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CERC nod for 1015 MW Nagarjuna Power Project
October 28, 2005

Central Electricity Regulatory Commission (CERC) has accorded "in principle" approval to the capital cost of 1015 MW coal based thermal power project proposed to be set up by Nagarjuna Power Corporation Ltd. The project is estimated to cost US$ 40.0 million + Euro 66.0 million + Rs.3745 crore including interest during construction and financing charges of Rs.350 crore. This totals to Rs.4299 crore at the exchange rate of Rs.43.72 for US dollar and Rs.57.33 for Euro. This is the first approval of its kind accorded by the Commission in order to promote investment in power sector.

Nagarjuna Power Project comprising two units of 507.5 MW each would be located in Udipi District of Karnataka and it is in the final stage of take off, with all necessary statutory clearances in place. The Central Electricity Authority accorded Techno-Economic Clearance to the project as early as April 1999. The generating company is in advance stage of finalising Power Purchase Agreements with Karnataka and Kerala, and the project is planned to be commissioned in the year 2008-09. The generating company had approached the Commission for determination of provisional tariff in advance of anticipated date of completion of the project. The Commission observed that the application for approval of provisional tariff can not be taken up for consideration at this stage, since as per tariff regulations, in force, the provisional tariff is to be determined on the actual capital expenditure incurred up to the date of making application. However, the Commission decided to consider the application for grant of in principle acceptance of capital cost, for which there is provision in the tariff regulations. The Commission felt that in principle approval of the cost would provide comfort to the investors as regard the tariff likely to be approved, and this will help in achieving the financial closure of the project .

The Commission was of the view that delay in project implementation could increase its cost and it would not be in the interest of the consumers. The in-principle approval of the capital cost is subject to the following conditions:

• The completed capital cost approved by the Commission would be the ceiling cost for    the purpose of tariff.

• The petitioner shall achieve the financial closure within 120 days.

• In case, the generating company and the buyers agree on performance norms better    than those specified in the tariff regulations, such norms shall be the basis of    determination of tariff.

• No additional capital expenditure incurred on maintaining operational and performance    parameters shall be admissible for tariff enhancement during the rated life of the    generating station.

The generated company had published public notices of its proposal in the newspapers inviting comments from the public. The Commission considered all the comments and objections received from public before taking a view in the matter. The Commission also carried out detailed in-house analysis of the project cost estimates. The comparative cost analysis was done with respect to recently implemented Simhadri STPS (1000 MW), Talcher TPS Stage-II (1000 MW), Vindhyachal TPS Stage-II (1000 MW) and Rihand TPS Stage-II (500 MW) of NTPC. The cost comparison was also done with Sipat TPS Stage I and II projects of the NTPC, which are now under construction. The cost estimate was also compared with CEA cleared cost of Barh STPS (3 x 660 MW), Sipat STPS Stage-I (3 x 660 MW), Kahalgaon Stage II ( 2 x 500 MW) and Vindhyachal TPS Stage-III ( 2 x 500 MW), all belonging to NTPC. The Commission finally came to the conclusion that the capital cost of Nagarjuna Power Project is on the whole reasonable considering the fact that it has a number of site specific features including Flue Gas De-sulphurisation plant, sea-water desalination plant, jetty at New Mangalore port for receiving the imported coal and impervious polyethylene layers in ash pond and coal storage areas for environmental protection.

The Commission was also satisfied with financial package of the project, which is based on interest on loan @ 7.25% to be provided by consortium of lending institutions led by the Power Finance Corporation. The debt equity ratio shall be 70:30.

 

NPCL to utilise fly ash from Padubidri plant
Business Line, 13.6.2005

The Nagarjuna Power Corporation Ltd (NPCL), which is planning to set up a 1,015-mw thermal power plant at Padubidri in Udupi district, wants to utilise 100 per cent of fly ash generated at the plant within nine years of its operation.

In a letter to the Kanara Chamber of Commerce and Industries (KCCI), Mr K.S. Balachandra, Project Director (Technical), NPCL, said, "We propose to utilise fly ash generated at the plant from the first year itself. We are committed to use minimum 25 per cent in first three years, 50 per cent during fourth to sixth year, 75 per cent during seventh to ninth year, and 100 per cent by the completion of ninth year. However, it is our endeavour to achieve higher targets than the above.”

The KCCI had sought some clarifications on the queries raised by the public regarding the power project. He said that the company has firm proposals for use of fly ash in industries for manufacturing building materials, cement and fertilisers. Added to this, local entrepreneurs will be encouraged to set up fly ash-based industries near the project area. Fly ash can be pneumatically supplied through pipes from the plant to the industrial units in the nearby areas. He hoped that these industries, apart from developing entrepreneurship among the local citizens, could provide direct employment to around 750 people. Mr Balachandra said that the Government of India and the Government of Karnataka have special cells to encourage the utilisation of ash. Ash, which is being supplied to users from the three units of Raichur Thermal Power Station in Raichur (each 200 mw), is being fully utilised, he added.
 
PFC Loan for Nagarjuna's Udupi Thermal Project
Bangalore, April 1, 2005

The public sector Power Finance Corporation (PFC) has agreed to provide a term loan of Rs.750 crores to Nagarjuna Power Corporation for setting up a 1015 MW mega thermal power plant in Udupi district, Karnataka.

PFC's funding will have a tenure of 12 years and carry an interest rate of 7.25 per cent. “We are in the process of issuing the sanction letter for financial assistance to Nagarjuna Power,” a PFC official said.

The debt-financing package, approved by the lead arranger PFC, will pave the way for the Rs.4,400 crore project to achieve financial closure by May this year. The other members of the lending consortium – Rural Electrification Corporation, Hudco, Life Insurance Corporation, State Bank of Mysore, State Bank of Travancore and Canara Bank – are expected to chip in with the balance debt component for the project.

On a debt-equity ratio of 70:30, the debt requirement for the project is estimated at Rs.3,080 crores.

The project equity worth Rs.1,320 crores would be part funded by the Nagarjuna Fertilizer group, which would a majority 51 per cent stake in the project. The balance 49 per cent would be brought in by foreign investors who would be finalised shortly, company sources said.

The project funding of Rs.750 crores was cleared by the PFC board after the promoters re-worked the power purchase agreement (PPA) with the State Government-owned Karnataka Power Transmission Corporation in January wherein the rate of return had been fixed at 14 per cent on the basis of a plant load factor of 80 per cent.

The power tariff during the first year of operations is estimated at Rs.2 per unit. The first phase of the project with a capacity of 507.5 MW is expected to be commissioned within 38 months of financial closure and the second phase after 42 months.

Once the project is fully commissioned by end 2007, it is expected to add about 7,600 million units to the State grid. The State-run BHEL has been appointed the procurement and construction (EPC) contractor for the project while the civil engineering component is being executed by Simplex Constructions.

 
 

Foreign cos offer to supply coal on fixed-price basis
(Hindu Business Line - 15.3.05) Bangalore.

A clutch of foreign companies have begun offering fixed price supplies of coal to domestic power projects.

Sources said that among the international companies which had pitched for tying up long-term, fixed-price, coal-supply contracts included Indonesia's P T Adaro, South Africa's Xtrata and Rio Tinto which operates coal mines in Australia. The sources said that some of these companies were prepared to enter into five-year fuel-supply arrangements. The generating companies to whom such offers have been made included Nagarjuna Power Corporation Ltd (NPCL), which is promoting a 1015 MW interstate power project near Mangalore.

The coal available from these sources has low ash content, though the sulphur content was much higher. Consequently, the older thermal power stations would not be able to use it without installation of expensive flue gas desulphurisation plants, for containing sulphur-di-oxide emissions. Only some of the new thermal would be able to use imported coal, since such emission control plants are part of their capital costs.

State-owned power generation stations in the country use coal supplied by the public sector CIL which has a high ash content and calorific value of 3200 kilo calories (Kcals) per kg. Currently international coal prices with a calorific value of about 6000 kcals, costs about $59 per tonne.

So far all the imports of coal by domestic thermal stations or trading companies have been on a spot basis. The imported coal was used mostly for blending with domestic thermal, though imports are expected to rise in the coming months for power generation purposes.

NPCL 's coal requirement alone was estimated at 3 million tonnes per annum. Almost the entire coal requirement for the project would be imported, making it the first thermal project to be entirely dependent on imports.

NPCL when contacted said that some offers had indeed been made, though they were looking at a much lower price than the current international prices. NPCL, the sources said, was looking for CIF (cost insurance and freight) prices less than $35 a tonne for long-term fixed-price contracts. Inclusive of customs duty the price was likely to be about $39. Long-term supply contract for buyers of coal, especially power utilities, would ensure stability in the variable component of power tariffs.

The offer from international companies comes at a time when domestic thermal stations are facing supply bottlenecks leading to shortfalls in generation. The sources said foreign companies' eagerness to supply coal at fixed prices, stemmed from the fall in international prices since the last six months. International coal prices last year had topped $75 a tonne. But prices are expected to drop further, as China begins to ramp up domestic production. Moreover, with Western Europe and the US increasingly shifting to gas for power generation, coal demand has dropped considerably. As a result, most of the large companies have shifted focus to India.

 

 

Foreign cos offer to supply coal on fixed-price basis
(Hindu Business Line - 15.3.05) Bangalore.

A clutch of foreign companies have begun offering fixed price supplies of coal to domestic power projects.

Sources said that among the international companies which had pitched for tying up long-term, fixed-price, coal-supply contracts included Indonesia's P T Adaro, South Africa's Xtrata and Rio Tinto which operates coal mines in Australia. The sources said that some of these companies were prepared to enter into five-year fuel-supply arrangements. The generating companies to whom such offers have been made included Nagarjuna Power Corporation Ltd (NPCL), which is promoting a 1015 MW interstate power project near Mangalore.

The coal available from these sources has low ash content, though the sulphur content was much higher. Consequently, the older thermal power stations would not be able to use it without installation of expensive flue gas desulphurisation plants, for containing sulphur-di-oxide emissions. Only some of the new thermal would be able to use imported coal, since such emission control plants are part of their capital costs.

State-owned power generation stations in the country use coal supplied by the public sector CIL which has a high ash content and calorific value of 3200 kilo calories (Kcals) per kg. Currently international coal prices with a calorific value of about 6000 kcals, costs about $59 per tonne.

So far all the imports of coal by domestic thermal stations or trading companies have been on a spot basis. The imported coal was used mostly for blending with domestic thermal, though imports are expected to rise in the coming months for power generation purposes.

NPCL 's coal requirement alone was estimated at 3 million tonnes per annum. Almost the entire coal requirement for the project would be imported, making it the first thermal project to be entirely dependent on imports.

NPCL when contacted said that some offers had indeed been made, though they were looking at a much lower price than the current international prices. NPCL, the sources said, was looking for CIF (cost insurance and freight) prices less than $35 a tonne for long-term fixed-price contracts. Inclusive of customs duty the price was likely to be about $39. Long-term supply contract for buyers of coal, especially power utilities, would ensure stability in the variable component of power tariffs.

The offer from international companies comes at a time when domestic thermal stations are facing supply bottlenecks leading to shortfalls in generation. The sources said foreign companies' eagerness to supply coal at fixed prices, stemmed from the fall in international prices since the last six months. International coal prices last year had topped $75 a tonne. But prices are expected to drop further, as China begins to ramp up domestic production. Moreover, with Western Europe and the US increasingly shifting to gas for power generation, coal demand has dropped considerably. As a result, most of the large companies have shifted focus to India.

 
PFC board okays debt package for Nagarjuna Power's Mangalore project
(Hindu Business Line - 10.3.2005) Bangalore.

THE board of the Power Finance Corporation has cleared the debt-financing package for the 1,015-MW power project near Mangalore, promoted by Nagarjuna Power Corporation Ltd (NPCL).
Sources said that the Rs 4,400-crore project is now expected to achieve wet financial closure by May this year. Wet financial closure implies lenders' readiness to disburse the committed funds. Once this milestone is achieved, NPCL will become the first privately promoted mega thermal project to reach full financial closure. PFC's funding offer is for 12 years at an interest rate of 7.25 per cent.

The sources said that the lending consortium for the estimated Rs 3,080-crore project debt included Rural Electrification Corporation Ltd, Hudco, Life Insurance Corporation, State Bank of Mysore, State Bank of Travancore, and Canara Bank. PFC is the lead arranger.

The project funding by the financial institutions was on the strength of a three-tier payment security package comprising a letter of credit, an escrow cover for up to 1.25 times of the outstanding billing and a State Government guarantee.

The project equity in NPCL, estimated at Rs 1,320 crore, is being brought in by the Nagarjuna Fertiliser group and associated companies.

The promoter group is expected to hold 51 per cent. Foreign investors, who are yet to be finalised, would hold another 49 per cent. PFC's clearance of the project funding comes after the approval of the revised terms of the power purchase agreement by the State Government-owned Karnataka Power Transmission Corporation Ltd in January this year. Under these terms, the rate of return has been fixed at 14 per cent on the basis of 80 per cent plant load factor.

NPCL has also entered into fuel supply arrangements with international coal suppliers for 3 million tonnes with a calorific value of 6,000 kilocalories. The project would be the single largest user of imported coal in the country.

The company has already finalised BHEL as the engineering procurement and construction (EPC) contractor for the project and Simplex Constructions for the civil engineering component. The EPC component is expected to cost at least Rs 2,500 crore and the civil works another Rs. 980 crore.

The first phase of the project, comprising 507.5 MW, is expected to be commissioned 38 months after full financial closure and the second after 42 months.

This implies, the sources said, the project commissioning would extend into the Eleventh Plan Period. Once the project is fully commissioned by the end of 2007, the addition to the State grid would be at least about 7,600 million units per annum assuming a plant load factor of 85 per cent. The first year power tariff from the project is estimated at Rs 2 a unit in line with the guidelines of the Ministry of Power.

 
Offtake of electricity by trading companies - FIs to chalk out payment security model for funding power projects

(Hindu Business Line - 7.2.2005) New Delhi.

With over 10 major power projects in the pipeline planning to sell their generation to power traders, domestic financial institutions led by SBI, ICICI, IDBI, PFC and IDFC have come together to chalk out a payment security model for the funding of such projects.

The institutions have already held a meeting in Mumbai on the issue and are expected to hold another set of meetings to firm up the broad parameters based on which they would finance these projects.

Essar Power's 1,500-MW Hazira project, Jindal's 1,000-MW Raigarh project, Nagarjuna Power Corporation's 1,015-MW Mangalore project and the Jaypee group's 1,000-MW Karcham Wangtoo hydroelectric project are among those where the promoters are in talks with power trading companies for offtake of electricity, instead of selling it to the State electricity boards or other distribution utilities.

In case of these new projects, traders would evacuate power directly and then sell it to one or more distribution utilities or high-tension consumers.

"A number of major power projects in the pipeline, with cumulative installed capacity of over 6,000 MW, have firmed up plans to sell power directly to power traders. Since institutions finance power project largely in the form of syndicates, we are working on a broad platform for the financing of such projects," an executive with one of the institutions said.

According to sources, the institutions are focussing on issues such as systemic constraints including lack of transmission infrastructure capacity, in case a trader wants to sell power to more than a single buyer.

The institutions are also looking at taking into consideration that power traders are adequately capitalised to undertake evacuation of power from larger projects, sources said.

Fledgling business So far, power trading has been a fledgling business in the country, even as a large number of players have bagged trading licences and have kicked-off their trading business.

According to industry players, while most of the promoters are in talks with Power Trading Corporation for selling the entire generation from their plants, other traders such as NTPC Vidyut Vyapar Nigam Ltd,Reliance Energy, Tata Power, Essar Power and Amalgamated Power are also in the fray for trading assignments.

"All these power projects are extremely viable in terms of their tariffs. Therefore, finding buyers for power generated by them should not be difficult for traders," a power trader involved with one of the projects said.

The retail tariff for the Nagarjuna project is expected be at around Rs 2.08 per unit, for Essar Power's 1,500-MW project the tariff is projected to be around Rs 2.20 per unit, while the retail tariff in case of the Jaypee Group's Karcham Wangtoo project would be around Rs 2.08 per unit, industry sources said.