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Home News Power Sector News CERC provides compensatory tariff for Mundra UMPP

CERC provides compensatory tariff for Mundra UMPP

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MundraTata Power won a major relief and power consumers of 5 states received major blow on 15-04-2013 after the central electricity regulator allowed it to increase tariff for power generated from its 4,000 MW Mundra UMPP. The regulator has decided that the quantum of change in electricity tariffs will, however, not be decided by it. Instead a committee with representatives of the five states which buy the power from Coastal Gujarat Power Limited , Tata Power and bankers will decide on the new rates that could be about 67 paise per unit. The committee is to submit its report by May 15.

The ruling would make power costlier for millions of consumers in Gujarat, Maharashtra, Punjab, Rajasthan and Haryana. Tata Power had signed a pact for supply of power from the ultra mega power project (UMPP) at Rs 2.2 a unit with the five states. Like Adani, Tata Power had sought a revision in tariff, citing a change in Indonesian coal regulation that jacked up fuel costs, leading to losses of Rs 1,873 crore annually and extrapolated to Rs 47,500 crore over 25 years.

In its 98-page order, CERC noted that it was necessary to consider adjustment in rates due to the impact of an unanticipated increase in the price of imported coal. "The compensation package could be variable in nature, commensurate with the hardship the petitioner is suffering on account of unforeseen events...." The compensatory tariff should be revised or withdrawn as and when the hardship is removed or lessened, it added.

The CERC order states that "the exchange rate of Rs 55 per US$ considered in the petition for adjustment of tariff has nothing to do with promulgation of Indonesian regulation, as foreign exchange risk is of the petitioner who must have factored it in the bids made". CERC said that while working out the compensatory tariff, issues such as profits earned by Tata Power's coal mines, revenue share on account of electricity sales over and above the commitment under power purchase agreements (PPAs), and using coal having a lower gross calorific value should be considered.

CERC also ordered the setting up a panel — comprising representatives of the five states, Tata Power and bankers — to work out the quantum of the compensation over the current tariff for the imported coal-based project.

This is the second such decision by the CERC allowing projects fired on imported coal to increase tariffs, as fuel prices have risen. On April 2, the regulator allowed a similar hike for Adani Power's 4,620 MW Mundra plant.CERC, chaired by power sector veteran Pramod Deo, in its April 15 order said the price escalation due to Indonesian regulation "is a temporary phenomenon" and hence till the time it stabilises, the petitioner needs to be compensated with a compensation package over and above the present tariff. "As and when the hardship is removed or lessened, the compensatory tariff should be revised or withdrawn," it said. "In our view, this is the most pragmatic way to make power-purchase agreements workable while ensuring supply of power to consumers at competitive rates."

Coastal Gujarat Power Ltd, the special purpose vehicle that runs Tata's Mundra plant, petitioned the CERC that because of the rise in the Indonesian coal price, the project had become economically unviable at electricity rates decided in 2007.

The order was passed by three members of CERC — Pramod Deo, M. Deena Dayalan and V.S. Verma. Chairperson of Central Electricity Authority A S Bakshi is a member in the panel that heard the case.

As in Adani's case, CERC member S Jayaraman dissented with the majority order passed by the five-member panel, headed by Pramod Deo. He called the matter a dispute outside the scope of CERC's regulatory powers. "The decision will be a precedent to be followed in future. The exercise of regulatory power in such cases will have a cascading effect and the sanctity of competitive bidding will be lost. It is not the commission's mandate to ensure the developer earns profit in every situation," Jayaraman said in a separate order.

"In my view, the present case primarily involves adjudication of disputes raised by the petitioner and is outside the scope of regulatory power. The regulatory power is a general power vested in the Commission which can be exercised while formulating regulatory policies. The regulatory power cannot be invoked for settlement of individual disputes arising out of commercial relations between the parties, though power of regulation is considered to be expansive and vast," Jayaraman stated in his dissent note.

According to him, there is no scope either under the power purchase agreement or under the Act to establish a mechanism to grant relief to the petitioner as prayed for. "The petition lacks merit and is liable to be dismissed," Jayaraman said.

Experts also believe that the window for a compensatory tariff through consultative process might be used by other IPPs in Case-I bids - an open bid where the developer has to decide for fuel and location against Case-2 bids where the specifics are provided by the central/state government. It is in Case-1 bids that project special purpose vehicles (SPVs) are making losses. Also, the new model draft guidelines are in circulation, and so the benefit of the CERC ruling will be applicable on power supplies already bid out.

Tata Power said that this decision was an important step in resolving the impasse affecting imported coal based power projects that were taking a hit due to extraneous factors.

Amit Kapur, Partner at J. Sagar Associates, a legal firm that represented Tata Power in the case, said: "Though at this stage it is premature, if not satisfied with the CERC directive, the Discoms may approach CERC (review) or the Appellate Tribunal for Electricity on the matter." "Now that CERC, a quasi-judicial body, has given a clear finding and laid down principles for arriving at the compensatory tariff, it is expected that the parties will be guided to resolve matters through mutual consultation with the intervention of two independent reputed experts," Kapur explained.

Tata Power won the contract to build the 4,000-megawatt Mundra plant in December 2006 after bidding the lowest tariff of 2.26367 rupees a kilowatt-hour. While the lead procurer for the power from the project is Gujarat Urja Vikas Nigam Ltd, the other utilities that have signed PPA with CGPL are Maharashtra State Electricity Distribution Co. Ltd (MSEDCL), Ajmer Vidyut Vitran Nigam Ltd, Jaipur Vidyut Vitran Nigam Ltd, Jodhpur Vidyut Vitran Nigam Ltd, Punjab State Power Corp. Ltd and Haryana Power Generation Corp. Ltd.

Besides Tata Power and Adani Power, Anil Ambani-promoted Reliance PowerBSE 2.69 % too is seeking relief under similar conditions for its upcoming 4000 mw UMPPs at Sasan and Krishnapatnam. Other power producers are also exploring the possibility of approaching the central or state regulators to seek higher tariff on account of change in economics of their respective projects.

Power tariffs are a sensitive matter in India where consumers are already suffering from the effects of high inflation. State utilities could challenge the regulator's decision in courts.

Source- PTI


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