Indian Oil-Tata Power Joint Venture and Punjab's Rajpura Project to Start Operation in 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian Oil Corporation Limited (BSE:530965) (IOCL) (New Delhi, India) and Tata Power Company Limited (BSE:500400) (Mumbai, India) have announced that they are finalizing a joint venture agreement to set up a power plant in Orissa. The coal-based power project, located 100 kilometers from the port of Paradip, will be a captive power generating unit for IOCL's refinery complex. The power plant, planned to ensure steady and uninterrupted power to the refinery, will not supply to any third-party buyers or connect to the national grid.

The plant is expected to be operational by 2011. Tata Power will hold a 74% stake in the power plant while the rest will be held by IOCL. As part of the agreement, Tata Power will also lay transmission lines to carry the power generated at the plant to the refinery. Tata Power will bring its operational expertise to the project and manage the plant and the transmission lines.

IOCL is setting up a 320,000-barrel-per-day (BBL/d) refinery complex in Paradip that will be the company's largest single location refining facility when completed. A petrochemical plant is also in the pipeline. There have been concerns about the financing of this project because of the current economic meltdown. The investment on the refinery and petrochemical complex was $5.34 billion initially but is now estimated to cost $9.24 billion. IOCL recently indicated that it has deferred plans for the petrochemical complex. The company, now focusing on developing its own power generation facilities, has also signed an agreement with Suzlon Energy Limited (BSE:532667) (Pune) to set up a wind energy power plant in Kandla, Gujarat. The 25-megawatt (MW) project, with an investment of around $27 million, will supply power to IOCL's field operation units and storage facilities.

India's power generation scenario looks upbeat with some of the new power plants starting operations in 2011-12. These include the Talwandi Saboo and Rajpura power projects in Punjab. Punjab has not been a preferred choice for private-public partnerships in the power sector because of steep land prices. But now, three new projects have been announced that will add about 5,700 MW to the power generation capacity in the state during the Eleventh Five-Year (2007-12) and Twelfth Five-Year (2012-17) plan periods. The 1,980-MW Talwadi Saboo project has been awarded to Sterlite Energy Limited (Mumbai).

The 1,320-MW Rajpura power plant project is in the bidding stage. The project, which will be built on a build, own and operate model, is expect to cost about $1.3 billion. The Punjab State Electricity Regulatory Commission is overseeing the tariff-based competitive bidding process. There were 13 bidders during the request for qualification stage that included Tata Power (BSE:500400) (Mumbai), Indiabulls Power Generation Limited (Gurgaon, India), Larsen & Toubro Power (Mumbai), Essar Power(Mumbai) and Lanco Infratech Limited (BSE:532778) (Hyderabad). Ten companies qualified, of which Lanco Infratech is the only bidder in the final round. Lanco Infratech has submitted a quote of $0.070 per unit for a 25-year period. The Punjab government has allocated 438 hectares of land near Nalesh village for the plant. The government has established a special-purpose vehicle, Nabha Power Limited (Patiala, Punjab), to take care of the permits, sanctions, approvals, coal block allocation and environmental clearances for this project.

The Rajpura power project faced hurdles because of problems in land acquisition. Technical issues led to the bidding process being canceled three times. But now the project has received the necessary approvals, and the Ministry of Coal has also provided 5.7 million tons per year coal block for the project. A rail link service has also been made available. The third project in Gidderbaha will be of 2,400-MW capacity. This project will also be a tariff-based competitive bidding and the regulatory commission is keen on private participation for this project, as well.

India's total installed capacity as of January 1, 2008 was 141,000 MW. In 2007-08, 8,104 MW was added. In the 2008-09 fiscal year, 8,480 MW is expected to be added. India has set a capacity addition target of 78,577 MW during the Eleventh Five-Year Plan.

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