Karnataka Pushing for Second Nuclear Power Plant in State

---

Researched by Industrial Info Resources (Sugar Land, Texas)--The state government of Karnataka has urged India's state-run Atomic Energy Commission (AEC) (Mumbai) to develop a 2,000-megawatt (MW) greenfield nuclear power plant in the state to enable the government to meet local energy demands. According to Karnataka's Chief Minister, B.S. Yeddyurappa, since Karnataka does not have abundant natural resources such as gas and coal, generation of power using nuclear resources is the only solution. He said that the nuclear power station could be set up in the Bijapur district of Karnataka where the state government would make available the necessary land and infrastructure.

The Chairman of AEC, Anil Kakodkar has informed the chief minister and other state officials that, although the location would first have to be evaluated by an independent site selection committee, the most favorable location for a nuclear power plant in terms of logistics and operations is a coastal site unlike the land-locked Bijapur district. Proximity to the coast eases the transportation of heavy equipment by ship and barge-mounted platform. Northern Karnataka already has an 880-MW nuclear power station in Kaiga, which is close to the western coast and is run by the government-owned Nuclear Power Corporation of India Limited (NPCIL) (Mumbai). However, because of a shortage of uranium, the four 220-MW units have not been able to operate at full capacity for the last 10 months. With the India-U.S. nuclear agreement in place, the Kaiga plant is expected to be able to operate at full capacity as NPCIL will now be able to arrange a steady supply of uranium from global firms.

The state government's interest in a new nuclear power plant is in line with Karnataka's target to generate about 20,000 MW of power through nuclear sources by 2020. The state generated 25.08 billion kilowatt-hours (kWh) of power in 2008-09, of which 11.71 billion kWh was produced from thermal sources and the remaining 13.36 billion kWh from diesel, hydropower and wind power. With an installed capacity of 5,509 MW, Karnataka generated about 1.48 billion kWh of power in July 2009 (up to July 27) and imported about 1.2 billion kWh, thus supplying the consumers with a total of about 2,69 billion kWh of power. Karnataka has had a peaking deficit of about 859 MW during the last few months because of low levels of water in the reservoirs.

In January 2009, Karnataka State Power Corporation Limited (KPCL) (Bangalore, Karnataka) and the state-owned power equipment manufacturer Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (New Delhi) signed a joint venture agreement under which 2,400 MW worth of power projects would be set up in Edlapur and Eramarus, both located in the Raichur district of Karnataka. According to the agreement, the $2.5 billion worth of projects will be implemented through a special purpose vehicle set up for the purpose. BHEL and KPCL will each hold stakes of 26% in the joint venture, while Infrastructure Development Finance Company (BSE:532659) (Chennai) will hold the balance stake of 48%. BHEL will supply the projects with the necessary equipment, including the boiler turbine generating units, the combined cost of which will involve about 70% of the funds. The projects are scheduled to be completed by 2013.

Among more recent developments, public sector banks are expressing a high interest in funding the project. Faced with low credit demands and the fact that the project does not have any major issues, banks are very keen to be involved in the high-value project. About 80% of the funds, equivalent to $1.99 billion will be raised through debt. The public sector banks are keen in spite of the high debt component, as the debt service coverage ratio (DSCR) is expected to be much above the mandated value of 1.5.

The DSCR is an important financing parameter in project funding, measuring the debt-carrying capacity of the project from the cash flows. Although lower DSCRs of 1.25 are also permitted in the case of public sector projects, public sector banks prefer to fund projects with low credit risk, which translates into a high DSCR. A low demand for credit from the corporate sector is driving the banks' interest in state-supported projects. The liquidity overhang drove the joint venture to invite bids for raising the debt component.

A lack of interest in credit demand in spite of lowered interest rates and sufficient liquidity has been observed across the industry. Public sector banks have been forced to consider further reductions in interest rates in order to attract clients. While K.R. Kamath, Chairman and Managing Director of Allahabad Bank (Kolkata, West Bengal), has announced that his bank will concentrate on infrastructure, manufacturing, power and road construction projects, T.M. Bhasin, Executive Director of United Bank of India (Kolkata), said that his bank will focus on agriculture, micro, small and medium enterprises, and the retail sector.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.