The Delhi high court on Thursday allowed three firms—Monnet Power Co. Ltd, Mandakini Exploration and Mining Ltd (MEML) and Jaiprakash Power Ventures Ltd—to withdraw their bids in an auction of coal blocks and secure a refund of the bidding amount from the government without paying any penalty.
The power firms had gone to court seeking a clarification over capping of the fixed charge component of the rate of electricity generated from plants that won coal block auctions earlier.
As an alternative, they had sought a refund of bidding amounts as the capping of fixed charge was likely to have an adverse effect on earnings.
“Since the capping of fixed costs would have an impact on the bidding process and the petitioners were not aware of it, they are entitled to withdraw their bids." justice Badar Durrez Ahmed said.
The power firms told court that capping the fixed component of power tariffs would be contrary to a regime of open bidding adopted to determine the tariffs.
Lawyer Kapil Sibal, appearing on behalf of MEML, told court that the fixed cost consisted of several components—return on equity, interest on loans, interest on working capital, depreciation and operation and maintenance expenses. These elements would all be different in each case, so capping them would be “discriminatory and unconstitutional", he argued.
MEML also contended that the proposed cap would amount to change in bidding conditions for coal mines and could potentially destroy the firm. The cap was to prevent thermal power plants from increasing tariffs on the electricity they generate.
The power ministry in April amended guidelines for power procurement by states, under which state power distribution companies, in consultation with their regulatory commissions, could determine a ceiling for fixed costs for every unit of power.
Under this system, the fixed cost would be indicated in advance to all bidders before distribution companies invite bids for power supply.