Mumbai: The engineering and construction giant Larsen and Toubro is reviewing its earlier decision to pick up a 25-per cent stake in the Vijayanagar power project as the Karnataka Power Corporation (KPCL) has rejected L&T's demand for the engineering procurement and construction (EPC) contract of the project. L&T, along with KPCL, is the joint venture partner in the 500-mw project.
L&T officials say the company had put forward the EPC contract as a prerequisite condition for participation in the project. In such a situation, L&T had also offered to increase its equity stake in the project.
But KPCL rejected the conditions and said it would abide by Electricity Regulatory Commission guidelines, which entail that EPC contractors should be chosen entirely through the competitive bidding route. This was to ensure compliance with the least-cost principle of the ERC.
Following this, the officials say, one of the alternatives L&T suggested was that the company should be given the first right of refusal where the competitive bidding process was adopted for selection of EPC contractors. But this proposal was also not acceptable to KPCL. "We have sought more time in finalising a decision to participate in the Vijayanagar project from KPCL. A final decision will be taken soon."
KPCL had originally short-listed Powergen International and Enron along with L&T as the joint venture partners for the project. But both Enron and Powergen had pulled out of the financial bids, leaving L&T as the lone bidder for the power project. The original proposal had envisaged a 25-per cent stake for the partner, with 26 per cent with KPCL and the remaining equity funds to be raised through the participation of financial institutions, banks, equipment suppliers and the public.
L&T officials further say that KPCL has also decided to upgrade the project capacity from the current 500 mw to 1,000 mw and it would revise the project cost upwards. It is expected that the revised project cost would be Rs 4,600 crore from the earlier cost of Rs 2,300 crore.
The new project configuration if accepted by L&T would mean that the project equity component would now be approximately Rs 1,380 crore. KPCL would have to bring in about Rs 359 crore and the joint venture partner's share would be in the region of about Rs 345 crore. The debt-funding requirement would also consequently escalate for the project to about Rs 3,300 crore.