NEW DELHI, July 10: Power purchase agreements (PPAs) signed by independent power producers (IPPs) with state governments are likely to be renegotiated. This follows the Centre's recent announcement on the pricing of liquid fuel for power producers.

With the petroleum and natural gas ministry's decision to keep the pricing of naphtha and other liquid fuels outside the purview of administered pricing mechanism (APM), many power producers have considered selling their letters of intent (LoI) to third parties. There is a feeling in the power industry that the cost of naphtha-based power plants is likely to shoot up. There are two main reasons for this: one, if the naphtha requirements for generating the projected 12,000mw of power is met by imports, international prices could escalate substantially; two, the notification on the fuel supply agreement specifies that power producers will bear the cost of creating import facilities for naptha and other liquid fuels.

Besides, storage, handling, transport and laying of pipelines for carrying fuel to project sites will also have to be provided.

Against this backdrop, power producers who have signed purchase agreements with state governments at the earlier tariff rates may insist on accommodating the increased costs to make their projects viable.

It is expected that the immediate requirement of naphtha for generating the projected power will be about 16 million tonnes. With the price of naphtha ruling between $160 and $170 a tonne, import bills are expected to go up.Earlier, even the finance ministry had expressed apprehensions on clearing naphtha-based power projects as that would have entailed a major increase in the oil import bill. But the power ministry had justified that naphtha-fired plants could be developed within a short duration vis-a-vis coal or gas-based thermal power plants. However, many of the short-gestation power projects putting up small capacity units may find it difficult to meet the additional infrastructure expenses for laying and handling of fuel.

A section of the power industry feels that the use of naphtha as a feedstock should be totally scrapped because of its high cost and its inherent disadvantages in handling. Further, even if naphtha imports are done at the escalated costs, the power producer may pass over this cost to the already-beleaguered state electricity boards.

The pro-naphtha lobby is advocating against the use of furnace oil as an alternative fuel. The environment and forests ministry has told all power producers to use furnace oil with a sulphur content of two per cent but power producers want this relaxed to 3.5 per cent of sulphur content.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.