CASE NO. 16 of 1998

ORDER No. 003 DATED 6th NOVEMBER, 1997

Shri S.C. Mahalik, Chairman
Shri A. R. Mohanty, Member
Shri D. K. Roy, Member

In the matter of application of M/s. Konark Met Coke Limited having their Registered Office at IPICOL House (4th Floor), Bhubaneswar - 751 007.

M/s. Konark Met Coke Limited - Petitioner

For the Petitioner:
Dr. S. Ray, Managing Director, NINL & Director (In-charge), KMCL
Shri S. Praharaj, Adviser(Power), NINL/KMCL
Shri T.K. Chatterjee
Shri B. Suryanarayana
Shri D.P. Parija of NINL
Shri S.R.Mohapatra, Company Secretary, KMCL.

For the affected party:
Shri B.M.M. Rao, Chief Engineer (Com.), GRIDCO.
Shri B.P. Rekhani, General Manager, RAU, GRIDCO.

An application was filed by M/s. Konark Met Coke Limited (KMCL) seeking consent under Section 44 of the Electricity (Supply) Act, 1948 (hereinafter referred to as Supply Act) read with sub-section (3) of Section 21 of Orissa Electricity Reform Act, 1995 (for short the Act) for setting up a 55 MW Captive Power Plant.

2. An integrated steel plant of annual capacity of 1.1 Million ton is being set up by M/s. Neelachal Ispat Nigam Limited (NINL) at Duburi in Jajpur District of the State with a capital outlay of about Rs.1510 crores. M/s. NINL have already proceeded with the construction work at the site. M/s. Konark Met Coke Limited (KMCL) plant will be located inside the plant boundary of M/s. NINL at Duburi (near Daitari) in the district of Jajpur of Orissa. M/s. KMCL a new company promoted by Minerals and Metals Trading Corporation Limited (MMTC), Metallurgical Engineering Consultant Limited (MECON) with equity participation from foreign investment institutions. The main product of M/s. KMCL will be 8.11 lakh tons of BF coke per annum and they will produce coke breeze for NINL's sinter plant and ammonium sulphate and crude Tar as by-products. The surplus coke oven gas along with blast furnace gas and converter gas available from NINL will be utilised for generating power of 55 MW at KMCL's captive power plant. The plant will be set up with a capital investment of about Rs 480 crores and shall be ready for operation within 30 months. Cost per unit of generation as was reported by M/s. KMCL in their Director (In-charge) letter No. 305 dtd. 26.11.96 is Rs.0.75/unit nearly. The requirement of electricity for M/s. KMCL is 5.0 MU per month, whereas, the requirement of electricity for M/s. NINL is 29.00 MU per month. In the said letter they have stated that M/s. NINL will be linked with the State grid through a 220/33 kV sub-station. The requirement of power from Gridco system would be about 35 MW or 5.5 Mu per month over and above the self-generation to be made from the CPP for their plant load. There will be no more surplus power available for sale to Gridco. The advantage of having the CPP is based on the economy of' running the gas turbine as well as raising steam for steam turbine generator by way of utilisation of exhaust gas, otherwise going as a waste. The electricity thus derived will be cheap and steel complex will have little damage of total power failure and disturbances to the Metallurgical units in the grid failure.

3. Notice was served on M/s. KMCL and to M/s. Grid Corporation of Orissa Limited (GRIDCO), the affected party, for hearing on 22.07.97. In response to such notice, Gridco submitted their counter on 14.07.97. A rejoinder was filed by the applicant on 19.07.97 and the matter was heard on 22.07.97 by the Commission.

M/s. Konark Met Coke Limited (KMCL), the applicant was represented by Dr. Subrata Ray, Managing Director, NINL & Director (In-charge), KMCL and Shri S. Praharaj, Advisor (Power), NINL/KMCL. M/s. GRIDCO. The affected party was represented by shri B.M.M. Rao, Chief Engineer (Commerce) and Shri B.P. Rekhani, Superintending Engineer (Commerce).

Heard the representatives of M/s. KMCL and M/s. GRIDCO. The petitioner submitted that it was only from the investment point of view that the proposed integrated steel plant of Neelachal Ispat Nigam had been divided into two entities namely, M/s. NINL & M/s. KMCL. Both the units, though separate companies, are located at same premises at Duburi and shall be technically supplementary to each other having common principal promoter, i.e. M/s. MMTC.

Commission ordered that the petitioner shall furnish the following documents in support of the above contention by 2nd week of August, 1997

1. Memorandum and Article of association for both the companies.

2. Relevant documents on financial aspects leading to bifurcation to two companies, proposal submitted by M/s. MMTC to the Govt. of India and Cabinet decision in the matter, if available with the petitioner. Commission further asked the applicant company to examine the legal position and clarify whether KMCL should not be treated as a Generating Company.

4. Next date for hearing was posted to 04.10.97.

5. In the meanwhile, applicant has furnished the Memorandum of Association and Articles of Association of NINL and KMCL. The applicant in their letter No. 5377 dtd. 18.08.97 has furnished the clarification following the hearing of Case No. 16/97-98 dtd. 22.07.97. In the clarification, the applicant has enclosed the letter from Ministry of Commerce, Govt. of India to the Executive Director, Industrial Development Bank of India (lDBI) of MMTC's investment in NINL and KMCL. In the said letter it has been stated that the Union Cabinet in its meeting on 29.04.97 has approved MMTC's proposal for increasing its equity to Rs.100 crores in NINL and Rs.49 crores in KMCL, subject to MMTC's contribution restricted to the total amount of Rs.149 crores and any cost overrun or gap in equity will be met by Govt. of Orissa. The Ministry of Commerce, Govt. of India in a letter to the Chief Secretary, Govt. of Orissa have requested Govt. of Orissa to participate in this project as co-promoter. Govt. of Orissa will be giving the guarantee for cost overrun to IDBI and other financial institutions for this Steel Project (NINL). The said letter further states that MMTC is also setting up a Coke Oven Plant and a Power Plant along with this Steel Project as an integrated plant. The name of this company is KMCL and requested Govt. of Orissa to participate in this (KMCL) project as one of the promoter.

6. The clarification by the applicant dated 18th August, 1997 also indicated that the Agreement of Association between KMCL and NINL was in the process of finalisation and the same would be submitted to the Commission at a later stage. The applicant in their letter No. 5573 dtd. 05.09.97 to the Commission furnishing clarification enclosed a letter from the IDBI explaining that the reason of keeping power project under KMCL instead of keeping it in NINL was to enable co-promoter MMTC to meet the institutional norm pertaining to promoters contribution for the respective project and to facilitate finalising tie up including a foreign equity for such a large project. Further the applicant in their letter No. 514 dtd.04.10.97 have indicated that an Agreement of Association between NINL and KMCL is under preparation for the following purposes:

1. Supply of Coke, Coke breeze for consumption in the iron production process of NINL, supply of power and LP/HP steam and coke oven gas by KMCL to NINL.

2. Supply of blast furnace and converter gas from NINL as per the requirement of KMCL.

3. Sharing of infrastructure facilities and utilities between KMCL & NINL.

The agreement will be made considering following:

1. The basis of transfer price of sale of coke by KMCL to NINL would be CIF cost of coke of equivalent specification prevailing at the time of transfer.

2. The basis of transfer price of power for KMCL to NINL will be at a cost not more than the cost per unit charged by Gridco.

3. Transfer price of blast furnace gas by NINL to KMCL and coke oven gas by KMCL to NINL will be based on per calorie unit rate as determined by the Govt. of India for natural gas.

4. The allocation of infrastructure and utilities cost for the site between NINL and KMCL will be shared proportionate to the cost the two projects. This has already been approved by the respective Boards of the Companies.

7. IDBI, the lead Financial Institutions have appraised and approved the projects of NINL and KMCL considering the above parameters. The final agreement between KMCL and NINL for the above purposes will be submitted after finalisation.

8. Gridco furnished a counter on 04.10.97 indicating that M/s. KMCL and M/s. NINL are two separate companies registered for two different purposes. Though, it is proposed that the blast furnace gas of NINL will be utilised by KMCL and the power and coke produced by KMCL will be utilised by NINL, it cannot be denied that KMCL can produce power from its coke oven gas if the blast furnace gas is not available from NINL and NINL can produce steel by arranging power and coke from other sources. The claim that both NINL and KMCL are technologically integrated may not be of such importance as far as their commercial operations are concerned. Gridco in their counter have questioned the two separate entities like NINL and KMCL sharing power generated from the CPP owned by KMCL. This is not the same as in case of other Steel Plant at Bhilai, Bokaro, Rourkela, Durgapur where the CPPs are owned by the steel plant. In other words, transaction of power between two companies would involve business of sale of electricity by the one company owning the CPP to the other company owning the steel plant.

9. It is observed that there is discrepancy on the cost of generation in as much as by unit cost has been shown Rs.2.03/KWH in their letter No. 1927 dt.18.01.97 and Rs.0.75 in the petitioner's letter No. 305 dtd.26.11.96. It appears that the Agreement of Association between the NINL and KMCL would bring out clear perspective of the commercial transaction between the two units. A mere statement by the petitioner on the price of power for KMCL to NINL at a cost not more than the cost per unit charged by Gridco is not quite clear for the Commission to come to definite conclusion as required under Section 44 of the Electricity (Supply) Act, 1948.

10. After careful consideration, we hold that Detailed Project Report (DPR) of the CPP and final Agreement of Association between NINL and KMCL, now under preparation should be submitted to the Commission for arriving at a decision in the matter of granting consent for the CPP. The Commission appreciates the proposal made by the petitioner for economic utilisation of waste gas for setting up the CPP. But in the absence of reasonably firm estimate of cost of generation and in the absence of Detailed Project Report, the Commission is unable to take decision on grant of consent. We, therefore, conclude that on the basis of' the applicant's information the Commission is not in a position to grant consent under Section 44 of the Electricity (Supply) Act, 1948 at this stage. However, the petitioner is at liberty to file a fresh application along with a Detailed Project Report clearly indicating their power requirements and the cost of generation and the arrangement of commercial transaction between the NINL and KMCL.

11. Copy to be given to the petitioner, to affected party M/s. Grid Corporation of Orissa Limited, the Government of Orissa, Department of Energy and the Government of Orissa, Industries Department.

22.07.97 M/s. Konark Met Coke Limited (KMCL), the applicant is represented by Dr. Subrata Ray, Managing Directors NINL & Director (In-charge), KMCL and Sri S. Praharaj, Advisor (Power), NINL/KMCL. M/s. GRIDCO, the affected party represented by Sri B. P. Rekhani, Superintending Engineer (Commerce).

Heard the representatives of M/s. KMCL and M/s. GRIDCO. The petitioner filed before the Commission that it is only from the investment point of view that the proposed integrated steel plant of Nilachal Ispat Nigam has been divided into two entities namely, M/s. NINL & M/s. KMCL. Both the units, though separate companies, are located at same premises at Duburi and shall be technically supplementary to each other having common principal promoter, i.e. M/s. MMTC.

Commission ordered that the petitioner shall furnish the following documents in support of the above contention by 2nd week of August, 1997.

(a) Memorandum and Article of association for both the companies.

(b) Relevant documents on financial aspects leading to bifurcation to two companies, proposal submitted by M/s. MMTC to the Govt. of India and Cabinet decision in the matter, if available with the petitioner. Commission further asked the applicant company to examine the legal position and clarify whether KMCL should not be treated as a Generating Company.

Next date of hearing will be notified to the applicant/affected party.

Order No.002 dated 12th September, 1997

12.9.97 Hearing fixed on 4th October, 1997 at 4:30 P.M.

(D.K. ROY)
MEMBER

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