Home / Companies / News /  Gujarat cancels 2018 tariff hike to Adani, Tata, Essar's ultra mega power plants

Mumbai: The Gujarat government has decided to reverse its 2018 decision to amend the power purchase agreements (PPAs) it signed with three producers - Tata Power, Adani Power and Essar Power - to raise the tariffs in order to offset the rising cost of imported coal.

On Thursday, the energy and petrochemicals department of the state noted in a press release that “the market trend of Indonesian coal prices (have) changed the scenario and to safeguard the interest of consumers, the government of Gujarat has revoked the regulation dated December 1, 2018 as the same was not fulfilling its objective and purpose."

The state cabinet had, in fact, approved a decision dated June 12 by the Gujarat Urja Vikas Nigam Ltd (GUVNL), the electricity services department of the state, to revoke the 2018 tariff hike in view of falling international coal prices. Instead, the new order said that “matter of signing supplemental PPAs with EPGL (Essar Power Gujarat Ltd) and CGPL (Coastal Gujarat Power Ltd, a Tata Power subsidiary) will be decided on a case to case basis".

Mint has reviewed a copy of the June order.

GUVNL explained this reversal in its stance saying that the “supply of power to Gujarat.. shall not be at a higher tariff than the tariff charged to other procurer states." Thursday’s press release said that “a suitable decision in the matter of tariff for imported coal-based projects will be taken in the future by the government of Guajrat considering the consumers’ interests."

At the heart of the dispute is the procurement cost of power generated by Tata Power’s 4,000 MW power plant and Adani Power’s 4,620 MW plant at Mundra and Essar Power’s 1,320 MW plant at Salaya. The three ultra mega power plants were built to generate power with thermal coal imported from Indonesia.

When coal prices in Indonesia escalated, the three power generators filed for compensatory tariffs from the procuring states so as to pass on the additional fuel costs. CGPL had signed PPAs with five states — Gujarat, Maharashtra, Rajasthan, Punjab and Haryana - while Adani Power had signed supply agreements with Gujarat and Haryana. EPGL was seen to be better placed among the three plants as it has a PPA only with Gujarat. GUVNL is the primary power procurer from all three plants and its 2018 decision to allow compensate the power producers for the rising fuel costs was expected to bring relief to their operations and to the banks that feared the loans to these projects turning sour. The new tariffs were expected to be between 3.10 and 3.50 per kilowatt-hour at the time of the tariff hike approval.

The 2018 government order came after the state government accepted the recommendations of a high-power committee that it has constituted to raise the tariffs. It took the better part of the last two years for the tariff increase to be approved by the state and central electricity regulatory authority. In fact, EPGL’s approval came only in April this year. Meanwhile, the Supreme Court ruled in favour of Adani Power terminating part of its PPA with GUVNL when the state failed to meet its alternative domestic coal supply arrangement. For Tata Power, Gujarat had been the only procurer that had agreed to the tariff hike. The company had even considered shutting down the plant’s operations earlier this year as it struggled to convince the other states for a tariff hike.

Tata Power could not be reached for comment till press time. Adani Power and Essar Power have declined to comment on the development.

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