MERC rejected this and said the power purchase agreement (PPA) was not contingent upon the supply of fuel at the specified price from the Indonesian supplier, and the action of Indonesian authorities did not trigger the force-majeure clause. "The commercial difficulty faced by the petitioner on account of unavailability of fuel from its fuel supplier cannot be a ground for not performing the PPA," the regulator said.
The decision of the regulator is being closely watched by power producers and analysts as companies such as Tata Power and Reliance Power are seeking a tariff revision for their units since cost of coal imported from Indonesia has risen unexpectedly. A senior industry official said the order may not hurt these firms because their costs went up due to different, generic reasons, but analysts said the MERC move was bad news.
"The MERC order is a setback for all those power firms seeking a revision in tariff due to issues of coal supply from Indonesia. But it is in line with the norms of Case 1 bids, where the developer quotes a tariff based on its assessment of risks of fuel supply," said Debasish Mishra, senior director, Deloitte Touche Tohmatsu India.
JSW may challenge the order. "We are currently reviewing the order. Based on the legal advice we get, we would take appropriate step which may include challenging it," Lalit Kumar Gupta, joint managing director and CEO, told ET.
Tata Power and Reliance Power had bought coal mines in Indonesia to fuel their respective power plants. But a policy change in that country has made coal exported out of Indonesia up to 150% more expensive, upsetting project economics.
While Tata Power's 4,000 mw ultra mega power project at Mundra in Gujarat is ready for commissioning and expects to clock an annual loss of Rs 500 crore in the first year of operations, Reliance Power has halted work at its Krishnapatnam UMPP in Andhra Pradesh on similar concerns.
Source- Economic Times