MUMBAI, November 2: The ministry of petroleum and natural gas, in an endeavour to help independent power producers, plans to synchronise the fuel supply agreement (FSA) with power purchase agreement (PPA). This will make the FSA a bankable document.

The ministry has asked state electricity boards to thrash out issues relating to fuel supply and is now drafting the standard FSA for all IPPs. The earlier draft of the FSA did not find favour as IPPs sought many amendments in the final document.

However, it is not entirely clear if the ministry can resolve all the issues, especially when PPAs have already been signed for several power projects. Some IPPs have even begun talks on the financial closure of their projects.

The petroleum ministry has set up a special committee to look into these issues and finalise the model FSA soon. While it has taken into account the demands of the IPPs, the ministry has reiterated that it is not responsible for some assumptions which the IPPs made while negotiating PPAs with the electricity boards.

``IPPs are responsible for their own market intelligence and presumptions,'' said the economic adviser to the petroleum ministry, A Bhattacharyya, on a recent visit here.

While many IPPs believe that the FSA and PPA should be aligned in a back- to-back manner, there is no way to determine if this could be practical to a fuel supplier. PPAs have clauses relating to fuel supply and SEBs would have reservations in sharing risks on this account.

The fuel supplier, however, would not be concerned with the agreement signed between the IPP and SEB. There are certain contradictions in the PPA and FSA clauses which are posing problems to IPPs while negotiating with the fuel supplier. For instance, in the FSA, fuel supply is assured for 68 per cent of plant load factor, while IPPs have agreed to maintain 85 per cent PLF.

Issues such as cost of fuel transportation, choice of alternative fuel, infrastructure requirements for supply and ownership of infrastructure facilities are still unclear. These are especially important for projects which have achieved financial closure or where PPAs are completed as this will affect costs, sources said.

Though cost of fuel is considered a pass through cost, lenders are aware of SEBs' financial limitations.

IPPs cannot inflate fuel cost to cover expenses on related activities such as fuel transportation and setting up of infrastructure.

As per the current FSA, national oil companies need to supply fuel till the load point only and the risk involved up to the project site is still open. These are issues which worry IPPs as the larger risk factor and other ambiguities would make the project financially unviable.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.