The Hindu Business Line : PPA for Nagarjuna Power's Mangalore project cleared

THE 1,015-MW inter-State Nagarjuna Power Project coming up in Mangalore has overcome all the development risk hurdles with the clearance of the revised power purchase agreement (PPA) by Karnataka Power Transmission Corporation Ltd.

The revised terms included the earmarking of 100-MW power for the centrally owned Power Trading Corporation, revised return on equity of 16 per cent on the basis of 80 per cent plant load factor (PLF) against 68.5 per cent in the original PPA and a reduction in the incentives to 0.4 per cent for every one per cent increase in the PLF beyond the new normative PLF.

With this clearance, sources said, almost all the milestones for achieving wet financial closure — the stage when institutions and banks are ready to disburse funds — were complete. It is the only private sector mega project that has so far completed the development risk stage.

Power Finance Corporation (PFC) is the lead arranger for the Rs 4,400-crore project. The consortium members for debt financing the project include Rural Electrification Corporation Ltd, HUDCO, Life Insurance Corporation, State Bank of Mysore, State Bank of Travancore, and Canara Bank. PFC is the lead arranger for the project debt, estimated at Rs 3,080 crore. The project funding is by the financial institutions on the strength of a three-tier payment security package comprising a letter of credit, an escrow cover for up to 1.25 times of the outstanding billing and a State Government guarantee. Based on this security mechanism, the cost of the project has been fixed at 7.25 per cent, for 13 years.

The project equity in Nagarjuna Power Corporation Ltd estimated at Rs 1,320 crore is being brought in by the Nagarjuna Fertiliser group and associated companies. The promoter group is expected to hold 51 per cent. Another 49 per cent is expected to be held by foreign investors who are yet to be finalised.

The company already finalised BHEL as the engineering procurement and construction (EPC) contractor for the project and Simplex Constructions for the civil engineering component. The EPC component is expected to cost at least Rs 2,500 crore and the civil works another Rs 980 crore.

The first phase of the project, comprising 507.5 MW is expected to be commissioned 38 months after full financial closure and the second after 42 months. This would imply, the sources said, the project commissioning would extend into the Eleventh Plan Period. Once the project is fully commissioned by the end of 2007, the addition to the State grid would be at least about 7,600 million units per annum assuming a plant load factor of 85 per cent. The first year power tariff from the project is estimated at Rs 2 a unit in line with the guidelines of the Ministry of Power.

Fuel supplies for the project have also been tied up with Australian suppliers. Coal requirement at 80 per cent PLF is estimated to be in the region of 1.5 million tonnes per annum assuming a calorific value of 6,000 kilocalories per kg.

The sources said that the company preferred the Australian coal after taking a view of pricing advantage and supply reliability.

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