Daewoo Power, promoters of the $1.4 billion Korba East 1,070 mw power project in Madhya Pradesh, yesterday signed their coal supply agreement for the project with the South Eastern Coalfields Limited (SECL), a subsidiary of Coal India Ltd. This is the second independent power producer (IPP), after the Birla/PowerGen promoted Bina Power Company Limited to have signed their coal supply agreement with CIL.
As per the agreement, CIL will supply 11,000 tonnes of coal every day to the power project__amounting to 4.5 million tonnes of coal on annual basis. This quantity has been arrived at on the basis of 80 per cent plant load factor (PLF).
Under the agreement, SECL will supply coal on the basis of a 2 per cent risk premium being paid over and above the base price of coal for the entire contracted quantity by the independent power producers .
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The power project, which is 16 kms from the coal mine, will be transport coal through a merry-go-round system. This completely covers the independent power producers and the coal company from having to bear any transportation risk.
Under the agreement, CIL will be required to supply a minimum quantity of coal of around 3.85 million tonnes which will enable the IPP to recover fixed costs by generating power at 68.5 per cent PLF.
In the event CIL fails to supply this minimum quantity Daewoo will get liquidated damages calculated at twice the amount of the coal base price.
CIL will, however, have to cough out liquidated damages to the tune of 5 per cent of the base price of coal if it supplies coal in the range of 3.85 mt to 4.5 mt.
The agreement also covers the IPP's capacity charges if CIL supplies coal below the required quantity. CIL will be charged 7.5 per cent of the base price if the supply is 10-20 per cent below the required quantity and 50 per cent in case the supply is 20 per cent below the required quantity.
Daewoo will however not recover any capacity charges if CIL supplies up to 10 per cent below the required quantity.
As per the agreement, Daewoo is also offering an incentive of 5 per cent of the base price if CIL supplies above 90 per cent of the contracted quantity.
The Daewoo project being a 50:50 joint venture between Daewoo and ABB the entire equity portion for the project will be raised by them, who would make an equal investment totalling around Rs 1300 crore (around $ 325 million).
The Daewoo project has a total debt component of $ 1 billion__with foreign currency loans amounting to $ 667 million while the Indian financial institutions will be arranging the rupee loan amounting to another $ 297 million. The ruppee loans for the project has already been tied up.
Out of the total foreign currency loan, around $ 350 milion will be sourced from export credit agencies_-which includes $ 220 million from the German EXIM bank Hermes and balance from SACE; $ 175 million fromt the Korean Export Insurance Corporation , while the balance $ 150 million will be raised from commercial banks which will be backed by a deffered payment guarantee.