RPower had acquired three coal mines in Indonesia and imports coal from the country to feed its power plant at Krishnapatnam. A recent modification to the Indonesian law mandates all parties to sell coal at market prices. Earlier, Indonesian coal mines had the freedom to bilaterally come to an agreement with buyers on coal prices. CAPL claims that the new Indonesian Coal Price Regulation will push up the coal cost because of which the company would not be able to meet the conditions set by the lenders. This has affected its ability to meet the project cash flow requirements, it said, as explanation for stopping work. Anil Ambani Group firm Reliance Power's 4,000-Mw Krishnapatnam ultra-mega power project (UMPP) may face a hurdle with the Andhra Pradesh government likely to turn down the company's suggestion for a tariff rise. According to government officials, provisions under the power purchase agreement (PPA) with RPower, do not allow rate rise that is influenced by change in policies by foreign governments.
The stoppage comes even as work on the associated infrastructure for the project is in full swing, including Power Grid Corporation's transmission link (Krishnapatnam-Nellore line for start-up power) that is scheduled to come up by November next year. The Krishnapatnam project is one of the four UMPPs awarded so far. Of these, three are being executed by Reliance Power.
The standard Power Purchase Agreement (PPA) for projects such as the UMPPs excludes fuel from the force majeure provisions. Fuel, instead, is mentioned under Clause (a) of Article 12.4 of the PPA that lists out the ‘Force Majeure Exclusions'. Besides, the ‘Non-natural Force Majeure events' specified in the PPA does not include actions by a foreign government.
Article 14 of the PPA, which deals with the termination of contract on account of default by the power seller (in this case CAPL), lists out the "abandonment by the seller or the seller's construction contractors... for a continuous period of two months" as a condition for triggering the clause, provided if "such a default is not rectified within 30 days from the receipt of first notice from any of the procurer or procurers". Since CAPL has chosen not to serve notice to the lead procurer (Andhra Pradesh), the termination clause has not yet been triggered, sources said.
An official from the central power ministry said: "The Andhra government is unwilling to pay a higher price, other than which was fixed, to purchase power." "The government cannot change tariffs, retrospectively, that was fixed through a competitive bidding process. The meeting of the company and the procurers will help us avoid such situations in the future. Moreover, there was no such provision in the PPA agreement," the official added.
The company now wants to pass on the increase in fuel costs to consumers. In its presentation before the CEA and state government officials, RPower said the change in the Indonesian law beyond reasonable control were impacting debt drawdown.
The new Indonesian law would see coal costs soar to almost double from $26 a tonne to $60 at current international price. As the project requires 15 million tonnes every year, the loss on account of increased fuel cost would be around $500-$550 million.
RPower had earlier changed the unit configuration for the project from 5x800 Mw units to 6x660 Mw after an approval from Central Electricity Regulatory Commission. The first unit was expected to be commissioned in June 2013.
Source- Hindu, Business standard