GMR weighs options to counter fuel constraints

May shift Mangalore power project to Kakinada coast

The constraints on fuel and other fronts have forced the GMR group to undertake drastic measures with regard to its Mangalore and Vemagiri power projects.

While the group is contemplating shifting of the naphtha-based 220-mw barge-mounted Mangalore power project to Kakinada coast in Andhra Pradesh with the naphtha-linkage expiring in October this year, it is gearing up to run the 370-mega watt gas-based power project at Vemagiri in Andhra at 30 per cent below PLF (plant load factor) for the first two years owing to the non-availability of gas up to the mid 2008.

The Vemagiri project is expected to be commissioned in a month's time.

According to Madhu Terdal, chief financial officer (corporate) of the GMR Group, the company has chalked out two alternatives for the Mangalore project.

Under the first option, it has already initiated talks with an Australian company for supply of LNG to the Mangalore power plant for which certain technological modifications will be required to convert the plant into an LNG-fired unit at an estimated cost of $10 million.

This is an immediate option as the naphtha linkage will expire this year itself though the power purchase agreement (PPA) entered into with the Karnataka government's power utility lasts till 2008.

The second and the long-term option is to move the plant to Kakinada coast in view of abundant gas availability in the KG Basin from 2008.

"This requires about $18-20 million investment and we have already identified the land at Kakinada to anchor the plant," Madhu told the visiting media group here at the upcoming Hyderabad international airport for which GMR is the developer.

Though the company is entitled to claim fixed charges for the project at the full contractual demand as per the PPA entered into with the Andhra Pradesh Transmission Corporation (APTransco) even in the face of gas shortage, the state government has agreed to compensate the loss of revenues for the first two years to the company by extending the PPA and other facilities in place of deemed generation clause.

"Besides extending the PPA term to 23 years from the existing 15-year period, the state government is likely to allow us to sell power from 18.5 Mw extra capacity of the project over and above the contracted capacity of 370 mw," Madhu said, adding that these measures would enhance the valuation of the project and compensate the loss of revenue for the first two-year period.

It may be recalled that the state government will have to bear more than Rs 1,000 crore additional financial burden through the payment of fixed cost to the four new gas-based power projects without actually buying a single unit from these plants as per the alternative fuel clause provided in the PPAs.

The four gas-based private projects are Gautami Power (464 Mw), Konaseema EPS Oakwell (445 Mw), Vemagiri (370 Mw) and GVK Industries (230 Mw).

State power minister Mohammed Ali Shabbir recently stated that the government was on the verge of announcing a via media solution in view of fuel crisis to take care of the interests of both the independent power producers (IPPs) as well as the state government.

Gas Authority of India Limited (GAIL) entered into gas supply agreements with the four IPPs as early as in 2002 on the 'best efforts' basis, which also formed the basis for APTransco to sign PPAs with them just a few days before the Electricity Act-2003 that brought the open access regime, came into force.

Subsequently, GAIL expressed its inability to supply gas to the new players any time before 2008. Adding to this, the Union petroleum ministry altered its stand in favour of sharing existing gas among only the existing power projects.

"But, the ongoing work on G1 and G15 wells of ONGC in the KG Basin, which are meant to supply gas to new entities, will surely allow us to generate power at Vemagiri at around 38 per cent upfront from July 2006," Madhu said.

At the existing gas prices, Vemagiri supplies power at Rs 1.92 per unit while the soon-to-be revised gas prices, according to Madhu, will increase the bulk power tariff to Rs 2.95 per unit.

Besides these two power projects, the GMR Group has a 200-Mw power plant at Chennai and is in the process of executing a 140-Mw hydro power plant in Uttaranchal.