Published On:June 7 2008
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GMR decides to shift power plant location

Bangalore: The GMR Group appears to have taken final decision over shifting its barge-mounted power plant in Karnataka to Kakinada in Andhra Pradesh.

The plant will be re-commissioned at the new location by April 2009 and will run on gas, according to information provided to the stock exchanges by GMR Infrastructure Ltd, whose subsidiary runs the power plant.

According to the company, its power purchase agreement with the Bangalore Electricity Supply company (Bescom) and the Mangalore Electricity Supply Company (Mescom) expires on June 7.

GMR operates a 388.5 MW Vemagiri gas plant that is feeding about 45 million units a month into the Andhra Pradesh grid.

The shifting of the Tanir Bhavi barge-mounted plant to Kakinada brings it in the vicinity of the Krishna Godavari gas fields. Once gas linkage is established the project is expected to supplement the capacity of the Vemagiri plant. Vemagiri has a gas linkage of 1.12 standard cubic metres of gas a day from the Gas Authority of India Ltd. The project would require additional gas linkages that would have to be worked out. But even at GAIL’s current gas prices, power tariffs are still expected to be substantially higher than coal-based plants in the region, where tariffs are about Rs 2.20-2.50 a unit, closer to about Rs 5 a unit.

GMR had attempted to extend the PPA beyond seven years. However, the Karnataka Government declined to relent on the issue of fixed cost recovery. The State had conveyed that beyond the seven-year period, it was willing to concede only the variable component of the tariff, with a reasonable rate of return. This was because the project would have already amortised its fixed costs during the period. The project was set up at a cost of around Rs 700 crore. Financial institutions extended foreign currency loans and guarantees to the project amounting to about $140 million in 2000.

The exit of the barge mounted project was expected to improve the finances of the two State distribution utilities, Bescom and Mescom, whose revenues had been assigned to project under the terms of the PPA and parked in an escrow account with the State Bank of Mysore. In addition, the State Government’s guarantee liabilities also come down with the exit of the project.

The amount was equivalent to about 125 per cent of the monthly billing. The project, unlike the new project, was finalised on the basis of a two-part tariff mechanism. This mechanism locked the distribution utilities into paying the fixed charges for the project, up to 85 per cent plant load factor, as deemed generation. The fixed charges were on the basis of a 16 per cent return on equity. Accordingly the fixed component of the tariff alone had worked out to about Rs 1.80 paise a unit.

There was also the variable component that the utilities were liable to pay that included the fuel charges. However, bulk buyers had preferred to keep the project backed down, implying keeping it idle during a large part of the project PPA life of seven years. This was in view of the high fuel costs that pushed up project fuel costs alone to over Rs 6 a unit.


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