 "GVK might lose 216 Mw gas unit")
The state electricity board of undivided Andhra had signed an 18-year power purchase agreement (PPA) with the company, assuring a guaranteed demand and on the basis of a 16.5 per cent return on equity (at an estimated project cost of Rs 1,050 crore). In return, the PPA gave it the option of taking over the unit on the expiry of the PPA (which is this June).
"We have written to the state government, seeking permission to buy out the plant as provided in the PPA," K Vijayanand, chairman and managing director of Andhra Pradesh Transmission Corporation (APTransco), told Business Standard.
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Grant Thornton, a global assurance, tax and advisory firm, engaged by the state power utility, has given a report on the unit's terminal value, based on which the buyout would be done. The firm has assessed the terminal value at Rs 294 crore, said Vijayanand.
After Andhra was partitioned, the PPA was transferred to the respective distribution companies (discoms) of both Andhra and Telangana.
Set up in Jegurupadu village near Rajahmundry in East Godavari district, the project was dubbed a benchmark among private power plants. "Being India's first independent power plant, it displays far-sighted design features that enhance operational efficiencies and minimise the environmental impact. It has been designed as a horticulture project that also generates power," the company proudly stated on its website.
In 2009, the company commissioned a 228-Mw phase-2 extension project at Jegurupadu and also went on to build the 469-Mw Gauthami combined cycle gas power project at Peddapuram in the same district. With natural gas supply drying in the Krishna-Godavari basin, Jegurupadu unit-1 was being operated at an average capacity of 132 Mw this week. Gauthami was run at an average of only 92 Mw. The phase-2 extension has remained fully shut, as has been the case with several power units of other companies in coastal Andhra.
The PPA expiry and consequent takeover at Jegurupadu is only for the unit commissioned in 1997, not the second phase.
Merits
A senior official of the GVK Group refused to comment on the development and on whether the company had consented to the buyout option being exercised. The PPA also provides for the options of partial or full refurbishment of the plant by the developer, in exchange for extension of the supply contract, apart from the buyout.
"As far as I understand the provisions of the PPA, we do not at all require the consent of the company on which option we should exercise," said Vijayanand.
Obviously, the buyout option was not one GVK would have preferred. According to company sources, GVK had earlier approached the state power utilities with an offer to undertake the refurbishment of the plant to extend the contract period.
"We have proposed to refurbish the plant at a capital cost of Rs 500 crore and it was very much provided for in the PPA. The life of a gas-based power project would be 25-30 years and after the completion of the PPA period (18 years), you need to invest to restore the plant efficiency. All that the power utilities have to do is to pay for the interest and the depreciation. They will have to pay the rate for the next 15 years, as they have been doing so far," a senior GVK official said, on condition of anonymity.
P Shiva Rao, legal advisor of APTransco, observes the differential between the refurbishment cost proposed by the company and terminal value of the plant determined by Grant Thornton had led the power utilities to decide the buyout as cost-effective.
Telangana complication
According to an industry analyst, the decision to go for the buyout could have also been triggered by the fact that renewal of the PPA would give the Telangana government an opportunity to claim for its share of power from the plant for another 15 years.
Actually, Telangana power utilities have already decided to stake a claim even in the proposed buyout. "We have said that we will also join the buy-out if that was what being contemplated by the AP power utilities," D Prabhakar Rao, chairman and managing director of Telangana State Transmission Corporation and Telangana State Generation Corporation told Business Standard. He has appointed IFCI to give a report on the Jegurupadu plant.
Officials of the Telangana power utilities believe the new state has a right to join the buyout under the AP Reorganisation Act, though the plant is in Andhra. Legal advice in support of this claim was had from the state advocate general. Their AP counterparts are seeking a legal opinion on these claims.
GVK
GVK Group has been incurring heavy losses on the power front, on account of non-availability of natural gas for quite some time. The losses have been partly offset by its other profitable businesses, such as the Bengaluru and Mumbai airports.
At present, only about 600 Mw of the 3,035 Mw existing gas power installed capacity owned by various companies in AP is being utilised for power generation.