The Hindu Business Line : Reliance spat: KPC gas supply bids face uncertainty

THE intensifying sibling spat in the Reliance group has sent alarm bells ringing for the State-owned Karnataka Power Corporation (KPC), which is promoting the 1,400-MW gas-based power station.

KPC's worries emanate from the fact that RIL is one of the short-listed bidders for gas supply to the power unit. Besides RIL, public sector petroleum giants Indian Oil Corporation and ONGC were also short-listed in the technical rounds or request for qualification rounds.

RIL was expected to source the gas from the Krishna-Godavari Basin. Both the PSU oil giants were expected to source their supplies from the international markets.

The power plant, estimated to cost about Rs 3,750 crore, would require at least 1.4 million tonnes of gas per year at a plant load factor of 85 per cent, about 73 million British thermal units (51.81 mmbtu = one tonne).

KPC is looking for a fuel supply tie-up for a 15-year period at a delivered price of about $3 (Rs 132) per mmbtu. Only at this price, based on current exchange rates, the Corporation would be able to meet the power tariff of Rs 2 a unit. At this price, estimates are that the fuel costs, net of losses and auxiliary consumption, would be about 65 -70 paise per unit.

The sources said that since RIL had already committed a fixed tariff of $2.97 per mmbtu to NTPC's Gandhar and Kawas plant, KPC had expected to source the gas at close to this price.

RIL's gas supply also appeared to be attractive since there would be no incremental fixed costs for shipping, terminal handling and re-gasification.

But sources said that supplies from the KG basin were unlikely before 2008. Supplies to RIL's own gas proposed 3,500-MW plant in Dadri was not likely before this date.

KPC's anxiety was due to postponement in price bids, which is expected to face further delay. It was originally slated to have begun in October, but was deferred to December this year at the request of the bidders.

One reason advanced for this delay was that barring RIL neither of the PSU suppliers has firmed their gas linkages.

The delay, the sources said, was largely due to inability of the PSU in obtaining fixed price contracts for long periods from international suppliers. PSU suppliers had looked for fixed price contracts for 15 years to eliminate volatility.

However the world's largest importers, the US, Europe Japan and Korea already import at indexed prices. US gas prices are indexed to the Henry Hubb prices on the New York Mercantile Exchange. Japanese imports are indexed to a cocktail of crude imports.

The Henry Hubb price is currently close to about $7 a mmbtu and the Japanese cocktail prices were also almost identical.

As a result, none of the suppliers were prepared to lock into fixed price contracts at this juncture, the sources said. This was especially at a time when global demand for gas was expanding.

The sources said Iranian companies, expected to be one of the main gas suppliers to IOC, have already indicated that they would not be in a position to supply on fixed price contracts. The sources said, that as a result, commissioning of the Bidadi gas power station was likely to take place only by 2008. Even when commissioned, the sources said power tariffs were likely to overshoot the original estimates considerably, the sources added.

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