Financial Daily from THE HINDU group of publications
Tuesday, Oct 21, 2003
Industry & Economy
Gas supply linkages for Bidadi project still hanging fire
Bangalore , Oct. 20
THE state-owned utility Karnataka Power Corporation Ltd (KPCL) has been unable to finalise the gas supply linkages for the proposed 1,400-MW Bidadi gas project.
The gas-based project is being taken up as a separate entity outside the balance sheet of KPCL and is expected to cost close to about Rs 4,200 crore and is to be funded through a 70:30 debt-equity ratio. To make the project bankable, KPCL had proposed entering into a power purchase agreement with the Centrally-owned Power Trading Corporation.
But fuel supply is becoming a major hitch for the project since none of the intending suppliers have been able to quote a firm tariff for supply of gas. Sources said that the first stage bids, (Request for Qualification) for the engineering, procurement and construction was still in the process of finalisation.
For fuel supply, KPCL had received responses for the expressions of interest floated recently. The companies that had evinced interest for supply of gas included Reliance Industries, Gas Authority of India Ltd, and Bharat Petroleum Corporation Ltd.
But so far none of the suppliers have been able to indicate a tariff for the gas supply. KPCL is expected to require at least 1.4 million tonnes of gas for the project assuming a plant load factor of 85 per cent. And the base level tariff that KPCL is currently looking at is in the region of about $4.3 per million British thermal units (MMBTU) or about $223 per tonne assuming a conversion factor of 51.81 mmbtu.
RIL had sought a firm long term supply contract equivalent to about 10 million standard cubic metres equivalent to about 2,000 MW from its Krishna-Godavari basin gas wells. However, no tariff has been indicated by RIL so far despite the fact the supplies are from domestic sources.
The sources said that one of the critical factors inhibiting any firm gas tariffs, was that gas prices are linked to crude oil prices worldwide.
Accordingly, with crude oil prices hovering around $32 a barrel or about $240 to tonne, few suppliers were prepared to offer firm tariffs. Besides, no supplier was willing to offer gas tariffs without linking to crude oil, the sources added. Also, international gas prices were on the higher side. International gas prices are currently in the region of about 5.5 per mmbtu on f.o.b. (free on board) basis. Consequently, obtaining a delivered price of $4.3 or near about as indicated by the KPCL was no possible given the present trend of the price cycle. On a c.i.f (cost insurance freight) basis, the tariffs would be closer to $6 per mmbtu or upwards of $300 per tonne on the New York Mercantile Exchange.
However, State Government sources indicated that unless gas was available at the indicated delivered price it would not be economical to operate gas based power plants as base load stations.
KPCL has targeted an electricity tariff from the Bidadi plant of under Rs 3 a unit. This was to ensure that the project remained competitive to the existing coal-based stations. But given the current trend of international prices, the sources said, the power tariffs were unlikely to be significantly different from naphtha-based stations.
This is because, at the current international prices, gas prices are close to international naphtha prices on a c.i.f basis. International naphtha prices are about $295 to a tonne.
The sources said that given this kind of an international price situation for fuels, using gas-based stations was likely to push up the weighted average tariffs of power from the current levels of about Rs 3.80 a unit substantially increase the revenue deficits.
Such tariffs were likely to be close to liquid fuelled stations, the sources said indicating that tariffs from gas-based stations were unlikely to cheap.
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