Lanco’s Udupi II evacuation stuck on tariff dispute

Even after synchronising the second unit at its Udupi power project in Karnataka, infrastructure major Lanco Infratech may have to wait for some more time before reaping benefits from the project completely.

The company is preparing to approach the Central Electricity Regulatory Commission (CERC) for determination of final tariff.
Lanco and the Karnataka government are in a dispute over capital expenditure incurred on the plant for determining the interim tariff as well.

“We are yet to approach the CERC and we will do that for determining the final tariff,” Panduranga Rao, CEO of the Udupi Power Corporation Ltd (UPCL), a subsidiary of Lanco Infratech, told DNA.

However, Rao refused to explain the status of Unit II and the company’s plan to evacuate power from the Udupi project.

With the synchronisation of Unit II, the installed capacity of UPCL is now 1,200 mw (2X600 mw) and Lanco’s total power generation capacity has touched 2,687 mw. The Unit I was synchronised with the grid on June 3, 2010.

The company is also power evacuation with the state government. The company is still short of the infrastructure for evacuating the power to the fullest extent from the project.

According to sources, the state government is yet to set up the 400kv line for evacuating the power generated.

“While the synchronisation of Unit II is positive for Lanco and on expected lines, we see completion of 400kv transmission line from the plant as critical for monetisation of this unit. Lanco maintains that evacuation of power is the responsibility of Karnataka Power Transmission Corporation and Udupi project will be eligible to receive RoE on becoming commercially operational,” Durga Dath and Sucheta Sundar, analysts with Goldman Sachs, said in their report on Thursday.

The Unit II that has been synchronised is expected to declare commercial operations in June-July 2011. In fact, the COD of Unit II is said to be critical for final determination of tariff at the CERC.

While the state government has granted about Rs4,900 crore capex for the project, the company is said to be claiming Rs5,780 crore expenditure for determining the interim tariff. 

“Lanco recorded a loss of Rs15.6 crore from Unit 1 for the first nine months of the current fiscal based on interim tariff. We expect cash flows from Unit 1 to improve on final determination of tariff,” the analysts said in their report. 

As per the Power Purchase Agreements (PPA) with the five Escoms/Discoms of Karnataka and Punjab State Electricity Boards respectively, UPCL will provide about 90% of the power to Karnataka and balance to Punjab. Udupi project is also said to be the first power project based on imported coal.

UPCL’s CEO Rao refused to elaborate on the lack of infrastructure, including the 400kv line and tariff issues with the state government.