Faced with the prospect of having to buy huge quantities of power from the Dabhol Power Company (DPC), the Maharashtra State Electricity Board has refused to buy power from TEC from May 15. The Dabhol plant began commercial production on May 13.

TEC, which sells power to BSES and BEST in Mumbai, was supplying five to six million units a day to the MSEB grid at low prices of between Rs 1.80 and Rs 2 per unit. It will now have to back down its generation till it finds new customers. Apart from affecting TEC's revenue, the MSEB refusal to buy TEC power will also deprive the former of cheaper power.

MSEB was forced to take this decision because it is committed to paying the full capacity charges to DPC irrespective of the quantum of power it purchases for the company.

On the other hand, MSEB is not obligated to buy electricity from TEC, no matter how cheap it is. The board had totake this decision purely for commercial reasons, says an industry expert. Since MSEB cannot cut down the cost of power purchase by declining to buy DPC power, the only alternative it has is to refuse to buy power from sources it has not made any such commitments to. It cannot buy additional power even if its cost is lower.

Secondly, since TEC only supplies surplus power, the supply quantum is not fixed. If the board has to inform DPC about its requirements, it has to know exactly how much it can get from different sources.

It is important for the board to indicate the volume it needs from DPC every month because by doing so it can at least save on the fuel cost. The board though has to pay a fixed capacity charge of around Rs 80 crore a month; it needs to pay the fuel cost only for the units generated by the power company.

As for TEC, it has an agreement with BSES for the supply of 250 mw as and when needed. Thus there is usually a surplus if BSES does not need power. By selling the surplus power tothe state grid TEC can at least recover the fuel cost. Incidentally, TEC had urged MSEB to sign a long-term power purchase agreement, which was declined by the board. According to industry sources, if the demand for power goes up, the board may consider purchasing power from TEC. Given the cost of DPC power, it is in the interest of MSEB to purchase only a limited quantity from it since, in this case, it will at least be saved an outgo on fuel cost. In June, MSEB received a power bill of Rs 116 crore from DPC for 230 million units--which works out to a cost of nearly Rs 5 per unit. Excluding the capacity charge of Rs 80 crore, the cost per unit is much more reasonable.

INSIGHT
TEC worries

TEC's performance will be affected because it does not have an assured offtake commitment from MSEB. It also has a defined distribution area, beyond which its growth depends on supplying to established companies like BSES. It can, however, try and attract new bulk customers in areas like the Bandra-Kurlacomplex in Mumbai, but BSES has objected to TEC muscling into its territory. In the short term, therefore, it will have to operate at a lower plant load factor (PLF), which will depress revenues.

--Urmik Chhaya