GVK power plant capital cost raised after 15 years

Aperc increases the cost of company's 216-Mw project by Rs 66 cr

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

As this order comes 15 years after the project started commercial operations, the seemingly small enhancement will run into more than a couple of hundred crores after calculating the interest on arrears from 1997. APTransco, the state power utility, has to foot 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 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 itself, the government did not agree for any upward revision.The matter was first heard by the AP high court until the Supreme Court in 2010 ruled that the electricity regulator was competent to decide on PPA disputes whether new or old.

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

Private power developers are allowed to recover the entire capital cost in addition to the accepted return (in this case 16 per cent) on equity during the PPA period by fixing the power purchase price accordingly. Therefore, 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 tieup 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 Congress was in the opposition.