APGenco for changes in MoU draft with Reliance Industries

APGenco, the state-owned power utility, has decided to incorporate new clauses in its memorandum of understanding (MoU) with Reliance Industries over the proposed supply of gas for its new projects.

The changes have also meant that the MoU, which was expected to be signed early this month, has been delayed.

The changes in the MoU "� on gas supply for the Shankarpally and Vemagiri projects with a combined installed capacity of 3,000 mw "� include increasing the supply period of gas from 10 to 15 years, a fixed price for gas supplies and importantly the inclusion of a priority clause.

According to reliable sources, the recent board meeting of APGenco has resolved to incorporate and settle these issues at the initial stage itself, rather than wait for the MoU to be signed and then resolved. The APGenco board is expected to approve a draft agreement in its next meeting in the second half of January.

"We want that priority to be given to APGenco for the supply of gas, which means that the Reliance group has to give gas to others only after meeting the full requirement of both of our Shankarpally and Vemagiri projects as per the arrangement," a senior official of APGenco told Business Standard.

The reasons for APGenco to look at amending the clauses in the MoU are not far to seek.

"Reliance is willing to commit a supply of over 50 mcmd (million cubic metres per day) of gas to different gas-power projects across the country while the expected production by Reliance in 2008 stands at only 45 mcmd," the official said.

It may be recalled that Reliance has successfully bid for the supply of gas to two NTPC projects proposed to be set up in Gujarat with an aggregate capacity of 2,600 mw, along with its own 3,000 mw project proposed at Dadri in Uttar Pradesh.

It has also proposed to set up a big gas power plant with a capacity of between 2,500 mw and 3,000 mw in coastal Andhra also. The supply of gas to these projects alone would surpass the expected production in the Reliance owned blocks in the KG Basin in 2008.

In such a scenario, the fate of the four private power projects with an aggregate capacity of nearly 2,000 mw, that were cleared by the previous government led by Chandrababu Naidu, remains inconclusive.

The four private power projects have in fact agreed not to invoke the alternate fuel clause, which was there in the power purchase agreements till 2007, hoping to get gas from Reliance from 2008 onwards. "In this backdrop, we see trouble ahead if the priority clause is not secured by us in the agreement," the official said.

This apart, the power utility has also decided that the MoU should include conclusive clauses on price and supply. APGenco has indicated that it wants a lower price than the benchmark $2.97 per mmbtu (million metric British thermal units) at which Reliance has agreed to supply gas to the Kawas and Gandhar power stations in Gujarat.

"Though the above price is supposed to be the cheapest as Reliance has emerged as the L1 bidder in gas supply bids, it also includes the transportation costs. In our case, transportation costs would be much lower; so the gas supply price should be cheaper than the price offered to NTPC," a APGenco official maintained.

The issue of gas supply has also left existing private power players resentful. "Our plants have been running at lower plant load factors (PLF) due to the shortage in gas supply from Gail. When a considerable capacity of the existing plants remains unutilised, starting new projects would be a national waste. The government has to pay deemed generation charges too," a promoter of a gas-based power unit told Business Standard.

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The fine print

• APGenco stresses on meeting all gas requirements of Shankarpally & Vemagiri projects
• Seeks increase in supply period of gas from 10 to 15 years, fixed price & inclusion of priority clause
• Resolved to incorporate and settle these issues at the initial stage itself