Initially, the group had planned to give about 2.5 million units of power generated to the Tamil Nadu Electricity Board (TNEB) and in fact, was contemplating a power purchase agreement (PPA) with the electricity board. But the decision to utilise all the power was taken considering the possible future trend in the state's power pricing especially in the context of continued free supply of power to the farmers, the quantum of which has been increased recently with an eye on the elections.

There are already reports of a possible hike in powercost and with the quantum of free supply increasing, it would become even more inevitable as the subsidy component increases. With general elections around the corner and state election due in 2001, it is highly unlikely that there will be any change on free supply of power to farmers.

Moreover, the domestic consumers would also be spared in order to avoid negative backlash. This would mean that it would be the industry again which would have to bear the brunt of the increase despite the fact that it already cross subsidises the free and subsidised sale of power to farmers and domestic consumers respectively. In addition, there is also pressure on TNEB to double the cost of power in the next five years to ensure that the board is financially viable. These factors seem to have forced the group to ensure that they are fully covered in term of power requirement before committing power to the grid.

Under the state's captive power policy, SEDCO can wheel the power it produces to its shareholders ie the groupcompanies, at a price not lower than the tariff charged by TNEB. The difference between the TNEB tariff and the actual cost of power produced (expected to be around Rs 2.50 per unit) would be the profit and would be returned to the member companies as dividend. SEDCO is looking at whether its project would qualify for tax exemptions which, if it does, would considerably improve the profits.

The civil work for the captive power plant has already begun at the site adjacent to the ONGC well from where the gas is being sourced and machinery have been ordered. K V Ramesh, general manager, SEDCO, said that the Rs 18-crore plant would become operational by end of this calendar year thanks to the excellent support from authorities both at state and local levels.

The group already supplies power to TNEB grid through its 30 mw co-generation plant at EID Parry's sugar plant at Nellikuppan near Chennai. But restriction that the power produced from the unit can be wheeled to only two locations has forced it to sellmost of the power to TNEB apart from captive use at the sugar plant and to the adjacent Parry Confectionery unit.