Gujarat may accept hike in tariff for power from Mundra plant3 min read . Updated: 10 Sep 2013, 11:47 PM IST
Gujarat signals it is open to
increasing tariff on electricity generated from its plant at Mundra
New Delhi: Gujarat on Tuesday indicated it is open to Tata Power Co. Ltd increasing tariff on electricity generated from its plant at Mundra, but other states are yet to confirm their willingness to pay more.
This comes in the backdrop of a panel headed by Deepak Parekh recommending an increase in tariff.
“We will try to accommodate (Tata Power’s request to increase the tariff). There is large capital at stake," Gujarat’s energy minister Saurabh Patel said in New Delhi on a visit to attend the seventh conference of state power ministers. “This may involve everyone including banks and states taking a haircut."
Tata Power had approached the Central Electricity Regulatory Commission (CERC) to consider allowing an increase in tariff for electricity generated from its 4,000 megawatt (MW) ultra mega power project (UMPP) at Mundra in Gujarat after customers refused to pay higher charges. It sought the increase to compensate for the rising price of the imported coal it depends on to fuel the plant.
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. “Our interaction with stakeholders suggest that the Committee formed to suggest a ‘compensatory tariff’ for Mundra UMPP project, based on the CERC’s judgment in April, has effectively suggested the pass-through of entire fuel cost ( ₹ 0.59/kwh for FY14)," Credit Suisse India Research said in a 10 September report on Tata Power. Tata Power’s special purpose vehicle, Coastal Gujarat Power Ltd (CGPL), had signed agreements to sell electricity generated from the Mundra plant to Gujarat, Maharashtra, Haryana, Punjab and Rajasthan at ₹ 2.26 per unit.
Some of these states are still hesitant to pay higher tariffs.
Devender Singh, principal secretary in the Haryana government, said, “We had raised our concerns to the Deepak Parekh committee, some of which have not been addressed... They will have to be addressed by CERC before we go forward."
Singh is also the chairman and managing director of Uttar Haryana Bijli Vitran Nigam and Dakshin Haryana Bijli Vitran Nigam.
While the lead procurer of the power from the Mundra project is Gujarat Urja Vikas Nigam Ltd, the other utilities that have signed purchase agreements 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.
“We are studying the recommendations," said Ajoy Mehta, managing director, MSEDCL.
“The Mundra tariff discussions are being undertaken as per the direction of the CERC. It is a judicial process and it is for the regulator to endorse the recommendations made by the Committee," Tata Power said in an emailed statement.
CGPL in its petition projected a loss of ₹ 1,873 crore per annum and ₹ 47,500 crore over a period of 25 years on account of higher fuel costs. It said the additional cost on account of increase in Indonesian coal prices is around ₹ 0.67 per kilowatt-hour (kwh). The project requires 11.22 million tonnes per annum (mtpa) of coal with a gross calorific value of 5,350 kilocalorie per kg.
“The committee has taken a benign view for Mundra UMPP which is positive for Tata Power but we still do not rule out the possibility of this order being litigated by SEBs and consumer forums," the Credit Suisse report added.
CERC ruled that Tata Power 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 last year started levying higher royalty and income tax, affecting the financial viability of the project.
Analysts term the development as positive for the sector.
“Although these are early signs, power sector’s problems are getting addressed one by one," said Debasish Mishra, senior director at DeloitteTouche Tohmatsu India Pvt. Ltd, an audit and consultancy firm. “Fuel supply agreements, disputed contracts, debt restructuring, tariff reforms, gas availability—on all issues the direction of change would give some hope to distressed investors in the sector."