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Reliance bags Lanco Power contract for KG basin gas

Syed Amin Jafri in Hyderabad

Lanco Kondapalli Power Limited has inked a memorandum of understanding with Reliance Industries Limited for the supply of 3.5 million cubic metres a day (mcmd) of gas from Krishna-Godavari basin for the expansion of its existing power plant by 740 megawatts.

This is the first tie-up between a power company in the state with Reliance since the petrochemical giant announced the discovery of seven trillion cubic feet of gas off the Rajahmundry coast in KG basin.

The MoU was signed by L Rajagopal, chairman, Lanco Group and R P Sharma, president, Reliance Industries (Gas division) on Friday, according to a Lanco media release.

The MoU provides for assured supply of gas by Reliance for 15 years.

Lanco Kondapalli Power currently operates a 368-MW power plant at Kondapalli near Vijayawada in Krishna district, with 1.75 million MCMD gas being supplied by Gas Authority of India Limited from Oil & Natural Gas Corporation's fields in Krishna-Godavari basin.

Reacting fast to Reliance gas find, Lanco Kondapalli Power submitted a proposal to the state government seeking approval for undertaking a 740-MW expansion of the power project, taking the total plant capacity to 1,108 MW.

The expansion project is estimated to cost Rs 22 billion.

Reliance group has promised to supply the gas from June 2004. Based on this assurance, the company has scheduled to complete the expansion programme by mid-2005 or last quarter of the same year.

Lanco claimed that with the economies of scale and in the situation of plenty, power can be sold at about Rs two per unit to APTransco or neighbouring states or to Power Trading Corporation.

"Due to insufficient gas availability, we had deferred our expansion plans. But now that it is available in plenty, we can go ahead with our plans," Lanco group chairman said.

"The record gas struck by Reliance in Krishna-Godavari basin is a boon to Andhra Pradesh and the country, to take off into big league of industrialisation. The present conservative estimate of 40 MCMD gas production by Reliance could safely be upped manifold in the days to come," the release added.

The potential for development and industrialisation of AP could be gauged by the fact that Gujarat and Maharashtra are currently using 22 MCMD and 15 MCMD gas, respectively.

The rice and fertile east coast delta in which the gas is struck has immense potential for food processing, glass, ceramic and other power intensive industries.

Lanco suggested that the AP government should put in place right policies quickly, to permit direct usage of gas by industries as energy source, whereby immediate usage of gas can be ensured.

"It is essential that the process of setting up industries with gas as fuel should start right now, so that by the time gas is explored and ready for supply, the industries are ready to receive and use gas," the Lanco group chairman said.

"Any delay will make for gas to be transported to other states, where there are ready buyers. Unless the sale and purchase is tied up now in Andhra Pradesh, there is every possibility to scout for buyers elsewhere," Rajagopal cautioned and urged the state government to set up a task force to work out the modalities to ensure that the state derived maximum benefit from the gas potential of the KG basin.

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