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Indian Oil Corporation to invest Rs 5 billion in 73.8 MW wind projects in India

According to reports, cash-crunch is not stopping India’s largest oil marketing company Indian Oil Corporation (IOC) to diversify into other energy verticals. After foraying into wind power generation in 2009, IOC is now spending about Rs 500 crore in present financial year to set up 73.8 mega watt new wind farms in Andhra Pradesh and Tamil Nadu.

“The company has given contracts to set up wind power projects of 48.3 mw and 25.5 mw, totaling 73.8 mw, in Andhra Pradesh and Tamil Nadu that would cost Rs 263.47 crore and Rs 151.25 crore, respectively,” said a company official who did not wish to be named.

IOC has reported net loss of Rs 7,485 crore during July-September this financial year. The company has been complaining to government on rising under-recoveries on account of selling petroleum products below market cost. This is leading to tight cash flows in the company and borrowings have skyrocketed.

When asked about funding of new wind power projects, the official said, “Budget provision has been made for project expenditure of Rs 350 crore in 2011-12. The provision will be enhanced appropriately in the revised estimate of 2011-12.”

IOC has awarded contract for 48.3-mw project in Andhra Pradesh to Suzlon Energy. Another contract for 25.5 mw wind farm in Tamil Nadu has been bagged by Leitner Shriram Manufacturing. These contractors have been selected by bidding process on highest returns basis. The projects would be implemented on lump sum turnkey (LSTK) contract model.

The power generated from these wind energy projects would be sold to state power utilities in Andhra Pradesh and Tamil Nadu through 20 years power purchase agreements (PPA).

These two projects on standalone basis would give an internal rate of return (IRR) of 6.61 per cent for Andhra Pradesh and 6.10 per cent for Tamil Nadu, without considering clean development mechanism (CDM).

Wind power projects are eligible for benefits under the clean development mechanism projects. However, IOC is not able to get CDM benefit for its existing Gujarat wind power plant set up in 2009.

In addition to Andhra Pradesh and Tamil Nadu, IOC also invited expressions of interests for setting up of wind farms in Gujarat, Rajasthan and Karnataka in August 2010. However, no bid was received for Karnataka. And the bidder for Gujarat did not offer site for verification and therefore not considered. The bid received for Rajasthan was not found economical.

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