CASE NO. 1 of 1998

Present:
Sri S.C. Mahalik, Chairman
Sri A.R. Mohanty, Member
Sri D.K. Roy, Member

For Petitioner:
Mr. Milan Kanungo, Advocate and
Mr. P.K. Mishra and H.C. Gera
(Authorised representatives)

For Affected Party:
Mr. B.P. Rekhani & Mr. M.K. Sircar
(Authorised representatives)

Mideast Integrated Steels Ltd.,(MISL), a MESCO Group of Company has applied for permission for setting up a 2X4.5 M.W. Co-generation C.P.P. unit at Duburi Industrial Complex at Jajpur Road in the State of Orissa.

2. Put briefly, the petitioner's Case is as follows:

Mesco group of industries are on their way to set up a large size integrated steel project, namely Mideast Integrated Steels Ltd. (MISL) with an ultimate production capacity of 1.2 mtpa.

In the first phase of the operation, M/s MISL (Petitioner) intending to produce 0.5 mtpa of pig iron had already set up two blast furnaces, each one of 350 CUM capacity. The Pig Iron Plant proposed to be set up is in an advanced stage of construction.

2.1 The co-generation process involves retrieval of substantial heat energy from blast furnace gas in large volumes of the pig iron making plant and using the same heat for raising steams for generation of electricity in the proposed Captive Power Plant (CPP). The proposed C.P.P. will have inter-connection with the blast furnace plant including sharing of filtered and treated water as per requirement of the boiler. The waste gases from the blast furnace will be utilised for generation of electricity instead of letting out to atmosphere which in turn would serve as an anti pollution measure. The Co-generation Power Plant is, therefore, an integral part of the blast furnace unit.

2.2 The power requirement for the first phase of the operation is estimated to be 14.5 M.W. It is proposed that Gridco will provide 10 M.W. of electricity while the balance power will be produced by way of setting up a Co-generation Captive Power Plant of 2X4.5 M.W. To optimise the efficiency, the power plant has been designed as a Co-generation plant to run on multi-fuel such as surplus gases from the blast furnace and oil as additional fuel.

2.3 The further case of M/s M.I.S.L., the petitioner of this Case is that electric power is a pre-requisite for any Steel Plant because it is imperative to ensure effective utilisation of production process besides protecting and safeguarding the equipments from the damages in the event of grid failure. Petitioner states that installation of a Co-generation C.P.P. unit is not only a technological need but also an integral and inevitable part of the steel project for safe dig iron production safeguarding the power supply to critical loads in case of power failure from the grid supply.

3. M/s Gridco, the Affected Party, in its counter/reply has raised the following objections while conveying its views on the proposal for setting up a Co-generation Power Plant by the petitioner.

1. The depreciation charge calculated at the rate of 5 per cent per annum by M/s M.I.S.L. is lower than the rate fixed by the Government of India.

2. Even though, the installed capacity of the proposed plant is shown to be only 2X4.5 M.W., it has been calculated by the petitioner that it can generate 17.652 M.W. from the available steam. As a result of this wrong calculation, the variable cost and the fixed cost as shown in the Project Report is bound to be wrong and incorrect.

3. The plant load factor which has been shown at 100% is not achievable.

4. There is no mention about flow of power from the proposed co-generation C.P.P. unit to the Gridco system and

5. The Govt. of Orissa have permitted M/s.Mesco Indeck Energy Centre for setting up of a C.P.P. with an installed capacity of 240 M.W. which is evident from letter no.7082 dt.23.04.96 of the Govt. of Orissa, Department of Energy addressed to the Chairman Central Electricity Authority, New Delhi and as such it is necessary to examine the requirement of power of the MESCO Group of industries as per the present assessment and the total capacity of the C.P.P. earlier permitted to be set up by the Govt. of Orissa.

4. In an application u/s 44 of the Electricity (Supply) Act, 1948 (hereafter, for short, the Act 1948) read with Section 21(3) of the Orissa Electricity Reforms Act, 1995 (hereafter, for short, the Act 1995), the following points arise for consideration:

1. Whether electric energy required by the petitioner could be economically supplied; and

2. Whether the licensee (Affected Party) is competent to supply required quantity of electric energy sufficient for use and own consumption of the petitioner.

5. Heard arguments at length from Mr.Kanungo and Mr. Rekhani for and against the permission sought for.

5.1 So far the first point is concerned, even though there was initially a difference of opinion and perception as to the cost of generation of power projected by the petitioner, eventually Mr. Rekhani fairly conceded that the cost of generation of power by setting up a co-generation C.P.P. would be actually much less than the rate at which the Gridco can supply. The staff counsel (Mr. S.K.Jena) supported such a conclusion as a fact beyond the pale of controversy. In other words it is fairly an admitted position that Gridco is not in a position to supply power to the petitioner at a rate cheaper than the rate at which it is available from C.P.P. This finding of the Commission takes care of the first three objections [3(i)(ii)(iii)] raised by the Gridco.

6. The authorised representatives of the petitioner have countered the claim of the Gridco that it can supply power required by the petitioner in a reliable and efficient manner to cater to their need. They canvassed that such a claim is prima facie as well as ex facie, unsustainable with regard (being had) to the present track record of the Gridco. They also highlighted that a single outage in power supply to a pig iron producing unit causes serious damage to equipments apart from loss of production and therefore its critical equipments are always provided with alternative captive power supply.

6.1 In the next limb of their argument, they strenuously advanced that it is indispensable to have a Captive Power Plant when a pig iron project is established by the petitioner because it can not be allowed to come to a stand still in the event of grid failure which fairly looms large in this case. They submitted that if such a situation occurs, it will cause immense and huge loss which the petitioner, in any event, can not afford to suffer.

6.2 They further contended that the Commission should seriously take into account the fact that the surplus gases to be emitted from the blast furnaces, if not allowed to be utilised, for co-generation of energy as has been designed by the petitioner, will escape into the air bringing in its wake serious environmental and ecological problem in the area.

7. Excepting asserting that it can supply the required quantity of power to the petitioner in a reliable steady and efficient manner, the Gridco has not placed before this Commission any concrete proposal or scheme for so doing. In the absence of any firm assurance backed up by a concrete programme, it would be unwise to leave the fate of operation of a pig iron project of 0.5 mtpa at the mercy of a mere promise.

7.1 So far as the other two points (6.1 and 6.2) are concerned, the submissions are technologically fool-proof. No steel plant (pig iron)of the capacity ultimately designed for or of the capacity now sought to be produced can afford to go without a Captive Power Plant. Such a possibility is technologically unsound in as much as a Captive Power Plant is the life-line of such a project.

Be that as it may, the plea of environmental hazards in the event of non utilisation of the surplus gases emanated from blast furnaces raised by the petitioner needs a close look and serious consideration. Indisputably, pig iron production process involves generation of blast furnaces gases in large volumes with inherent heat value. Therefore, if such project is allowed to be set up without permitting the petitioner to have co-generation C.P.P. unit, it will obviously lead to serious environmental and ecological imbalances in and around project site. That apart, there will be colossal loss of blast furnace gases putting the economy of the project into jeopardy.

8. Having held as above, the only question that survive for consideration is whether Mesco-Indeck Power Corporation Ltd. is a separate legal entity from that of M/s MISL or both firms are one and same legal entity.
8.1 Even though there is an attempt from the side of the Gridco to contend that both the firms are one and the same legal entity and therefore a second permission as applied for in this case is not advisable to be granted because of the earlier permission by the State Govt. to Mesco-Indeck for setting up a 240 M.W. C.P.P., yet no material or proof is adduced to substantiate the same. Therefore there is no justification to raise such an issue as the petitioner has explained about the phasing out of their earlier conceived project in two parts and the present proposed C.P.P. of 2 X 4.5 MW is associated with phase I pig iron production unit.

9. Thus, taking into consideration the pleadings of the parties, the submissions made at the time of hearing and the feasibility of the project with and without a co-generation C.P.P. unit, the Commission is of the opinion that the permission should be granted to the petitioner to set up a 2X4.5 M.W co-generation Captive Power Plant as has been applied for subject to certain conditions to safeguard the interest of the Gridco. Hence ordered :-

That the petitioner be allowed to set up a 2 X 4.5 MW co-generation Captive Power Plant as applied for subject to the following terms and conditions :

1. The petitioner shall make adequate arrangements to prevent the flow of power to Gridco's system and in case it flows inadvertently, when run in parallel, no charges/fees/duties will be leviable; and

2. The Gridco shall not incur any financial liability whatsoever due to loss of load or generation or damage to the plant on account of system disturbance and system conditions while running Captive Power Plant in parallel with integrated Gridco's system.

3. The cost of any upgradation of equipments on Gridco system due to increase in fault level arising out of such parallel operation of Captive Power Plant shall be borne by the petitioner

4. Petitioner shall furnish the full technical details of its equipments of the Captive Power Plant to Gridco before procurement and obtain Gridco's "No Objection " in the interest of safety of the entire integrated grid.

5. Petitioner shall follow the "Grid Code" of Gridco while in parallel with the Gridco System.

Given under the hand and seal of the Commission, this day, the 7th March, 1998.

CHAIRMAN
MEMBER(R)
MEMBER(M)

Back to "Orders"