Lanco, MP to ink deal on mega power project

After making inroads through clinching the 4,000 MW Sasan (Madhya Pradesh) power project, Lanco Infratech Ltd is going to sign a deal with the Madhya Pradesh government on January 17 at Khajuraho for another mega power project of 1,200 Mw (plus/minus 200 MW). A two-day investors meet will begin in Khajuraho tomorrow.

Although more companies are reportedly queuing up to sign deals with the state government on setting up either captive or private power projects, companies are concerned about the issue of free power which they will have to supply to the state government if they set up thermal power plants.

The new provisions announced last month mandate 5 to 7.5 per cent of power sale to the state at variable rates.

Lanco has proposed to set up a 1,000 Mw thermal power project, which, according to a company source, may go up to 1,400 Mw or remain 1,000 Mw, in Chhindwara (Madhya Pradesh). However, the company has not been allocated coal block so far, although the state government has recommended land for Mandla North coal block in Pench Kanhan coal-mining area to the Centre.

A thermal power unit, for example, if produces power at Rs 2.35 per unit (at prevailing rates), the fixed cost is 80 paise per unit approximately the rest is variable charge. As a result the company will have to sell power at much lower rates to the state government resulting in loss to the company.

"Lanco will sign a deal with the state government (department of power) for the power project and will seek support on land acquisition, water supply and other necessary clearances. The deal will be signed in Khajuraho on the coming Wednesday," a company source told Business Standard.

According to Power Secretary Sanjay Bandopadhyay, the state government is demanding a fair share of power in lieu of facilities like land, water and other similar basic facilities.

The deal signing may attract more discussions on the provisions since mandatory free power supply will escalate the power tariff. The company, according to the source, may supply power at Rs 1.60 per unit but the free power component will increase the tariff up to 40 per cent.

"As many as 11 companies will sign deal with the state government, but names of the companies will be disclosed only on January 17," a government spokesperson said.

The previous Congress government had also signed private power purchase agreements with 22 companies of international repute but none ventured in the state.