State says no to special sops to REL

The Andhra Pradesh government has rejected a proposal for extending special incentives to Reliance Energy Limited's (REL) proposed 3,000-mw gas-based power project in Andhra Pradesh. The state government expects Reliance Energy to come back with a reworked proposal.

The government's refusal to Reliance Energy's request to give concessions on a par with the package offered by the Uttar Pradesh government for its proposed 3,500 mw power project at Dadri, is a significant development.

Significant, because, chief minister YS Rajasekhara Reddy had invited the Reliance group to set up power plants in coastal Andhra using their natural gas from KG Basin and avail of power at prices of less than Rs 2 per unit.

In fact, Rajasekhara Reddy at that time had argued that if Reliance Energy could offer power at Rs 2 per unit at Dadri in Uttar Pradesh after investing so much on the transportation of gas from the KG basin, the power generated near the source of gas would be much cheaper.

The concessions that Reliance Energy apparently asked include land at concessional rates and a tax holiday. The UP government had offered 60 per cent concession on the land rate besides 60 per cent reimbursement on the costs of resettlement of affected families, besides other tax sops for the proposed 3,500 mw gas-based power project by Reliance Energy.

The decision of the government was let known to the company after several rounds of high-level meetings held by chief secretary Mohan Kanda to decide on whether the state could accommodate the company's wish list.

Conforming the development, a senior government official observed that the power project needed no special support from the government in the wake of the free access regime that has come in, courtesy the new Electricity Act.

"We have asked the company that any the benefit of any such incentive should reflect in its tariffs," a senior state government official told Business Standard.

The absence of any formal power purchase agreement (PPA) between Reliance Energy and the state's power utility, considerations other than just tariffs, are understood to have influenced the government's decision.

One of these considerations was that other independent power producers (IPPs) in the state could also seek similar concessions, making matters difficult for the government.

But the observers in the government point out Reliance's insistence on a incentive package similar for its power project, is indicative of its reluctance to invest in energy projects in Andhra.

"Unlike elsewhere, the company cannot earn higher margins in Andhra where the state government is trying to convince the existing IPPs to reduce power prices," a finance department official pointed out.

Meanwhile, a senior official in the chief minister's office, pointed out that the state government has been viewing the investment proposals of the Reliance company in a very positive way.