Capital cost of GVK plant raised by Rs 67 cr

The Andhra Pradesh Electricity Regulatory Authority (APERC) has enhanced the capital cost of GVK Group's 216-megawatt Phase 1 gas power project in East Godavari by Rs 66.74 crore.

With the order coming 15 years after the project started commercial operations, the seemingly small enhancement may cost more than a couple of hundred crores, after calculating the interest on the arrears from 1997. APTransco, the state power utility, has to bear the additional bill under the power purchase agreement (PPA) signed with the company.

However, the enhancement falls short of what the company had asked for. GVK had filed an application before the APERC seeking an approval of the project cost at Rs 1,025.24 crore as against the approved provisional project cost of Rs 816 crore. Though it had submitted the bills of actual project cost in 1998, the government did not agree to a hike.

The matter was first heard by the AP High Court until the Supreme Court ruled in 2010 the electricity regulator was competent to decide on PPA disputes, whether new or old.

The regulatory commission said in its orders, there were certain uncontrollable costs which could not be reduced under the broad umbrella conditions of ceiling cost. In this pursuit, components that have a bearing on foreign exchange and statutory levies could not be denied. "As per the above determination, the total admissible completed capital cost for all the items comes to Rs 882.74 crore as against the petitioner claiming a figure of Rs 1,025.24 crore and the capital cost specified in the PPA of Rs 816 crore," the commission said.

The state government had signed PPAs on the basis of the project cost for GVK's 216-Mw Phase 1 project at Jegurupadu and Spectrum Power Generation Ltd (SPGL)'s 208-Mw project at Kakinada. SPGL's application for enhancement of capital cost to Rs 772 crore from the provisionally-approved Rs 748 crore is still pending with the APERC, according to sources.

Private power developers are allowed to recover the entire capital cost, in addition to the accepted returns (in this case 16 per cent), on equity during the PPA period, by fixing the power purchase price accordingly. Hence, the enhancement in capital cost is an additional liability that has to be met by the power utilities. However, in the PPAs signed with other power projects later, the government took the price of power as the criteria, in place of the project cost.

The provisional project cost is approved at the beginning to enable the developer to tie up with lenders and vendors, and this is then replaced by the actual cost after the project is completed. In the case of these two projects, the then government in 2002 had put a ceiling on the capital cost at the existing levels when the opposition Congress accused the two companies of inflating the same.

GVK operates a total installed capacity of 990 Mw under gas-based power projects, most of which are presently idle due to non-availability of natural gas. The PPA signed for the Phase 1 project expires in 2018.