Lanco and MP agree to a 25-yr power pact

Last Updated: Wed, Sep 26, 2012 04:19 hrs

After prolonged litigation and arbitration proceedings, Lanco Infratech will be entering into a fresh agreement with the Madhya Pradesh government for supply of the entire 300 Mw power from its Korba power plant in Chattisgarh. The state has agreed to waive the rate ceiling for power to be supplied from the plant, after the two sides reached a settlement through arbitration.

The company had commissioned the plant two years before at a cost of Rs 1,350 crore and was forced to sell it to Punjab in a short-term contract after it found the Rs 2.25 a unit ceiling on power rate was unviable. For not supplying power under the contract, the Madhya Pradesh government had blacklisted Lanco and all its group companies from doing business in the state for five years in February 2012. The state had simultaneously taken the company to court. The Supreme Court had directed the two sides to reach a settlement.

The Madhya Pradesh Cabinet approved a fresh agreement on Monday. The agreement that will be in place for 25 years will allow the company to sell power with fuel cost being passed on to the state distribution companies. At the current coal composition, the rate works out to about Rs 3.30-3.40 a unit, K Raj Gopal, CEO (power), Lanco Infratech, told Business Standard.

The proposed purchase of power from Lanco will attract a fixed cost of Rs 1.55 per unit. “In case Lanco gets its entire coal from Coal India Limited, the power cost would be just Rs 2.35/unit. In case CIL’s supply is less, Lanco can buy coal through auction/import and that would be pass through. However, MP has the right to refuse if the coal is too expensive, without any liability on the state,” said Manu Srivastava, managing director, MP Power Management Company, the holding company of three power distribution companies in the state.

Lanco Amarkantak Power Private Ltd, a subsidiary of Lanco Infratech, had entered into a power purchase agreement with Power Trading Corporation in May 2005 through which the state was to be supplied 300 Mw. The three sides would now be entering into a fresh agreement applicable for 25 years from the date of signing, said Srivastava.

MP Power Management Company would now be approaching the state regulator for approval of the new rate structure. With this new agreement, Lanco will be able to pass on the rising fuel cost to the distribution companies. It had earlier similarly negotiated deals with the Karnataka and Uttar Pradesh governments. “There has been an unexpected change in fuel availability and prices. As a power producer, we do not want to make money on fuel but we do not want to lose money either. So, we want a reasonable rate of return on our fixed costs and a pass-through in rate,” said Raj Gopal.

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