Sumitomo Corporation proposes Rs 6,400cr investment in Andhra

Japan firm indicates fixed cost of 68 paise per unit

Sumitomo Corporation of Japan has evinced interest in setting up two gas-based projects for APGenco, the state-owned power utility, at a fixed cost of about 68 paise per unit.

The pricing offered by Sumitomo proves to an extent the chief minister Y S Rajasekhara Reddy's position that the existing gas-based projects in the state are charging higher fixed costs.

The Japanese multinational has expressed its interest to execute the Vemagiri and Shankarpally gas-based power projects of 1400-mega watt capacity each with a promise to bring funding from the Japan Bank of International Development (JBIC), according to senior government sources.

The state government, which has already sent a request to the Government of India seeking external aid for both the projects, is expected to sign an MoU with the Reliance Industries for supply of 14 MCMD of natural gas required for these two projects by the first week of January 2005.

The total cost of these two power projects, which works out to about Rs 2.3 crore per mega watt as proposed by Sumitomo Corp, comes to about Rs 6,400 crore. Earlier, the Sumitomo Corp had supplied equipment to the JBIC funded Srisailam Left Bank Power House(SLBPH) beside the gas-based plant owned by the Andhra Pradesh Gas Power Corporation Limited (APGPCL) in the state.

Sumitomo's proposal to set up the gas-based power projects at a fixed cost of 68 paise per unit rate comes as a shot in the arm for the state government's move to negotiate new rates with the existing gas-based power projects in the state.

The state has agreed to pay 99 paise per unit as fixed cost for the proposed new gas projects like Konaseema, Vemagiri and Gouthami projects along with a 93-paise fixed cost for the GVK extension project.

The average fixed cost being paid by APTransco to the existing private gas-based power projects is around Rs 1.20 paise. The average per mega watt cost of the Konaseema, Vemagiri and Gouthami projects have been worked out at Rs 2.8 crore.

Confirming the move by Sumitomo Corporation for the supply and erection of the equipment for both the projects, Ajay Jain, managing director of APGenco, however, said that negotiations with the company were still at a preliminary level.

"It is a significant fact that the fixed cost at which the company offered to establish the projects is well below our benchmark of 91 paise per unit," Jain told Business Standard.

The state government appears to be favourably inclined to consider the proposal by Sumitomo Corp for more than one reason. Along with the cheaper project cost as proposed by the Sumitomo Corp, the loan from JBIC also comes at a cheaper rate of interest, possibly at 1.6 per cent, according to government sources.

Additionally, because JBIC usually insists that it will fund the purchase of the equipment required for the project from a Japanese company (or from the Asian region), this could become a package deal.

It is said that two more Japanese companies, including Mitsubishi, have also evinced interest in the gas-based projects proposed by APGenco.

In addition to the existing installed capacity of 6,561 MWs, another 4,790 mw capacity is proposed to be added by the end of 2008 by the state utility.

The Vemagiri and Shankarpally projects are proposed to be completed by 2008, more or less synchronising with the production and supply of gas by the Reliance group. It is proposed to set up two units of 700 mw each at both the plants.