AP to take over first private power plant set up by GVK

Under AP Reorganisation Act, AP and Telangana have a right over power projects irrespective of their geographical locations

The Andhra Pradesh (AP) government has given the permission to its power utilities to buy out the 216-Mw Jegurupadu project, India’s first private gas power plant set up by the GVK Group in 1997. The move is based on an option provided in the power purchase agreement (PPA), which is due to expire on June 20.

AP Transco had in April sought the state government's permission to exercise the buy-out option, even though the company had applied for renewal of contract as the PPA also provides for extension of the contract based on a partial or a full refurbishment of the plant at the cost of the company.

The government's decision comes in the wake of heightened tensions between the leadership of Telangana and AP since the renewal of the PPA extends Telangana's right over the project with regard to 53 per cent share in generation. Under the AP Reorganisation Act, both states will have a right over the power projects irrespective of their geographical locations, provided those plants are operated under the old PPAs.

Sources close to the development told Business Standard that the government has already communicated its decision to AP Transco officials. AP Transco officials were not immediately available for comment.

 

Earlier, AP Transco chairman and managing director K Vijayananad had told Business Standard that Grant Thornton had given a report on the unit's terminal value, based on which the buyout would be done. The firm had assessed the terminal value of the plant at Rs 294 crore.

After AP was partitioned, the PPA was transferred to the respective distribution companies (discoms) of both Andhra and Telangana. If the PPA is renewed, Telangana would continue to get its share of 100 Mw at a much lesser fixed cost from this plant.

Set up in 1997, the Jegurupadu power plant had entered into an 18-year PPA with state power utilities when N Chandrababu Naidu was the chief minister of the undivided AP. Since the estimated project life is 30 years, there was a scope to extend the PPA for another 10 or more years depending on the level of refurbishment of the plant, according to industry observers.

“The decision appears to have been taken purely on the basis of political considerations as there was no economic rationale for the power utilities to take over the project and invest money for refurbishment, instead of letting the company do it for them,” a company official said on condition of anonymity. However, government agencies argued otherwise.

Much before this decision, GVK had approached the state power utilities with an offer to undertake the refurbishment of the plant to extend the contract period.

“We have proposed to refurbish the plant at a capital cost of Rs 500 crore and it was very much provided for in the PPA. The life of a gas-based power project would be 25-30 years and after the completion of the PPA period (18 years), you need to invest to restore the plant efficiency. All that the power utilities have to do is to pay for the interest and the depreciation. They will have to pay the rate for the next 15 years, as they have been doing so far,” said a senior GVK official. The company had invested about Rs 1,000 crore in this plant.