AP may amend fuel clause in PPAs

Shortage of gas may burn Rs 1,500cr hole in state exchequer, even if no power is purchased

Worried over the consequences of 'last minute agreements' entered during the TDP regime with four new private power producers in the state, the Andhra Pradesh state government is now seriously considering an amendment to the fuel clause in the power purchase agreements (PPAs).

According to the PPAs entered into by APTransco with the four gas-based power projects, the units can run on alternate fuels like naphtha, despite naphtha being four times costlier than gas.

The move to amend the fuel clause comes alongside a shortage in gas availability which is expected to hit the plans of the four private power projects, scheduled to be commissioned between 2005 and 2007 in Andhra Pradesh.

The issue is expected to result in a full-blown crisis if some way out is not found, in the absence of additional gas availability. The shortage will have serious financial repercussions on the independent power producers as well as the state government.

As per the PPA signed by the producers with the state, the government would have to pay close to Re 1 per unit as fixed cost, even if no power is generated by these units.

This apart, the state cannot afford naphtha-based power which would work out to close to Rs 7 per unit as against around Rs 2.50 per unit in the case of gas-based power.

As per the PPAs entered into by the previous TDP regime, the state government without actually purchasing any power from these units would still have to pay around Rs 1,500 crore a year, assuming that all the four plants enter the stage of commercial production.

The four independent power producers (IPPs) "" Gouthami Power (464 mw), Konaseema EPS Oakwell (445 mw), Vemagiri (370 mw) and GVK Industries(230 mw) "" got approval from the Andhra Pradesh Electricity Regulatory Commission (APERC), just a few days before the new Electricity Act was promulgated in June 2003.

According to a senior official attached to the chief minister's office, "The current thinking is that the private power producers will not be allowed to take advantage of the provision for alternate fuels in the PPA."

According to him, the state government will not pay any fixed cost nor will it buy power if any alternate fuel other than gas is used. Going by the schedule, Konaseema would be the first project to come into existence, which is expected to commission its first unit in January 2005.

According to a senior minister in the Rajasekhara Reddy government, the signing of new PPAs and allowing the usage of alternate fuels by these projects "" knowing fully well of the gas shortage "" was a very "big sabotage" on the part of the senior government servants.

"Political pressures might have been there, but a responsible government servant would have quit the post against such unjustified pressure," the senior minister told Business Standard.

In anticipation of the problem ahead, chief minister Y S Rajsekhara Reddy recently wrote a letter to the Union petroleum ministry in which he has urged the Centre to allocate more gas from KG Basin to the power generation requirements in view of the new power projects coming into existence.

Keeping the existing production levels in the ONGC wells in view, it is highly unlikely that the Centre is in a position to give any substantial relief in this regard.

The gas shortage is affecting existing power projects in the state also. The existing gas-based power projects in the state are already running at low plant load factor (PLFs) as ONGC has failed to supply the full extent of allocated gas to these units.

Out of the nine million cubic metres per day (MCMD) gas generated in the Ravva and KG Basin wells, around five MCMD was allocated for power generation, but the actual supply has not crossed four MCMD.

The additional requirement of gas on account of the four new power projects is expected to be around seven MCMD. Even if ONGC were to tap new wells the volume of gas required will not be enough unless Reliance commences commercial supply from its blocks in the KG Basin.

Reliance expects to start tapping gas only around 2007. Going by its mega plans in the state and elsewhere in the country and the 'Well to Wire' policy, the company is likely to share its gas production with other power players only after meeting its own requirements.