JSPL slaps Rs 123 crore ‘liquidated damages’ notice on BHEL for project delays

Navin Jindal-promoted Jindal Steel and Power (JSPL) has slapped a Rs 123-crore notice on the state-run power equipment maker BHEL, citing delays in execution of projects at two units of JSPL’s 2,400 MW coal-based plant at Tamnar in Chhattisgarh. JSPL invoked the contractual clause titled ‘liquidated damages’.

BHEL is executing the boiler, turbine and generator (BTG) packages for all the four units of the plant. While it commissioned the first and fourth units on schedule, there were delays of four and eight months respectively in case of the second and third units. The total contract value, with each BTG unit costing Rs 150 crore, is Rs 600 crore, which means if the JSPL’s claim is honoured, BHEL would lose 20% of the business.

“We are examining the claim by the client (JSPL) and we would likely to ascertain if our estimates for liquidated damage varies from the client’s demand,” an official at BHEL told FE on condition of anonymity, adding that the PSU was willing to negotiate the matter with the power company.

Another official at BHEL said that such claims often arise due to delays on the part of the client as well as other factors like delays in injection of full load power to the regional grid, a requirement for declaring a unit as commissioned. However, he admitted that BHEL has historically faced some problems in documenting delays due to reasons beyond its control.

BHEL lacks experience in negotiating the claims made under liquidated damage as it has mostly worked with state-run power developers like NTPC and DVC which don’t normally claim such damages.

Both these companies have been facing headwinds due to the slump in the power sector. While JSPL has been facing severe cash crunch due to lack of long-term power purchase agreements and subdued power price in the merchant market, BHEL has faced weak order inflows and incurred losses in the last quarter.

The heavily leveraged JSPL is believed to be in talks with the largest private power developer Adani Power to sell its Tamnar super thermal power plant to ease its mounting debt that currently stands at over Rs 32,600 crore. The company’s debt was downgraded to ‘default’ status by CRISIL recently.

BHEL