Hyderabad: APTransco’s proposal to buy out three gas-based private power plants — Lanco, GVK Phase I and Spectrum Energy — is facing a political block. Instead of buying these plants for about Rs 300 crore, the power utility may have to pay Rs 1,500 crore to refurbish them.
Modernisation would increase the cost per mega-watt of power, which will ultimately be passed on to consumers. The three projects are already past their half life. APTransco has completely paid off the capital cost of the projects.
The Power Purchase Agreements of these three plants are nearing closure. APTransco has no mandate to extend the agreements. The agreement with GVK Phase I (216 MW) is ending in June 2015, Lanco (368 MW) in December 2015, and Spectrum (208 MW) in March 2016.
The life span of these plants is 35 years. On the date their respective agreements end, they would have completed 18 years of operation. Internally, the cost for Lanco has been worked out to be Rs 120 crore, GVK Rs 130 crore, and Spectrum Rs 82 crore.
While APTransco had worked out the cost for buying the three projects, which together generate about 800 MW, the power utility which is under pressure from various quarters has asked project managements to make renovation and modernisation proposals. A source in Spectrum Power confirmed that the company had received the RNM notice.
If the revised proposals are accepted, it would mean that APTransco will have to spend a huge amount on capital cost of the plants for 10 to 15 years. APTransco has already paid for these costs for 10 years.
For renovation, the entire plant needs to be re-structured as the old machines being used are of the 1970 vintage. While the cost of acquiring the three power plants as worked out by APTransco internally is to the tune of Rs 330 crore, the RNM proposals may be as high as Rs 400 crore to Rs 500 crore for each of the plants, totalling about Rs 1,500 crore.
In case of an extension, APTransco will have to bear the additional cost of modernised machinery and plant restructuring. There is the possibility that the RNM proposals can be turned down. But insiders say that if APTransco intended to buy over these plants, which are just through their half-life, it could have been done so by not asking for new proposals.
“It is not possible to modernise a plant unless it is completely modified. That means escalation of cost of each MW of power produced with the new machinery. However, since APTransco has the option to purchase the plants without asking for an RNM, there is no obligation to extend the term of agreement, the extension is being attempted under political pressure,” said a higly-placed source.
