. How is Kerala expected to be competitive?"

To put CUMI's 12-MW power plant, which KSEBL is eyeing, in perspective, Rajeev said it generates only 0.09 per cent of Kerala's power requirement. The KSEBL official quoted above said it can meet the energy needs of four to five grama panchayats.

The minister said the law also backed the government's stance to extend the contract of captive plants. The 2003 Electricity Act and 2005 Energy Rules allowed the construction of captive plants as long as the owners had a 26 per cent equity in the project and consumed 51 per cent of the electricity generated. The minister said there is no set time limit on owning captive power plants, provided the businesses remain operational, and added that no state in India takes over captive plants from private industries.

Dangling investments
CUMI and Indsil, two Tamil Nadu companies, came to Kerala when people said Kerala companies were leaving the state, said Rajeev.

He said CUMI started in Kerala with an investment of Rs 350 crore. Since then, it has doubled its investment in the state. "In the last two years, it invested around Rs 30 crore," he said. CUMI's Grafino has a yearly capacity to produce four tonnes of graphene powders and 20 tonnes of graphene polymer composites.

If the power plant's ownership is extended, the minister said CUMI had proposed to establish a semiconductor material production unit, expand its alumina fusion and grain processing facilities at Edappally, expand operations at the Koratty plant, and explore new ventures in high-purity silicon carbide, boron carbide, and graphene production.