AES, Orissa fight over Ib Valley power project

The tussle between two joint venture partners in Orissa Power Generation Corporation (OPGC) - the Orissa government and the US based AES Corporation- over the off take of power from the OPGC's proposed 3 and 4 units of the Ib Thermal Power Plant (ITPP) has put this 500 MW expansion project at jeopardy.

While the Orissa government wants the entire power produced from proposed two new units to be sold to the state grid at a regulated tariff, AES is in favour of third party sale of power to improve the profitability of the project.

OPGC currently runs two units of 210 MW each at Ib Valley and had announced in June last year that it will set up two more units, Unit III and IV, of 250 MW each in the same complex at an estimated cost of Rs 1700 crore.

The expansion work was scheduled to start in March, 2005.

However, there is no progress on the expansion project yet due to disagreement between the two joint venture partners over off take of power.

The Orissa government owns 51 per cent stake in OPGC with rest 49 per cent divested in favour AES Corporation in 1998 for a consideration of Rs 603 crore.

The agreement signed at the time of sale of stake to AES clearly states that the power to be produced from unit III and IV of OPGC will be sold to Grid Corporation of Orissa (Gridco), points out SN Patra, the state energy minister.

"So there cannot be any deviation from this now", he added.

However, this is contested by AES.

The Central Electricity Act, 2003, which allows third party sale of power by a generating company, overrides the provisions of the shareholders' agreement, says Srinivas Rao, the head of AES' India operation.

Arguing that third party sale of power is essential for the profitability of the company; he pointed out that at present OPGC sells Gridco power at the rate of Rs 1.40 per unit while the latter exports the same power at over Rs 3 per unit.

"This sort of business scenario is totally against the interest of the generating company and stacked in favour of the state-owned trading outfit", Rao observed. He said, if OPGC earned profit, a sizeable portion will go to the state government which had 51 per cent stake in the company.

In fact, OPGC paid the state government dividend of Rs 60 crore in 2004-05 and has consistently declared an average dividend of 27 per cent over the last five years.

Meanwhile, as a way out of this imbroglio, AES has suggested several solutions. This included sharing the power produced from the new units in the same ratio as the equity holding in the company and then leaving it to the promoters to sale it to whomever they wanted.

The second is scaling up the expansion project from 500 MW to 1,000 MW so as to make available a portion of the output to the state grid while selling the rest in the open market.

The third is selling of power to Gridco at a mutually agreed rate and not at regulated tariff rate as being insisted by the state government.