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Natural gas supply shortage puts GVK’s Gautami project in limbo

Natural gas supply shortage puts GVK’s Gautami project in limbo
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First Published: Mon, May 21 2007. 12 47 AM IST
Updated: Mon, May 21 2007. 12 47 AM IST
Hyderabad: A shortage of natural gas supplies and subsequent delay in testing its new Gautami Power plant is significantly escalating the costs for GVK Power & Infrastructure Ltd and potentially making it unviable, the company says.
The 464 megawatt natural gas-run power plant in Peddapuram in East Godavari district of Andhra Pradesh has been idle since September because of a reduction in supplies of natural gas from the Krishna-Godavari basin in the Bay of Bengal. Gas transport company GAIL Ltd is the gas supplier for the unit.
The Andhra Pradesh high court, acting on a complaint by GVK Power, recently directed GAIL to provide Gautami with natural gas in mid-July for testing, which will mark the ‘commissioning’ of the plant. But, the court also said that GVK Power should not declare the commissioning of the unit without its permission.
Commissioning the plant will allow GVK Power to recover fixed charges, which cover the cost of plant and machinery, and other charges such as interest from the state government, which is obliged to reimburse such charges, thereby amounting to about Rs317 crore a year, even if Gautami does not generate any electricity once it is commissioned.
The project has already suffered a cost escalation of more than 22.5% to reach Rs1,777 crore on account of delay in supply of natural gas and is turning unviable, said GVK group’s chief financial officer Issac A. George.
“The court directive is a double whammy for GVK Power, as on the one hand, it cannot declare commercial operation date for Gautami Power, and on the other, it will have to contend with the high cost of alternative fuels like naphtha,” said Nitin A. Khandkar, senior vice-president of research at Mumbai research firm Keynote Capitals Ltd.
The state government, meanwhile, is also opposing a proposal made by GVK group chairman G.V. Krishna Reddy that Gautami run on the relatively-expensive naphtha, or diesel, fearing an “additional burden in the range of Rs2,300 crore per year,” said Rachel Chatterjee, chairperson of the Andhra Pradesh Power Coordination Committee.
The variable costs at the plant, if run on naphtha will shoot up to Rs7.07 a unit of electricity compared with the Rs1.01 each estimated in a natural gas-powered mode.
GVK shares closed on Friday at Rs400.45 a share on the Bombay Stock Exchange where they are slightly below a 52-week high of Rs415 a share set on 17 May.
A final resolution on Gautami will give direction to three other private power projects—Vemagiri of GMR group, Konaseema of VBC group and Jegurupadu-II of GVK Group—all three awaiting natural gas supplies. The four projects have a cumulative capacity of 1,499MW.
Andhra Pradesh is one among just two states in the country, the other being Gujarat, to have gas-based power projects.
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First Published: Mon, May 21 2007. 12 47 AM IST
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