The Hindu Business Line : Forward linkage plan for K-G Basin gas — Reliance proposes power project near Bangalore

RELIANCE Industries Ltd (RIL) has offered to set up a 3000 MW power project in Karnataka near Bangalore to tie up forward linkages for its gas finds in the Krishna-Godavari Basin.

State Government officials confirmed that such a proposal had indeed been made. They, however, added, "It is still in the very preliminary stages."

RIL has offered to set up the project in two stages. The first stage is to be set up as a 2000 MW station, which was to be subsequently ramped up to 3000 MW, the officials said.

For RIL, this is expected to translate into an off-take of at least 15 million standard cubic metres per annum of gas.

The officials said that RIL had not mentioned any power tariffs from the project. Besides, it is also understood that RIL did not make any mention of a payment security mechanism. Instead, RIL has sought an assignment of one of the five electricity supply companies in the State, preferably Bangalore Electricity Supply Company Ltd (Bescom).

The State Government has completely ruled out this mechanism. This was in view of the fact that Bescom is the highest revenue-earning circle in the State. Besides, any such assignment would have to be cleared by lenders such as Power Finance Corporation and Rural Electrification Corporation, who have a charge on the revenues of Bescom and some of its assets.

RIL's offer comes even as it has completed the technical bids for the 1400 MW gas-based power project in Bidadi, promoted by Karnataka Power Corporation Ltd also near Bangalore. The financial bids are expected to shortly begin for the project.

But the bulk power buyer in the State already has major reservations against tying for future sources of power supply to gas. The officials said that the major reservation was that the fuel pricing component.

Currently, there is no clear indication as to the pricing of gas in the country. The sources said that if the international pricing formulae, where gas prices are linked to a basket of crude oil prices, it was likely to translate into very high power tariffs.

International gas prices based on this formula are currently in the region of $5.5 per million British thermal units (mbtu) or about $260 per tonne.

Based on this international price, the final power tariff was expected to be almost equivalent to naphtha-based power projects.

Consequently, the sources said that for RIL's power project to be attractive, the final tariffs would have to be close to that of the existing coal-based projects.

Further, the sources also said that the project would also have to conform to the electricity regulator's guidelines, where the least cost principle would be applied. This means that any approval for power purchases would have to go through the bid route, they added.

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