NEW DELHI, July 10: The power purchase agreements (PPAs) which have been signed by the independent power producers (IPPs) with the state governments are likely to be renegotiated following the recent announcement on the liquid fuel policy by the centre.In addition to this, with the petroleum and natural gas ministry putting the pricing of naphtha and other liquid fuel outside the purview of administered pricing mechanism (APM), many IPPs are even considering the option of selling their letter of intents (LoIs) to the third parties.It is largely felt within the power industry that the cost of naphtha-based power plants is likely to shoot up due to two main reasons. Firstly, if the entire naphtha requirements, for generating the projected 12,000 mw of power, is to be met by imports, it is feared that the prices of naphtha in the international market may escalate substantially.Secondly, the notification on the fuel supply agreement specifies that the IPPs will have to bear the cost of creating facilities for importing naphtha and other liquid fuels besides storage, handling, transportation and laying of pipelines for carrying fuel to the project sites. As a result of this, IPPs who have already signed PPAs with the state governments at the originally agreed upon tariff, may now just insist on accomodating these escalated costs for making their projects viable.In cases where it was earlier agreed that the escalated fuel cost will be passed through on to a state electricity board (SEB), then the question arises whether the SEBs with there existing status be able to bear the brunt ofthese escalations?It is expected that the immediate requirement of naphtha for generating the projected power will be somewhere in the range of 16 million tonnes and with the current prices of naphtha prices ruling in the range of $ 160 to $170 per tonne, the impact this will have on the import bill can be well imagined.Earlier, even the finance ministry had expressed its apprehensions on clearing naphtha-based power projects as it would imply a major bearing on the oil import bill.But power ministry had justified that naphtha fired plants could be developed within short duration vis-a-vis the 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.Soon after the announcement on liquid fuel pricing, two lobbies are at crescendo, one in favour and the other against the promotion of the naphtha based power plants.A section of 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 SEBs, resulting in further worsening of their condition. The pro-naphtha lobby is advocating against the use of furnace oil as an alternative fuel as the issue of environment is involved with it.
