IPPs: Normal procedure adopted

By R.J. Rajendra Prasad

HYDERABAD, AUG. 18. While the Opposition parties are demanding an inquiry into the manner in which the Andhra Pradesh Chief Minister, Mr. N. Chandrababu Naidu, ``pressured'' the Centre to permit Independent Power Project (IPP) operators to start civil works without an escrow account, officials are saying that this is a normal procedure in which financial institutions are giving a guarantee to the IPPs based on the performance of the Transmission Corporation of Andhra Pradesh (TRANSCO) in improving its resources.

The Union Ministry of Power had a meeting in Delhi on August 10 when the financial closure of six projects was discussed. The ``financial closure'' was pending for several years because the TRANSCO was not in a position to have an escrow account by which all its revenue would be put in a joint account with the IPPs so that the latter have the first charge on the power they sell to the TRANSCO. Now, a gas-based project has a minimum gestation period of 24 to 30 months, and the question of payment for power purchased will arise only between August and December 2003 when the plants are commissioned.

After considering the State Government's commitment to reforms in the power sector, and the TRANSCO's record of improving its revenues from Rs. 4,400 crores in 1999-2000 to Rs. 5,700 crores in 2000-2001 and its budget of Rs. 6,700 crores in 2001-2002, the financial institutions under Industrial Development Bank of India agreed to have a Memorandum of Agreement (MOA).

The escrow accounts will begin one month before the power projects go into production. The MoA is a guarantee to the IPPs which will borrow funds for the projects that the TRANSCO would pay for the power purchased from them. The result is that work on these projects will commence now, and they will be commissioned by 2003.

The six projects cleared include a coal-based thermal power station at Ramagundam by the BPL with a capacity of 520 MW. The gas-based projects are Konaseema Oakwell 445 MW, Gautami 464 MW, Vemagiri Ispat 370 MW, BSES Andhra Power 220 MW and GVK second phase 220 MW. According to Mr. Ashok Basu, Union Power Secretary, Madhya Pradesh, Punjab and Uttar Pradesh are showing interest in similar procedure of having financial closure without an escrow account. This is the route to speed up projects that have been on the pipeline for a long time.

For these six projects, the ``fixed'' cost of power is 98 paise per unit, and the ``variable'' cost, which varies with the cost of fuel, is 82 paise per unit as on today.

Thus the total cost comes to Rs 1.80 per unit, which is reasonable compared to the prevailing market rate.

The five gas-based projects have tied up with the ONGC for their requirements. Also, the Cairn Energy of the U.K. has exploration work in progress in the Krishna Godavari basin, and is estimating a gas reserve of 28 billion cubic meters, based on its experimental drilling.

It is part of a consortium holding 12.5 per cent stake, along with the ONGC having 40 per cent, the Videocon with 25 per cent and the Marubeni of Japan having 12.5 per cent. The Cairn Energy is producing 50,000 barrels of oil and one million cubic meters of gas per day from Ravva fields near Kakinada.

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