Scrapping of amended PPA comes as boon to MSEB

Sanjay Jog

Mumbai, May 17: THE Maharashtra Electricity Regulatory Commission’s (MERC) decision to scrap the amended power purchase agreement (PPA) for the Reliance Patalganga power project is a blessing in disguise for the Maharashtra State Electricity Board (MSEB).

Incidentally, MSEB, which is currently fighting a legal battle with the Dabhol Power Company (DPC), has already decided not to ink a fresh PPA with the Reliance Patalganga Power Ltd for the proposed 447-MW combined cycle project. MSEB has taken a conscious decision to put the Patalganga project at backburner while terming it a “third Enron.”

MSEB sources told The Financial Express that it has no immediate plans to sign a fresh PPA to amend the original PPA of 1996, as “we have decided to put on hold the Patalganga project in view of the ongoing Dabhol crisis.” These sources said that the MERC’S order is a major boon as it would not have to bear the additional burden on account of escrow cover to be provided to Reliance Patalganga Power Ltd (RPPL).

According to the amended PPA signed on February 4, 2000, MSEB had offered a default escrow as payment security to RPPL, instead of third party sale. The MSEB board had approved a proposal for providing escrow cover at 1.05 times of the monthly tariff payment to RPPL. Furthermore, revenue circles equivalent to Rs 106 crore being 1.05 times of the projected monthly tariff payment at the time of commercial operation, was earmarked for RPPL escrow.

According to a study conducted by Crisil Advisory Services (CAS) for MSEB, the escrow cover required for RPPL based on estimated tariff payment during the year 2002-03 would have been Rs 1,274 crore per annum.
“Hence MSEB would have been left with a net surplus of only Rs 916.16 crore per annum to meet its own operation costs of generation,” the CAS study added.

The CAS had said that the MSEB would be in a position to provide escrow cover to RPPL, the Ispat Group’s Bhadravati project and central sector undertakings on the assumption that MSEB’s collection efficiency would improve from 95 per cent in 2001 to 98 per cent each year from 2000-07.

Furthermore, transmission and distribution loss would be reduced drastically from 31.87 per cent in 2001 to 18 per cent in 2007.

According to MSEB, the Patalganga project would have required an investment of Rs 1,822 crore, comprising foreign exchange of $319.02 million and Indian rupee component of Rs 246.66 crore at 90 per cent plant load factor (PLF). The debt equity ratio was projected at 2.33 per cent.

However, MSEB in its statement submitted to the Janatal Dal (s) leader Pratap Hogade had estimated a PLF at 68.5 per cent, with heat rate of 2,000 kilo calories per Kwh and total generation units at 3,524 million. The rate of earning was projected at 16 per cent and cost of fuel at Rs 3.29 per Kwh.

During 2003-04, the first year of operations of the Reliance Patalganga project, MSEB had estimated a tariff at Rs 4.97 per Kwh, comprising fixed charge of Rs 1.68 per Kwh and variable charge of Rs 3.29 per Kwh.