The Hindu Business Line : Karnataka wants Nagarjuna to cut power tariffs

Karnataka wants power tariffs reduced from Nagarjuna Power Corporation Ltd (NPCL) after the present owner, the Lanco Group, changed the equipment supplier.

The Lanco group has not communicated any revision in project costs to Karnataka Power Transmission Corporation Ltd (KPTCL) and the five electricity supply companies after changing the engineering procurement and construction (EPC) contractor.

NPCL has power purchase agreements (PPA) with five electricity supply companies in the State for off take of 90 per cent of power generated, when the project is commissioned in 2009. NPCL also has a PPA with the Punjab State Electricity Board for the remaining 10 per cent.

The KPTCL Managing Director, Mr Bharat Lal Meena, said, “They have not communicated changes in costs to us after replacing the EPC contractor.”

Lanco, last year, had replaced the original EPC contractor, BHEL Ltd, with a group company, Lanco Infra Tech Ltd (LITL), and placed orders for equipment (boiler, turbine and generator) from China’s Dongfang Electric Corporation (DEC).

Power tariff

The original project cost was Rs 4,299.12 crore (at Rs 4.25 crore per MW) to be funded through an 80:20 debt equity ratio. The funding for the project was proposed on the basis of a three-tier financial security package involving an irrevocable letter of credit, an escrow account and funded State Government guarantee.

Accordingly the project tariff over the 30-year licence period would have been around Rs 2.10 per unit. The lead arranger for the debt funds was Power Finance Corporation (PFC).

The EPC component of the cost was Rs 2,467 crore for equipment supply from BHEL. Under the original EPC, BHEL was supposed to have supplied two units of 507.5 MW each.

The changes have enhanced generation capacity to 1,200 MW. But the NPCL Chief Executive Officer, Mr Panduranga Rao said,

“The capacity rating is the same as before.” However, an MoU signed between DEC and LITL indicated that the equipment supplies by DEC would be two units of 600 MW each.

Business Line is in possession of a copy of this MoU.

Mr Rao also said, “There is no difference in the project cost. The difference if any is only marginal.”

Speaking over phone from Indonesia, Mr Rao said “The changes will not have much difference on the project cost or the debt component.”

State Government officials though referred to the costs of another thermal project with equipment supply from China’s Shanghai Electric Group (SEG), the 600 MW project, promoted by the Jindal South West Energy Ltd, in Tornagallu, Karnataka, has a completion cost of Rs 1,860 crore or about Rs 3.1 crore per MW.

Based on this estimate, the project cost of NPCL should be down by about Rs 600 crore, the officials said.

Mr Meena, who also heads the five distribution companies in State said, “The benefits of reduced project costs must be passed to us and to the consumers.”

Revision in project costs would also translate to benefits for the beneficiary States. Karnataka’s project guarantee debt liabilities would come down from the current Rs 400 crore.

Besides, under the original PPA, the escrow facility was for covering 70 per cent of the project debt. “If the project debt comes down, the liabilities on the ESComs would also come down”, the sources said.

However, the project is faced with fresh uncertainties, especially environment clearances in view of the capacity enhancement to 1,200 MW.

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