CERC bails out Tata Power, states may challenge order5 min read . Updated: 23 Feb 2014, 09:22 AM IST
The order opens door to compensation for other power projects that have run into similar problems due to a seemingly unexpected turn of circumstances
New Delhi: India’s apex power sector regulator has upheld its earlier order of a bailout package to Tata Power Co. Ltd for the electricity generated from its imported coal-based Mundra plant in Gujarat. This results in electricity tariffs increase by 52 paise per unit for the current fiscal across states such as Gujarat, Maharashtra, Haryana, Punjab and Rajasthan which are the procurers of electricity for this project.
Tata Power had approached the Central Electricity Regulatory Commission (CERC) to consider an increase in its power tariffs after customers didn’t want to pay higher charges. Coastal Gujarat Power Ltd (CGPL) had signed agreements to sell electricity generated to Gujarat, Maharashtra, Haryana, Punjab and Rajasthan at Rs2.26 per unit.
In an order dated Friday, that has far reaching implications for the Indian power sector, the CERC ruled that the company will be allowed to temporarily increase tariffs to compensate for the additional fuel costs it is incurring on account of coal imports becoming expensive when the Indonesian government in 2012 started levying higher royalty and income tax, affecting the financial viability of the project. The position will be reviewed after 3 years.
The order is significant as it opens the door to compensation for other power projects that have run into similar problems due to a seemingly unexpected turn of circumstances, especially with respect to fuel costs.
However, state utilities may approach the Appellate Tribunal for Electricity against the order.
“The tariffs will go up. We had raised a lot of objections. Nothing stops us. We can very much go for an appeal," said a senior Maharashtra government official requesting anonymity.
The regulator in its order for awarding compensatory tariff to Tata Power’s special purpose vehicle, CGPL, that has set up the 4,000 megawatts (MW) Mundra plant also laid out the parameters such as station heat rate, auxiliary power consumption and transit Loss to be used for calculation of compensatory tariff on monthly basis for the current financial year (2013-14). This dispensation remains “till the hardship on account of Indonesian Regulations persists." The tariffs will be audited at the end of every fiscal.
While the lead procurer for the power from the project is Gujarat Urja Vikas Nigam Ltd, the other utilities that have signed PPA with CGPL are Maharashtra State Electricity Distribution Co. Ltd (MSEDCL), Ajmer Vidyut Vitran Nigam Ltd, Jaipur Vidyut Vitran Nigam Ltd, Jodhpur Vidyut Vitran Nigam Ltd, Punjab State Power Corp. Ltd and Haryana Power Generation Corp. Ltd.
Also, CERC said that while working out the compensatory tariff, issues such as profits earned by Tata Power’s coal mines and revenue share on account of electricity sales over and above the commitment under power purchase agreements (PPAs) be considered. In addition, the regulator also ordered CGPL to share the “burden of hardship," with it allowing a haircut of 1% of its return on equity to be adjusted in the compensatory tariff.
In addition, CERC in its order also provided for Rs329.45 crore “lump sum compensation" from the electricity procurers for 2012-13 financial year. This has to be paid by the procurer states in 36 equated monthly instalments and any delay would result in a late payment surcharge as per the power purchase agreement.
Further, CERC also provided for the current fiscal and stated, “The arrears in this respect from 1.4.2013 till 28.2.2014, in accordance with this order shall be recovered from the Procurers in equal monthly instalments over a period of not less than 12 months from the date of this order."
CGPL in its petition has projected a loss of Rs1,873 crore per annum and Rs47, 500 crore over a period of 25 years on account of higher fuel costs. It has said that the additional cost on account of increase in Indonesian coal prices is around Rs0.67 per kilowatt-hour. The project requires 11.22 million tonnes per annum (mtpa) of coal with a gross calorific value of 5,350 kilocalorie per kg.
This order also sets the stage for a similar relief to Adani Power Ltd which has petitioned for a tariff revision. Also, work has also been halted at Reliance Power’s Krishnapatnam imported coal-based project in Andhra Pradesh because of the unexpected rise in fuel price.
“The petitioner is further directed to submit claim to Procurers with actual cost on month to month basis for final settlement," CERC said in its order.
A Tata Power spokesperson in an emailed statement said, “The Company finds the order balanced perhaps keeping in view the beneficiaries and consumer interests. The decision of CERC was awaited to make Mundra viable, which had got impacted due to No fault of itself, but due to change of law at Indonesia as also other coal exporting countries and an unprecedented rise which could not have been perceived. This will go towards resolving a major impasse affecting imported coal based power projects in the country that got impacted due to uncontrollable extraneous factors. The order provides partial relief to Mundra UMPP, which has been contributing to the nation by way of about 2-3% of the gross generation."
The power sector regulator in April offered to allow Tata Power a variable compensatory tariff till the fuel situation stabilized, as well as a bailout package in a repeat of its earlier judgement on a similar petition by Adani Power Ltd for a tariff hike. It appointed the Deepak Parekh committee to suggest revised tariff for both the companies. The Deepak Parekh recommended an increase in tariff.
CERC also suggested CGPL and the electricity procurers to approach the concerned authorities for reduction in duties and taxes. Similarly, it also recommended them to approach lenders “to obtain reduction in interest rates, extending moratorium on principle repayment for a period of 2 to 3 years and possible extension of loan repayment tenor." Such relief if provided would help in the reduction of the compensatory tariff.
“As recommended by the Committee, the generator and procurers may jointly approach RBI, ministry of finance and ministry of power for possible assistance to the power producers in getting relief on account of interest rates and restructuring of loan. The Commission requests RBI to favourably consider the request of the parties to make the project viable if such an application is made," the CERC order stated.