The Hindu Business Line : ONGC-Iran tie-up may ease fuel supply for KPCL Bidadi project

WITH ONGC having tied up for offtake of natural gas from Iran, the Karnataka Government expects the fuel supply snags for the 1,400-MW Bidadi gas project to be resolved.

However, sources said that the State-owned Karnataka Power Corporation Ltd would have to reconcile to a higher gas tariff instead of the targeted $3 per million metric British thermal units (MMBTU). This was partly because the ONGC tariff translates into at least $2.97 per MMBTU with a cap of $3.1 during the 25-year contract period.

This price, though the sources said is an FOB (free-on-board) tariff for gas in its vapour form.

The companies that were short-listed for fuel supplies to Bidadi - Reliance Industries, ONGC and Indian Oil Corporation - had failed to submit their price bids before December 31, 2004, which was the original deadline. This was because, barring Reliance, neither of the public sector bidders had finalised their gas supply linkages.

Initial estimates were that the gas sourced from Iran by ONGC would be pipelined through Pakistan. However, Pakistan has so far not agreed for pipe lining the gas through its territory. This would therefore imply, additional costs for liquefication, transportation and regassification.

As a result, the sources said that the delivery price of gas on CCIF basis (cost insurance and freight) is likely to be close to Petronet LNG's tariff of about $4.75 per MMBTU. KPCL is looking for a 15-year firm supply of 1.4 million tonnes per annum, about 73 million British thermal units (51.81 mmbtu = one tonne). This is the estimated requirement of Bidadi at 85 per cent plant load factor.

The ONGC pricing would also result in pushing up power tariffs for the Rs 3,750-crore project. The fuel cost component for power generation is likely to be in the region of about Rs 1.10 per unit on the basis of current gas prices. Inclusive of fixed costs, the power tariffs are likely to be close to about Rs 3 a unit, well above the benchmarked tariff of Rs 2 a unit, making it far more expensive than coal-based projects, industry sources said.

One option before Karnataka Power Corporation is to become bulk gas supplier to transportation, industry and to retail suppliers and accordingly work out a cross subsidy mechanism for keeping power tariffs low. Another alternative is to direct gas imports through Mangalore. It has sought Government permission for directly negotiating for gas from international suppliers.

This is particularly because countries such as Russia and Turkmenistan are selling raw gas at tariffs less than $2 per MMBTU. Russia sells raw gas to Western Europe at tariffs equivalent to $1.4 per MMBTU and Turkmenistan at $1.6.

As a result, KPCL hopes that direct negotiations for sourcing gas through a terminal at Mangalore would help bring the power tariffs for the project closer to the benchmarked tariff, even after factoring in liquefication, transportation and regassification.

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