MUMBAI, May 7: Nippon Denro Ispat (NDIL) has, in a significant move, reduced the power tariff of the Bhadravati power project from Rs 1.69 to Rs 1.65 per unit. The move follows prolonged negotiations between the centre, Maharashtra State Electricity Board (MSEB) and the company.

They had been debating on several issues relating to the power purchase agreement (PPA) signed between Nippon Denro Ispat and MSEB. After negotiations, the internal rate of return (IRR) was reduced from 16.95 to 16.34 per cent.

The centre had, earlier, raised several queries on PPA, and had asked the company and MSEB to have it reworked. According to the government's evaluations and subsequent suggestions, IRR could have been much lower than the negotiated 16.95 per cent.

Some of the issues that led to disagreement included O&M and insurance allowance, which the centre wanted fixed at 2.5 per cent. It ruled that interest allowance and working capital were to be set at normative PLF. The unit factor ratio of capital costs was recommended at 60:40 and not 65:35. According to the centre, incentives during stabilisation should be calculated at normative PLF and fuel oil change should meet its guidelines.

These changes, if incorporated, would have affected Nippon Denro Ispat's IRR by 1.95 per cent, bringing it down to 15 per cent. The company and MSEB did not accept the conditions as they felt these were not applicable to PPA. The terms differed from those laid down by the centre in its draft PPA released subsequently.

For instance, the project has an accepted PLF of 85 per cent instead of 68.5 per cent. MSEB had also imposed a stringent penalty clause in PPA. The project evaluation on the set norms was, hence, opposed by both MSEB and the company. The promoters of the 1082 MW power project conveyed their inability to implement the project with a 15 per cent IRR.

Following renegotiations early this year, the per mega watt cost was fixed at Rs 4.28 crore.

With a debt equity ratio of 70:30, the project is one of the eight fast-track power proposals sanctioned by the government in its privatisation drive of the power sector. The cabinet recently okayed the counter guarantee.

The coal-based power plant is being jointly implemented by Nippon Denro Ispat, General Electric Company of the United Kingdom and Electricite de France (EDF), under Central India Power Company. The Ispat group has also promoted a captive coal company, Central India Coal Company, to provide coal to the power project.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.