Sasan tariff may impact other projects

The eye-popping tariff at which power will be supplied from the 4,000 Mw Sasan ultra mega project in Madhya Pradesh "" Rs 1.196 per unit "" is expected to have a ripple effect on the tariffs that the developers are negotiating with the power purchasers.

Industry experts say the Sasan tariff has become "an important milestone, although it cannot be an absolute benchmark". There are some unique characteristics of Sasan which are unlikely to be replicated in another plant.

Firstly, availability of mineable good quality coal near the project site gives it a competitive edge. That is what gave Lanco Infratech, the company which submitted the tariff of 1.196 per unit, the confidence to take a calculated risk, and offer to supply power at such a low tariff.

The project has now been awarded to Reliance Power Ltd, after the disqualification of Lanco bid, at the same tariff.

However, much has changed in the last six months. Interest rates have shot up. The price of cement, used in the construction of plants, is up. The price of equipment, especially the Chinese equipment, is also on an upswing.

"These changes affect a promoter directly and hence he would quote the price of power after considering all these factors," says an official associated with the ultra mega power projects.

An industry observer goes to the extent of saying that "even Lanco would refrain from quoting this price today."

The cost per unit of power varies depending on the choice of fuel, location of the plant, water linkages and the technology required. "It also depends on the size of the plant. There are huge economies of scale in a 4,000 Mw plant," says an official of a consulting firm in Delhi.

Most officials at utilities in the states are cagey talking about future tariffs, as most power projects are now being awarded through the competitive bidding route.

"It is almost impossible to say what tariff would be thrown up," says a senior official of the Madhya Pradesh state distribution utility. However, given the rigours of competitive bidding, it is likely that the tariffs that are finalised are lower than those finalised through other routes.

On the other hand, power traders are still willing to buy expensive power as they know that there are states which are still willing to buy steeply priced power.

"For the next four-five years, there will be buyers for power at any price, given the huge demand-supply gap," says a former power trader. High tariffs will thus coexist with low tariffs, and there could still be a Sasan encore.