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A file photo of Adani Power

CERC sets precedent, offers relief to Adani’s imported coal fuelled Gujarat project

  • Earlier, CERC had rejected Adani Power’s plea of 'force majeure' and 'change in law'
  • CERC approved the revised power purchase agreements that entails changes in the fixed and variable costs of the tariff components from the Mundra power plant

New Delhi: In a move that may set a precedent and raise electricity tariffs, India’s apex power sector regulator on Friday approved the revised power purchase agreements (PPAs) for billionaire Gautam Adani’s promoted Adani Power Ltd’s Gujarat plant on account of the unexpected increase in the prices of imported coal.

With the issue hanging fire since 2012, the Central Electricity Regulatory Commission (CERC) approved the revised power purchase agreements that entails changes in the fixed and variable costs of the tariff components from the Mundra power plant.

While the variable cost (fuel) will be revised monthly and has been capped at $110 per tonne for coal having a gross calorific value (GCV) of 6322 kilocalorie per kg, the fixed cost has been reduced by 20 paise per unit (kilowatthour or kWh). The CERC order also allowed extension of the amended PPA by 10 years and Adani Power sharing its mining profit.

Calorific value refers to the amount of heat that can be generated by burning a certain amount of a fuel.

The Friday order cited recommendations of a committee constituted by the Gujarat government and chaired by former Supreme Court judge Justice R.K. Agrawal to look into the possibility of “contribution by each stakeholder, including banks, project developers and procurers, by way of concessions for mitigating hardship".

The High Power Committee (HPC) comprising of S.S. Mundra, former Deputy Governor, RBI and Pramod Deo, former Chairman, CERC noted that coal-based power projects needed to be salvaged and allowed to pass the impact of high fuel costs equitably to consumers, lenders and other stakeholders.

“It is acknowledged upfront by the HPC as well as the Government of Gujarat policy GR (government resolution) that the rehabilitation of the plants will entail increase in tariffs for consumers. However, such increase in tariffs can be mitigated to a certain extent through other means, including reduction in capacity charges due to Lenders‘ sacrifice, passing on of Mining Profits by generators that have captive coal mines in Indonesia and by making available additional untied capacity to the procurers," the order stated.

To be sure, the CERC Friday order pertains only to 2000 megawatts (MW) of the 4,620 MW Adani Power ’s Mundra power plant. The project was won by placing a winning bid of Rs2.35 per unit in 2008.

The CERC judgement comes in the backdrop of the Supreme Court last year directing the apex electricity regulator to decide on changes to PPAs of three troubled power projects run by Adani Power Ltd, Tata Power Co. Ltd and Essar Power Ltd.

“The HPC has categorically concluded that the consumer and public interest will be best served by salvaging these projects. The HPC has also concluded that if urgent action is not taken, then it would inevitably lead to closure of these projects, which is not in the larger interest of the consumers," the CERC said in its order.

“The revised energy charges under the amended PPAs will come into effect from 15th October 2018. These amendments will allow APMuL (Adani Power Mundra Ltd) to address the under-recovery of fuel costs," Adani Power Ltd said in an announcement to the exchanges on Friday.

Tata Power’s Coastal Gujarat Power Ltd (CGPL) and Adani Power had earlier approached CERC seeking higher tariffs on the grounds that their input costs had gone up due to depreciation of the rupee and higher costs of coal imported from Indonesia, following a regulation passed by the South-East Asian nation in 2010.

On 2 April 2013, CERC had rejected Adani Power’s plea of “force majeure" and “change in law", but constituted a committee to suggest payment of compensatory tariff to the power company. CGPL’s request was rejected on 15 April that year. In April 2017, the Supreme Court set aside a 2016 order of the Appellate Tribunal for Electricity (Aptel) that allowed Adani Power and Tata Power to charge so-called compensatory tariffs.

“It emerges that the rehabilitation package seeks to delicately balance conflicting stakeholder interests in a pragmatic and commercially sustainable basis. Most importantly, it emerges clearly that even after implementing the rehabilitation package and the consequential increase in tariffs, these projects will continue to be competitive, will be high in merit order and certainly cheaper than any replacement capacity," the CERC order on Friday stated.

“If these projects are not rehabilitated, the closure could be imminent and permanently leading to a significant loss of generation capacity in the Western Region that cannot be compensated from other generation sources at a matching tariff. The consequent demand and supply mismatch could have adverse impact on the economic growth of the State of Gujarat, since this capacity constitutes a significant proportion of its energy basket," the order added.

In June 2017, Tata Power offered to sell a 51% stake in its subsidiary CGPL, which runs the 4,000 megawatt (MW) Mundra power plant, for a token sum of Rs1 to power discoms that had agreed to procure electricity from the project. Subsequently, Adani Power offered to sell a stake in its 4,620MW power plant, also located in Mundra, for Rs1. Essar Power made a similar proposal for its 1,320MW power plant in Salaya.

“Submission has also been made that the generator APMuL is the subject matter of an investigation by DRI (Directorate of Revenue Intelligence) on allegations relating to over invoicing of imported coal. These allegations are of no relevance in the present proceedings. The law will take its own course in those investigations," the order said.