Kowepo warns of arbitration if fuel supply pact dishonoured

NEW DELHI: Korea’s state power utility has begun arbitration proceedings against India for not honouring fuel supply commitment to its gas-based power plant in Maharashtra. Korea Western Power Company (Kowepo) owns 40% in Pioneer Gas Power Limited (PGPL) that operates a 388 Mw project in Raigad district.

Kowepo is protected under India-Korea bilateral investment treaty (BIT) and Comprehensive Economic Partnership Agreement (CEPA) and it has sought resolution of issues surrounding its project in six months or $400-million compensation for loss and damages.

If the issues remain unresolved after six months, Kowepo will commence international arbitration proceedings under India-Korea BIT and CEPA, a government official said quoting the notice.


An email sent on Thursday by ET to Pioneer Gas Power Plant remained unanswered.

Kowepo is a subsidiary of Korea Electric Power Corp, the largest electric utility of Korea and a listed company owned by that government. The Korean government has given its consent to invoke arbitration proceedings under bilateral investment treaties and CEPA, the official said.

The notice of dispute and consultations under the promotion and protection agreements and the CEPA between Korea and India has been sent to PMO, Cabinet Secretariat, Ministries of Finance, Commerce, Oil & Gas and Power.

Kowepo, with six power plants totaling 11780-Mw coal and gas power units in Korea — which is 10% of the country’s total installed capacity, invested close to Rs 350 crore in the power plant in 2012. The project has been set up at a total investment of close to Rs 1,900 crore.

Kowepo has said its investment decision on the power plant was based on the then legal and policy framework in India as well as statements and notifications made by the central and Maharashtra governments and entities such as Directorate General of Hydrocarbons (DGH), power and petroleum ministries, the Central Electricity Authority (CEA), Gas Authority of India, Petroleum and Natural Gas Regulatory Board (PNGRB) and standing parliamentary committee reports which painted a rosy picture of Indian natural gas sector and called for investments through their public statements.

An empowered group of ministers (EGoM) on natural gas had identified gas-based power generation as one of the priority core sectors for domestic gas utilisation. This was substantiated by the 12th Five-Year Plan, reports of CEA and disclosures by entities developing KG-D6 and DGH. PGPL signed gas transmission contract with GAIL in 2011 and participated in CEA process seeking 1.75 mmscmd gas allocation.

In the notice, Kowepo said, the government continued to dispel the doubts on KG-D6 production shortfall as temporary issues; the EGOM maintained core status to gas-fired power projects and CEA continued evaluation. In August 2013, EGoM removed gas-based generation from priority list and gave it to fertiliser. The company has also contested government’s decision to make gas available to PSUs such as NTPC and Maharashtra government’s move to cancel power purchase agreement to offtake 50% power, while nearly doubling the cross subsidy charges.

Kowepo has said it could not participate in the government’s scheme for stranded gas based plants as GAIL did not complete its pipeline.