Sheer Energy

THREE years ago, it was an inhospitable 220-acre craggy expanse of laterite rock. Today, this once no-man's land at Jegurupadu in Andhra Pradesh's east Godavari district is home to the first functioning green field private power project since the Centre invited the private sector to participate in electricity generation in 1991. Promoted by GVK Industries, at an estimated cost of Rs 816 crore, the 235 MW fast-track project has quietly shot to existence ahead of bigtimers like Enron, AES, Cogentrix and the Hindujas which have been in the headlines for the past few years.

As the first surge of electricity flashed through a double circuit 220 KV transmission line to the Andhra Pradesh State Electricity Board's (APSEB) Bommuru receiving station, eight km from the site, and then onto the grid on July 4, at 9.16 am, India's power privatisation policy, five years after it was announced, finally appeared to be getting somewhere. It's a definite—though small—beginning in India's long trek to private power.

It's also what had seemed, till July 4, the craziest project around, driven by the sheer chutzpah of a risk-happy entrepreneur who decided to go ahead and get the damn power flowing instead of poring over the minutiae of contractual arrangements.

The fulcrum of an independent power project is 'financial closure'—getting supply and equipment contracts and guarantees and counter-guarantees signed, sealed and in place so that the promoter and his lenders are sure of getting their investments back. Once this complex process is concluded, it becomes just another engineering project. No new private power project in India has yet achieved financial closure. And G.V. Krishna Reddy (the GVK of GVK Industries) has done the unprecedented among infrastructure entrepreneurs: he has refused to wait for financial closure to get his project on-stream. A course of action which would send shivers down the spine of big guns in the power industry.

Enthuses A.V. Subba Rao, member (projects), APSEB: "The developer of the Jegurupadu project has some guts. He must be a real daredevil to go ahead with the project without the Centre's counter-guarantee. Now he may be stuck for funds." K. Balarama Reddi, who was APSEB chairman between 1992 and 1995, agrees. "GVK Industries has taken a big risk in starting the project without financial closure, which, under present circumstances can be achieved only after the Centre's counter-guarantee is given. Nowhere in the world has a power project been commissioned without financial closure. Hats off to G.V.K. Reddy," he says.

Just who is the man generating the criticism and kudos? Well, for one, he runs the Rs 350-crore GVK group, which is into wood technology, hotels and chemicals. Having successfully set up particle board manufacturer Novopan India, he next ventured to the US, setting up GVK America to make pre-laminated particle board. Other interests include Krishna Oberoi Hotel, Hyderabad, and Nova Resins and Chemicals.

 And, of course, power generation. "Other independent power producers want things on a silver platter. Nobody is willing to take risks or lead the way," shrugs Reddy. "Opportunities don't come your way all the time; so why not grab them before it's too late?" Sounds fine, but few would put their money where their mouth is, as Reddy has done.

Part of the funds for the project are from the initially sceptical International Finance Corporation (IFC), Washington, the Nordic Investment Bank, Finland, and IDBI. Apart from GVK and IFC, the project has equity participation from US-based independent power producer CMS, Asea Brown Boveri (ABB), the Swiss-Swedish engineering giant which has the Rs 655-crore engineering, procurement and construction contract for the plant, and APSEB. Reddy is confident that he will be able to achieve financial closure by the second week of September. The Andhra government has given its guarantee. And the Union Power Ministry is reported to be paving the way for early issue of counter-guarantee. Says Reddy: "The APSEB, which is the sole purchaser of the power, has opened an irrevocable letter of credit and an escrow account for the exclusive benefit of GVK Industries will soon be started to ensure security of payment." He says the second and third turbines, each with the same rated capacity as the first, will be commissioned in October and December respectively. A 77 MW steam turbine will kick off in May-June 1997. GVK plans to expand the project to 470 MW for which in-principle clearance has already been obtained from the Central Electricity Authority (CEA).

About 17 km from agricultural town Rajahmundry, the project is 200 km from Vishakhapatnam by road and a good 500 km from Hyderabad by train. It took seven months of round-the-clock work, between August 1993 and March 1994, to level the rock to make the project site habitable for man and machine. Around 1.3 km of approach road was built, with 11 km of roads constructed within the complex. On all sides are coconut groves and paddy fields, with scattered villages. The busier part is on the southern flank, where runs the Samalkot canal, a diversion from the Godavari, the state highway and the Howrah-Madras rail line. To the west is Coastal Paper Mills, surrounded by eucalyptus plantations.

With ecology a perennial area of concern, the promoters have created an environmental green belt around the project, covering 120 acres, almost 55 per cent of the total area. About 36,000 saplings have been planted. Small wonder then that unlike Enron's Dabhol Power Project, or Cogentrix, which have drawn the wrath of environmentalists and villagers, the Jegurupadu project has attracted little adverse reaction. The villagers were consulted and their cooperation sought before launching the project, say company officials at the site.

 The power plant has been designed for dual fuel capability to operate on natural gas or naphtha or a combination of both. The natural gas is being supplied by Gas Authority of India Ltd from the Krishna Godavari basin and the naphtha by Bharat Petroleum from the Vizag refinery. As natural gas is the primary fuel, considered cleaner than other fossil fuels, the project will be environmentally friendly with low emission levels. A natural gas combined cycle power plant eliminates virtually all sulphur dioxide, about 80 per cent of all nitrogen oxide emissions and about 60 per cent of carbon dioxide.

SAYS Anil Kumar Kutty, member secretary, APSEB: "A gas-based plant is more reliable than a coal-based one. A gas based fuel handling system is simple as all you have is a pipeline which goes into turbines. In case of a breakdown, the plant can be restarted quickly, unlike a coal-based system." Kutty says that the levelised tariff of Rs 1.82 per unit computed at a plant load factor of 68.5 per cent for an 18-year period is slightly expensive for APSEB, but "costly power is better than no power". GVK officials, however, claim that this is one of the lowest tariffs cleared by the CEA for a private power project in the recent past.

Among those most impressed by what they feel are the plus points of the project—environmental and aesthetic elements—are Jegurupadu site officials of ABB. Says T. Ramesh, acting manager, ABB India: "Though ABB has been associated with many independent power projects, we will cite the GVK plant at Jegurupadu as a model to our clients. Never will you come across in industrial buildings, sloped parapets, with local, aesthetically pleasing tiles and arched windows to complete the picture of beauty. Such work doesn't really increase costs." Adds W. Schmidt, deputy site manager, ABB Germany: "In my 30 years of experience, this is the first time I have seen so much greenery at such an early stage of a power project."

GVK has other power projects lined up: the 120 MW mixed fuel project at Ratlam, Madhya Pradesh, to go on stream in 1998-99, and the Krishnapatnam 500 MW coal-fired power project in Nellore, Andhra, expected to commence operations in 2000.

"We are also likely to bag the 500 MW project at Govindwal Saheb in Punjab," says Reddy.

But while the Jegurupadu project was not dogged by controversy, the one at Krishnapatnam attracted a lot of flak from politicians and rivals. In the run-up to the 1994 assembly elections in Andhra Pradesh, much dust was raised against the project though ICICI, while evaluating the GVK bid, had rated it as number one. Some Telugu Desam Party MLAs even went to court alleging that the then Congress state government had unduly favoured the GVK group. At the centre of the controversy was the then state chief secretary Jai Bharat Reddy, who was also chairman of a high-powered committee of secretaries, set up by the state government to look at private power projects. Jai Bharat Reddy happens to be a distant relative of G.V. Krishna Reddy. The court ruled in favour of the GVK group as the decision was taken as per the evaluation of ICICI. The project was cleared after the elections. 

All that is now history. The GVK group has finally broken the jinx that appeared to have bedevilled private power projects. And another private power plant, Spectrum Power Generation, is all set to commission the 216 MW plant's first 45 MW gas turbine in November at Kakinada.

But for other—and weaker-hearted—private power projects, only the turn of the century may bring good news. Can power-starved India wait so long? There seems to be no choice.