The Hindu Business Line : GMR picks China co as engg contractor

Bangalore, June 5 The GMR group has picked China’s Shangdong Electric Power Corporation (SEPCO) as Engineering Procurement and Construction (EPC) contractor for the 1050 Mega Watt (MW) Kamalanga Thermal Power project in Orissa.

Company sources said that the project was now expected to go into financial closure by July this year. Generation from the project was expected to begin in 2010. GMR’s Kamalanga project is a merchant power station.

The project has a power purchase agreement for only 25 per cent of the capacity with the Orissa’s distribution companies. The remaining generation was to be sold on a spot basis.

SEPCO as EPC contractor would be supplying the boiler, turbine and generators for the station.

The sources said that discussions were still underway with SEPCO for accelerating the equipment supply. For SEPCO this is the second major order from domestic Independent Power Producers (IPP). In August last year, SEPCO had signed with BALCO for implementing a 1200 mw project.

The Kamalanga project is expected to be the first merchant power station to go into financial closure. The project cost is estimated at Rs 4200 crore at current exchange rates.

The project is expected to have a debt component of at least 70 per cent and equity of 30 per cent. Although China has the option of providing suppliers credit to equipment buyers, GMR has opted for raising the entire project financing on its own, through domestic and international banks, the officials said.

However, funding was likely to remain a tricky issue. This was because the PPA of 25 per cent of plant capacity was unlikely to cover the project debt service.

Besides, banks have begun insisting on corporate guarantees from promoters as a precondition for project funding. This was in addition to physical asset cover ratio, which is currently prescribed at 150 per cent of the loan value.

Yet despite the merchant status, the tariffs from the power project would be attractive, the officials said. The Kamalanga project is a pit head based with fuel supplies sourced from Orissa’s Talcher coal fields.

Pithead based projects are cheap, since there are no fuel transportation costs involved. Power tariffs from the project are expected to be competitive. Tariffs are likely to be in the range of about Rs 2.25 a unit. At 80 per cent plant load factor the Kamalanga project would have a fuel requirement of at least 4.8 million tonnes of coal.

The tariff estimates make power from the project attractive to energy hungry southern states that include Karnataka.

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