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C. Shivkumar

Exxon's interest comes close on the heels of the exit of Unocal from the joint venture on the expiry of the memorandum of understanding it had signed with the State-owned utility, Karnataka Power Corporation for setting up the project on a joint venture basis.

BANGALORE, Sept. 20

EXXON Inc of the US has pitched for the supply of fuel to the liquefied natural gas (LNG)-based power station proposed at Bidadi on the outskirts of Bangalore city.

However, so far Exxon is the only foreign company to have put in its bid for the gas supply contract. Exxon's interest comes close on the heels of the exit of Unocal from the joint venture after the expiry of the memorandum of understanding it had signed with the State-owned utility, Karnataka Power Corporation for setting up the project on a joint venture basis.

Sources said that besides Exxon three domestic companies - Reliance Industries Ltd, Bharat Petroleum Corporation Ltd and the Gas Authority of India Ltd - had also submitted their pre-bids for the fuel supply contract. However, the fuel supply contract is still in the expression of interest (EoI) stage. The bidders have to through another two rounds, which include the pre-qualification and the request for proposal rounds before the Government could take a decision on the final supplier, sources said, adding that KPCL would then have to get the techno-economic clearance from the Central Electricity Authority (CEA).

The State Government however, has been vacillating over the setting up of the project. One of the major reasons for the indecision of KPC over the LNG project has been the potential tariff impact. The tariff is on account of the transportation costs from the production area to the end-user. The costs of the supply would involve liquefying the gas, transportation by sea and re-gasification at a receiving terminal before being piped to the end-user. Since all these costs would be loaded to the LNG tariff, the sources said KPC was heavily weighted in favour of sourcing the same from domestic fields.

However, the sources added, "Gas supply from any part of the world is welcome, so long as it conforms to our tariff expectations." None of the EoI bidders have so far indicated their sources of supply. But irrespective of the sources of supply, KPC is looking for a 20-year take or pay contract with a tariff cap. This implies that the supplier would have to assume the upside risk in the event of fuel price escalations above the cap.

The LNG requirement for the Bidadi project assuming a plant load factor of 85 per cent is expected to be in the region of about seven lakh tonnes per year. KPCL has been looking for flat c.i.f (cost insurance and freight) gas price of about $4.3 per million British thermal units (mmbtu) or about $222 per tonne, the sources said. This would translate into approximately $155 million year (assuming 51.7 mmbtu = one tonne of LNG). At this gas price, KPCL hopes to keep the power tariff close to Rs 3 per unit.

The tentative cost estimates for Bidadi project is in the region of about Rs 2,100 crore. This is based on an estimate of Rs 3.5 crore per MW. This cost is inclusive of interest during construction, return on equity and project insurance. With Unocal walking out, the entire equity for the project would have to be brought in by KPCL itself , the sources said. But the critical issue would depend on KPCL's ability to secure LNG at a fixed price of $222 per tonne. This was on account of the fact that LNG prices in the international markets moved in tandem with crude oil prices and most recent LNG supply contracts had been benchmarked to crude prices.

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