Karnataka needs lessons in drafting PPAs

Vol 14, PW 3 (29 Jul 10) Midstream & Downstream

Karnataka state authorities are facing criticism for demanding a fixed electricity price for 25 years in a draft PPA prepared for infrastructure companies interested in setting up three gas-fired power stations.

“Nobody will bid seriously if this condition isn’t removed,” says a source. “Who knows what gas prices will be in five years And they want a fixed electricity price for 25 years!” PETROWATCH learns concerns were raised at a pre-bid meeting in the state capital Bangalore on July 4, attended by 40 companies, among them GMR, Lanco, GVK, GAIL, Adani Power and Tata Power.

Driving the initiative is the Power Company of Karnataka (PCKL), a state government-owned utility, which wants three new 700-MW gas-based stations built at Belgaum, Gadag and Davangere on the route of GAIL’s upcoming 1000-km gas transmission pipeline from Dabhol in Maharashtra to Bangalore. Completed RFQ documents were originally requested by July 16, says a PCKL source, but this deadline has been extended to August 16 to “accommodate requests from bidders and allow newcomers to participate.

” Potential bidders tell a different story. “PCKL had no choice but to extend the deadline,” we hear.

“This exercise will hit a dead-end if they stick to the terms of the draft PPA.” Several bidders have met PCKL in private to complain about its insistence on a fixed power-price.

Worse, the draft PPA also wants electricity-price escalation linked to ambiguous Central Electricity Regulatory Commission ‘norms’ benchmarked to projected Indian inflation rates and domestic gas prices. Bidders worry this could completely rule out the use of internationally priced gas like R-LNG.

One suggestion at the pre-bid was that PCKL should supply the gas, which unsurprisingly, was dismissed out of hand. “Nobody wants to be saddled with the gas cost,” we hear.

“It’s very unpredictable.”