Recently, Aban has tied up with Gas Authority of India Ltd (GAIL) to base the project on natural gas. Uncertainty still dogs the project as it awaits Tamil Nadu Electricity Board (TNEB) clearance for shifting location from Ennore to the Cauvery basin area and an escrow cover. It would also be required to renegotiate its EPC & O&M contracts, finance packages etc., thus beginning the exercise all over again.

Back in 1997 Aban won a Tidco-promoted contract through international competitive bidding to set up a 126 mw short-gestation liquid fuel-based power project. It was among the first five IPPs to bag fuel linkage to establish a naphtha-based combined cycle power project at Manavasi near Kanur in Tamil Nadu.

Even as it got ready to proceed with the project at Manavasi, TNEB changed gear and turned the screws on IPPs to move over to Ennore to establish the power projects.

Two compelling reasons were given: the Central government had changed its liquid fuel allocation policy. It limited the use of naphtha to account for generation of only 12,000 mw of power in the country and Tamil Nadu was allotted a liquid fuel quota of just 800 mw. It was let known that only IPPs willing to switch over from naphtha as fuel to natural gas will be encouraged and given escrow. IPPs were asked to shift to Ennore because the proposed mega $1.5 billion liquefied natural gas (LNG) project of the Tamil Nadu government would be set up there.

So all naphtha-based projects in Tamil Nadu went for a toss. Naphtha prices which were ruling at around Rs 7000-9000 per tonne three years ago have sky-rocketed and were ruling at Rs 14000-15000 per tonne by June-July this year. Clearly naphtha prices had become prohibitive and naphtha as fuel was unviable.

Moreover, worldover there has been a clear shift to natural gas for power generation as it is the cleanest fuel.

Aban's fuel supply agreement with IOC to get naphtha was then put on cold storage. The company had even bought 35 acres of land at Ennore to set up the power project. But the Tamil Nadu government was actively discouraging use of naphtha as liquid fuel as fuel costs were a pass through for determining power tariff.

The Tamil Nadu government has been advocating use of gas but there is not much progress on the LNG terminal at Ennore and it is not expected to be commissioned by end of year 2003 as scheduled.

Aban had also finalised its engineering, procurement and construction (EPC) contractor with the Mumbai-based utility company BSES Ltd. The capital cost of the project was estimated at around Rs 400 crore when the company had planned to move to Ennore for the project scaling down the size to to around 110 mw.

GAIL has agreed to supply 5 lakh cubic metre of gas per day to Aban and this is considered sufficient to power a 110 mw project. Also gas will be supplied at one-third the cost of naphtha.It is argued that tariff through natural gas use will be around Rs 2.7 to Rs 2.8 per unit whereas naphtha based power could cost Rs 3.14 to Rs 5.00 per unit.