Power plant buyout hits a roadblock

HYDERABAD: The proposed buyout of GVK’s 216 MW Jegurupadu power project by the AP Genco has hit a roadblock as both parties stuck to their stand. While the GVK group insists on payment of Rs 800 crore for the buyout, the AP Genco has offered Rs 321 crore to take over the 18-year-old power plant.
Jegurupadu is the first private power project in the state to complete its full term of 18 years under the power purchase agreement (PPA) signed between the state government and the GVK group.The PPA expired on June 17.
Initially, the AP Genco offered Rs 293 crore to buy the project. Later, it revised the cost to Rs 321 crore. The PPA allows the government to take over the unit once the agreement period is over. The developer is bound to obey the decision of the state government. The incentives offered up to 85 per cent plant load factor (PLF) has turned the power project into a golden goose for the GVK group. Incidentally, the GVK group has transformed itself into a multinational infra company thanks to the profits from Jegurupadu project.
The state government is keen to take over Jegurupadu. Three more power projects will complete their PPA term in the next six months. They are 208 mw Spectrum power project at Kakinada, 210 mw Lanco power project at Kondapalli and 220 mw Reliance project at Samalkota. The government plans to buy these plants too.
As both parties could not arrive at a consensus on the price of the project under the buyout plan, AP Genco and GVK have decided to go for third party valuation. The process will take one month.
“To facilitate third party valuation, we have extended the term of PPA for one more month. We will resume negotiations with the company once the value is arrived at,” said a senior official of AP Genco.
GVK Jegurupadu project was built at the cost of Rs 816 crore. It has earned Rs 903.36 crore as fixed cost since its inception. The variable cost was fixed at Rs 2.62 per unit and according to AP Transco statistics, the project has received around Rs 720 crore as variable cost in the last 18 years. The GVK group also received incentive in the form of plant load factor (PLF) at 68.5 per cent, which is less than the prevailing PLF in the energy market. All gas-based units in the country are running above 85 per cent PLF and GVK benefited with lower PLF and incentive. GVK signed the PPA with erstwhile Andhra Pradesh State Electricity Board in April 1996 to set up 400 MW combined cycle gas-based power station in East Godavari district. The first stage of 217 MW was commissioned in 1997. The plant has 0.75 million cubic metres per day (mcmd) gas allocation from the Centre through GAIL. Now the AP Genco plans to take over the gas allocation and the plant to reduce the overall running cost.
“At current prices, we need to invest Rs 5 crore per mw to construct a new power plant. But with this buyout we get the plant of 217 mw capacity for around Rs 321 crore. This will reduce the fixed cost of the project and the cost of power generation,” the official said.