Mundra tariff hike plan faces legal hurdle

Monday, 03 June 2013 22:13 Harikumar B

MundraSix years after the government auctioned the first showcase power project to Tata Power, the entire bid evaluation process could come into question. Five companies that lost the race for the 4,000-mw imported coal-fired Mundra UMPP (ultra-mega power project) are gearing up to legally challenge the central regulator's move to allow Tata Power to raise tariff by about 65 paise per unit.

This would be the second time that a decision on a UMPP would be challenged. Tata Power had unsuccessfully moved court against the government allowing Reliance Power to use surplus coal from Sasan UMPP for its other projects. Industry sources in the know said the lost bidders are looking at challenging the move on the ground that the hike would have implications for the way bids were evaluated while awarding the project.

Sources explained that the hike, after the bidding process, would make Tata Power's quote higher than the competitors because of the way it had projected its cost of coal. For example, Tata Power won the project quoting an electricity tariff of Rs 2.26 per unit against runners-up Reliance Power that had offered a tariff of Rs 2.66.

Sources said Tata Power factored in the risk in the price of imported coal by splitting it into two components. One part was linked to the regulator's coal price index. The other part was shown as fixed cost that was not linked to any variation or escalation. This gave an edge to Tata Power in quoting the lowest electricity tariff.

In contrast, Reliance Power's bid did not assume the risk factor in coal price by quoting a tariff entirely linked to the index. The tariff hike after the bidding process, sources said, would amount to allowing Tata Power to pass on the impact of coal price risks to discoms and ultimately consumers. The Central Electricty Regulatory Commission last month accepted the Tata group's plea for a tariff hike due to increase in the price of imported coal. Faced with dissent from one of the members, the commission set up a panel to examine the issue.

Source- TOI