Regulator pulls up state power utility for overruns

Regulator pulls up state power utility for overruns

Mumbai: Maharashtra’s electricity regulator has pulled up the state government-owned power generation utility Maharashtra State Power Generation Co. Ltd (Mahagenco) for rising tariffs, and cost and time overruns in project implementation.

The Maharashtra Electricity Regulatory Commission (Merc) has also rejected Mahagenco’s petition that requested the regulator not to have a public hearing to determine cost of its two units of 250MW each.

A public hearing, where consumers get a chance to present their side, to decide capital cost of Mahagenco’s new units at Parali and Paras thermal power stations, will be held on 30 September.

“The delay in implementation of projects and resulting high expenditure being a very serious issue impacting the consumers’ tariffs," the regulator said, adding the root cause of this should be examined to determine whether the management was “inefficient".

It observed the scheduled time for commissioning of both the projects was 32 months but the utility took more than 40 months to commission them.

The regulator had first held the public hearing to determine the cost of these two projects on 21 July but Mahagenco representatives were not able to answer queries on interest rates for the loan raised from Power Finance Corp Ltd (PFC) and terms of the loan.

Subsequently, Mahagenco filed a review petition pleading there is no need for the public hearing, which was slated for 15 September, but Merc rejected it.

Time and cost overruns have increased capital costs, Merc said.

“Interest during construction" is an important component of this cost increase, which is proposed to be passed on to the consumers. It is in this context that the inability to answer “simple questions" on the rate of interest of the PFC loan by Mahgenco’s senior project team in a public hearing is to be seen and viewed, Merc said.

According to it, this clearly reveals “cost consciousness" is “absent in the mind-set of the senior project management team". This, the commission said, “is an unpardonable sin", from the point of view of consumers.

“All relevant documents regarding project loan from PFC were submitted to the commission and we are considering to go in appeal against Merc’s decision to have a second public hearing on the issue before the appellate tribunal for electricity," a Mahagenco official said, requesting anonymity.

A 250MW Tata Power Ltd unit at Trombay was commissioned three months ahead of the commissioning of the new units at Parali and Paras in 2010. The capital cost for the Tata Power project is around Rs1,000 crore, two-third of each of the Mahagenco projects.

State-owned Bharat Heavy Electrical Ltd is the supplier of plant and machinery to all three projects, and hence, Mahagenco’s claim that due to delay on Bhel’s part, the projects got delayed is unacceptable, said consumer activist Ashok Pendse.

The Mahagenco plants are allowed to claim 16% return on equity under the Electricity Act of 2003. Under this scheme, if project cost rises, the burden is passed on to consumers.