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The UK-based National Grid and Karnataka Power Transmission Corporation (KPTC) may start work on the first phase of the Rs 740 crore joint venture transmission project in Karnataka for the evacuation of 2,500 mw power from projects in Mangalore.

This is the first transmission project for which the private sector has been invited for investment. The first phase involves setting up a 135-km transmission line between Mysore and Bangalore and a 400 kv substation in Mysore. Work on the first phase may begin sooner than expected as it is not dependent on the power projects in Mangalore, which are yet to take off. The cost of the first phase is expected to be around 25 per cent of the total cost of the project. The entire project envisages the construction of 600 km of transmission lines and associated sub-stations connecting Mangalore and Bangalore.

"We are looking at working on the first phase of the project," National Grid International Ltd's country director Roger M Woods said. He said both the partners were carrying out a joint system study for setting up the transmission line between Mysore and Bangalore. The entire transmission project for the evacuation of 2,500 mw power from the Cogentrix-promoted power project and the Nagarjuna power project in Mangalore envisages a state government guarantee in case the escrow mechanism fails.

As the project is not guaranteed by the Centre, an elaborate security mechanism has been worked out involving primary and secondary security mechanisms. In case both these mechanisms fail, a guarantee from the Karnataka government is envisaged for all payments. The primary security involves payments from the Karnataka Electricity Board to the joint venture through an irrevocable revolving letter of credit mechanism established at an acceptable bank. The secondary security mechanism will come into play in the event of a failure of the letter of credit mechanism. In case both these mechanisms fail, a state government guarantee for all payments has been contemplated.

According to the tariff guidelines for the proposed joint venture between National Grid and KEB which together will float a special purpose vehicle called Karnataka Translink Ltd, the return on equity at the base availability of 95 per cent has been fixed at 16 per cent for calculating the fixed charges. For every additional increase of 1 per cent of availability, return on equity will increase by 1.5 per cent.

The penalty structure, too, is extremely stiff with the operator expected to maintain at least 95 per cent availability. In case, availability drops below 95 per cent, the operator will be penalised at a rate equivalent to 1.5 times the fixed recoverable charges for that period. The proposed joint venture will have 54 per cent equity participation from National Grid, 26 per cent by KEB and the rest will be from financial institutions. The joint venture is expected to become operational in another two months. A transmission service agreement is expected to be signed soon for 30 years. The entire project is based on a build-own-operate-maintain-transfer basis.

UK based National Grid plc., one of the largest power transmission utility in the world with an operating profit of almost 605 million pounds has a presence in almost half a dozen countries and is a "wires only company" which only maintains and operates transmission lines.

Powering Ahead

* The cost of the first phase is expected to be around 25% of the total cost of the project

* The joint venture will construct a 400 kv substantion in Mysore in the first phase

* The entire project is for construction of 600 km of transmission lines and assiciated sub-stations connecting Mangalore and Bangalore

* The return on equity has been fixed at 16% at a base availability of 95%

* Return on equity will increased by 1.5% for every 1% increase in availability

* Operators will be penalised in case availability drops below 50%