AP asks Lanco, GMR merchant power plants to sign long-term PPAs

Determining the terms agreeable to both the parties is going to be an issue as the supply agreements of natural gas from the K-G Basin is only up to April, 2014. Besides, there is a huge cut in natural gas supply to power projects owing to a decline in production

The two merchant power plants of Lanco and GMR in Andhra Pradesh have been asked to sign long-term power purchase agreements to sell power at a regulated price as they are using natural gas allocated at a regulated price of $4.2 per mmbtu from the K-G basin.

“We have issued notices to both the companies to sign long-term PPAs,” said Hiralal Samaria, chairman and managing director of APTransco, the umbrella organisation of state discoms.

However, determining the terms agreeable to both the parties is going to be an issue as the supply agreements of natural gas from the K-G Basin is only up to April, 2014. Besides, there is a huge cut in natural gas supply to power projects in general owing to a decline in production. When cited these aspects, Samaria said the PPAs would be entered in line with the agreements with merchant power projects but on the basis of a regulated price.

The move comes after the power ministry reminded the state government that the decision to cancel the allocation of K-G D6 gas to the two plants was put in abeyance last year by the Empowered Group of Ministers (EGoM) on the condition that they would supply power to AP discoms at a regulated price.

The two power plants — Lanco Infratech’s 360 Mw Kondapally second phase project and GMR’s 220 Mw barge mounted Tanir Bavi plant— were allocated natural gas from K-G D6 in 2010, but they have been selling power in the open market in the absence of any power supply agreements with the state power utilities.

This became an issue after the EGoM took a view that power projects that have fuel supply linkages at regulated prices must also sell power to state discoms at a regulated tariff.

Short-term agreements
However, the state power utilities had earlier entered into short-term power purchase agreements with both the power plants through a bidding process for supply during this year and next year in place of a regulated tariff arrangement.

This goes against the EGoM’s decision. On October 23, 2012, power ministry joint secretary ICP Keshari, in a letter to the state energy department said: “The cancellation of allocation of K-G D6 gas to both the plants has been kept in abeyance in view of agreement to supply to AP discoms at Aperc-regulated tariff for the period from June 1, 2012, to May 31, 2013.”

Again in a second letter on November 6, he pointed out that the short-term price at which the discoms had decided to purchase power from these two plants was higher than the ceiling price fixed by the AP regulator.

When contacted, M Sahoo, principal secretary, energy department, said they were not aware on what conditions the Government of India initially allocated natural gas to these two power projects.

In view of the acute power shortage, the government had invited companies for short-term power supply and the prices had been decided through a bidding process.

He, however, added that after receiving correspondence from the power ministry his department had asked APTransco to take steps accordingly.

Keshari’s letter states Lanco and GMR have been selling power to AP discoms at Rs 5.70 and Rs 5.60 per unit from these plants respectively. In November last year, Lanco sold power to Tamil Nadu at over Rs 7 per unit. Long-term PPAs would mean the companies cannot sell power at a higher rate.