28th Jan 2014 09:27
LONDON (Alliance News) - OPG Power Ventures PLC Tuesday said it has entered into a long term variable tariff arrangement with the Tamil Nadu State Electricity Utility for the sale of 74 megawatts of its capacity from its 80 megawatt Chennai III unit, a move it hopes will give it greater protection from foreign exchange rate moves and logistics cost rises.
The power plant developer said the deal started January 1 and runs for 15 years. OPG said it will benefit from foreign exchange protection on coal purchases and protection against inflation on certain inland logistics costs.
Prior to the new deal, most of the Chennai III unit output was sold to TANGEDCO under a fixed, Rupee denominated, one-year tariff agreement of INR5.50 per kilowatt hour. That deal was due to expire in May.
Under the new deal, it expects to receive INR5.51 per kWh at current exchange rates. A change of INR1 against the US dollar would lead to a corresponding change in tariff of INR0.05 per kWh.
"In recent years the power industry in India has been buffeted by volatility in input costs and foreign exchange rates. The board believes entering into the long term variable tariff arrangement is opportune and adds diversity in our sales mix at tariffs that are expected to be attractive and further provides a long term basis for mitigating some of the volatility that exists in our industry," Chief Executive Arvind Gupta said in a statement.
"Whilst carrying both the risk and reward of any revisions in tariff beyond May 2014, the short-term fixed-tariff type of arrangement does not offer any predictable or long term protection against foreign exchange fluctuations on input fuel or international freight costs," the company said in a statement.
"The long term variable tariff allocates the risk and reward of currency movements on the cost of purchasing as well as international freight on such coal, to the power purchaser. Since the company's plants are designed to utilise a broad range of coals of different specifications efficiently, which also have varying price volatilities, the company has secured this currency protection in relation to one-third of its current output," it added.
"In addition, the long term variable tariff incorporates protection against escalation in certain transportation and logistics costs," it said.
OPG Power Ventures shares were up 0.3% at 74.5 pence Tuesday morning.
By Steve McGrath; [email protected]; @SteveMcGrath1
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