Andhra Pradesh allows power generation using naphtha

Rule relaxed in the face of acute power crisis.

Due to the acute power shortage during the ongoing rabi season, the Andhra Pradesh government has decided to allow the private gas power producers to generate close to 300 Mw of additional power using naphtha. The electricity thus produced would cost the power utilities close to Rs 6.50 per unit, according to officials.

The 216-Mw GVK Power has commenced generation, though for a brief period, using naphtha on one of its turbines, which has been idle due to non-availability of gas. It is learnt that the APTransco is currently negotiating with Lanco and Spectrum Power for a similar arrangement.

It may be recalled that the four existing independent power producers (IPPs) "" GVK, Lanco Kondapally, Spectrum and Reliance "" which have a combined installed capacity of 999 Mw, are currently producing only around 500 MW of power due to the shortage of gas.

The state government has relaxed the alternate fuel clause, which effectively closes the doors on using any expensive fuel such as naphtha in place of gas, to allow the existing gas-based power plants to generate additional power. However, the government at no cost will relax the rule with regard to any new IPPs in the state.

The government has decided to spend a whopping Rs 1,150 crore on power purchases in addition to the Rs 1,300 crore subsidy committed to the power utilities this year, of which Rs 470 crore is expected to be spent exclusively on naphtha-based power during the three-month period up to March 2007, according to APTransco officials.

Though the companies already have certain amount of naphtha reserves at their disposal, they will need more considering the huge power generation target before them.

Hindustan Petroleum Corporation Limited (HPCL), one of the suppliers of naphtha in the state, produces between 75,000 tonne and 80,000 tonne of the fuel every month at its Vizag refinery and exports almost 90 per cent of it to Gulf countries.

"We are exporting naphtha because there is not much demand for the same in the domestic market, except some small quantities required by the fertilisers units.The company is ready to supply naphtha to power plants if they approach us," PAB Raju, general manager, HPCL's Vizag refinery, told Business Standard.

According to him, the price of naphtha in the international market is currently hovering around Rs 25,000 per tonne. About 6 units(KwH) of power is expected to be generated from 1 kg of naphtha.

When contacted, a representative of Spectrum Power (SPGL) said though they were approached by the APTransco officials for naphtha fired power at our plant, the company is yet to receive any formal letter from the latter.

Meanwhile, some industry quarters have expressed reservations about the current contingency plan unveiled by the APTransco. Instead of buying naphtha-based power, the state government can as well allow the IPPs to buy gas from Ravva fields and request companies like Nagarjuna Fertilisers to temporarily stop the usage of gas for the sake of power generation.

It may be recalled that the APTransco recently asked the IPPs not to buy gas from Ravva oil fields in protest against the price hike by Cairn energy. Compared with the cost of naphtha the enhanced rate of $ 4.5 per MMBTU of gas would be still cheaper, they argue.

Chennai-based Indian Wind Power Association in a press release said the power crisis in Andhra was purely its own making since the state power utility refused to recognise the importance of wind power and act accordingly.

While the association said that the companies were ready to create 150 Mw wind power capacity per year in the state provided the government offered a levellised tariff of Rs 3.37 per unit spanning 20 years, the government, however, is not willing to pay more than Rs 3 per unit to any non-conventional energy facilities including windmills.