Conditional Cea Nod For Patalganga

The Central Electricity Autho-rity (CEA) has given a conditional clearance to Reliance Powers Rs 2,000 crore naphtha-based Patalganga project. Rel-iance Power will be required to reduce the project cost by Rs 56 crore before it receives the CEAs final clearance for the project.

The CEA has stuck to its demand for a reduction in the projects cost despite the Maharashtra State Electricity Boards support to Reliance on the additional cost. The Maharashtra government has already written a letter to this effect to the CEA chairman as well as Union power minister Y K Alagh.

In a meeting last week, the CEA management refused to accept Reliance Powers justification for the additional capital cost. Reliance Power has already indicated to the CEA that the project will become unviable if it accepts the latters demand.

CEA has found two additional costs in the project. The first is the power purchase agreement (PPA), which requires Reliance to operate at 90 per cent plant load factor. The second is the additional cost of installing a dual purpose pipeline, which would allow the project to switch over to gas later.

The CEA has already withdrawn its objection to the installation of the dual purpose pipeline (which will increase the project cost by about Rs 100 crore). However, it has not withdrawn its demand for a reduction in the project cost by Rs 56 crore, arising out of the PPA conditions.

As per the conditions laid down in the power purchase agreement between Reliance and MSEB, Reliance is required to guarantee 90 per cent PLF to the state grid, failing which the company will be penalised at the rate of 1 per cent on return on equity for every percentage drop below 90 per cent.

The promoters argue that higher performance guarantees would mean that their equipment suppliers would have to take the additional responsibility of increasing the reliability of their equipment.

The deal between Reliance Power and Asea Brown Boveri (ABB), the equipment suppliers to the project, requires ABB to take on the equipment reliability risk, whereby the equipment cost also goes up.

The increase in equipment cost accounts for the additional expenditure of about Rs 56 crore.

Under the PPA, Reliance will get a base return on equity (RoE) of 16 per cent for operating at 68.5 per cent PLF (the normative level of operation). In addition, it will receive an incentive of 0.65 per cent RoE for every additional 1 percentage point increase beyond 68.5 per cent. This implies a total return on equity (RoE) of around 30 per cent for Reliance Power for operating at 90 per cent.

If there is any fault in the equipment, which results in a drop in the PLF, the actual RoE would also come down by the same percentage, below the 90 per cent mark. The Patalganga project is the first competitively-bid project selected in the country.