The Hindu Business Line : Lanco ends contract with BHEL for power project

Bangalore/New Delhi, Dec. 10 The Lanco group has terminated the Engineering Procurement and Construction (EPC) contract with the public-sector Bharat Heavy Electrical Ltd (BHEL) for the 1,015-MW coal-based Nagarjuna Power Project coming up in Mangalore.

Instead, the EPC will now be done within the group, Lanco Infratech Ltd (LITL). LITL has placed the orders for equipment with Chinese company Dongfang Electric Corporation (DEC). DEC is a fully-owned company of the People’s Republic of China.

BHEL, when contacted, confirmed the termination of the EPC contract. BHEL had won the contract against bids from a China machine-building international group — China Non-Metal Enterprises Group consortium. The EPC contract was worth Rs 2,500 crore for BHEL.

Capacity difference

However, indications are that the EPC bids are not very different from those already quoted by BHEL. The LITL (EPC) Chief Executive Officer, Mr S. Manocha, said: “There is not much difference in the EPC prices of DEC and there will be no difference in the levellised tariff estimates.” The levellised tariff estimated is about Rs 2.10 a unit. The only difference in the new EPC order was that the capacity ratings of the Chinese equipment were higher.

China’s standards are 600 MW. BHEL currently makes generators of 500 MW.

In fact, the original EPC placement with BHEL was for two units of 507.5 MW each.

The equipment orders with DEC are for generators of two units of 600 MW each.

A copy of the EPC agreement, between LITL and DEC, made available to Business Line, revealed that the capacity ratings of the equipment orders were two units of 600 MW each.

This implied that the gross capacity of Mangalore thermal project would now be 1,200 MW, instead of the originally estimated 1,015 MW.

The Lanco group that completed consolidation of its stake in Nagarjuna Power this year had sought renegotiation of some of the EPC terms, a BHEL spokesperson said. Lanco group had bought out 74 per cent of the Nagarjuna Fertiliser group in the power project under development near Mangalore in May 2006.

The spokesperson said that BHEL had declined to renegotiate the original terms, following which it was terminated. In fact, BHEL had also declined to participate in the retendering process initiated by Lanco group for the EPC in the Mangalore project.

Lanco has already placed orders for the boilers, generators and the Electro Static precipitators with DEC. But all the statutory clearances for the mega power plant in Mangalore were on the basis of a project capacity of 1,015 MW.

In fact, the power purchase agreements signed with Karnataka’s five distribution supply companies and Punjab State Electricity Board were on this capacity rating. The PPA was signed on a back-to-back financial security package that included a letter of credit, an escrow cover of up to 1.25 times of the outstanding billing, and a funded State Government guarantee.

Moreover, the Central Electricity Authority’s techno economic clearances were obtained in April 1999 on the basis of the original capacity. The project went into financial closure in December 2006 on the basis of an 80:20 debt equity ratio, on the basis of the original capacity ratings. Power Finance Corporation is the lead arranger for the debt financing package.

The project has a five-year coal supply agreement with Rio Tinto of Australia. The fuel price is on a fixed price basis of about $49.05 (free-on-board) a tonne. This was also on the basis of the originally rated capacity. The fuel requirement was estimated at 3 million tonnes per annum of coal with a calorific value of 6,200 kilo calories per kilogramme.

Related Stories:
Lanco's Mangalore power project achieves financial closure
BHEL wins order from Nagarjuna Power

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