Naphtha-Based Power Projects In Up Face Uncertain Future
An uncertain future looms before eight power projects, based on naphtha feedstock, which are proposed to be set up in Uttar Pradesh. One of the projects has a proposed capacity of 355 mega watts (mw), while the other seven are of 100 mw each.
The companies which had signed memoranda of understanding (MoU) and draft power purchase agreements (PPA) with the state government are now concerned about whether these documents are valid. Understandably, the worried promoters thronged to a seminar on the private initiative in energy development held here last week.
The companies problems relate to two factors. To begin with, the power producers are confronted with the problem of deemed generation. The initial MoUs contained a clause which had promised the producers 100 per cent deemed generation. However, the state government later realised that this was not practical and backtracked on the clause.
The promoters are also unable to tie up funds with financial institutions, which want higher comfort levels than have been given till now. As a representative of the Noida Power Company pointed out, Sir, we are prepared to sign any PPA which the state government wants us to. But the problem is that the financial institutions (FIs) are not prepared to give us funds on this.
The state government has taken the stand that the demand for an escrow account of 250 per cent will ensure that the state electricity board (SEB) will become a perennially sick body. Instead, it has been suggested that the escrow account should be only 125 per cent for the initial two years. If the SEB is able to maintain its promise in this period, then it should be brought down to 100 per cent. The major problem is also related to deemed generation. The UP government envisages that by 2002 AD, developers may be asked to curtail production except in peak hours. Termed `backing in power parlance, this may render plants unable to run at full capacity.
The developers are seeking full compensation for curtailed production and want this to be treated as deemed generation. But as per practice, the power which costs highest is curtailed first. Thus, naphtha-based projects, whose variable cost will be at least Rs 1.60 per unit, will be the first ones which will be asked to curtail power. Besides, it is relatively easy to switch off naphtha-based projects.
The Centre had earlier said the deemed generation would be from 68.5 per cent onwards. This has now been raised to 82 per cent. The state government plans to take up the issue with the Centre, but expressed its helplessness to do anything more at the moment.
However, a discordant note was introduced by UPSEB chief GS Sohal. Sohal said the cost of generating power comes to about Rs 2 crore, while a fixed tariff of Rs 1.70 a unit yields a realisation of just Rs 1 crore or thereabouts. Pointing out that even today, the cost of power is Rs 3 per unit, Sohal asked how the SEB could possibly pay for such expensive power.