The panel’s recommendations, which may include making tariffs viable by reviewing the power purchase agreements, or acquisition of the projects, are expected in two months. The panel comprising Justice (retd) R.K. Agarwal, former deputy governor of RBI S.S. Mundra and former chairman of the Central Electricity Regulatory Commission, Pramod Deo, will be assisted by SBI Caps and NTPC.
The government of Gujarat, where the plants are located, says reviving these plants will help consumers get much cheaper electricity and has asked the panel to submit its recommendations in two months, according to the state’s order issued on Tuesday on “Formation of High Power Committee on finding solutions in respect of power supply by imported coal based power plants to the procurer states”.
SBI Caps will assist the panel. Distribution companies, which signed contracts to purchase power from these projects at a particular price, have strongly resisted any attempt to increase the tariff.
The companies argued that coal prices rose sharply because of unexpected changes in Indonesian regulations, making the plants unviable, and forcing two plants to shut down and one to run at a low capacity and make losses.
With such a large capacity shut down, Gujarat, Haryana, Punjab, Rajasthan and Maharashtra, which would together get 8,000 MW of power from these plants, are facing a huge shortage. “Resultantly all these states are required to purchase/generate power at higher cost/rates. Thus due to prevailing conditions the consumers of these states are to be put to pay much higher cost of power,” the government order appointing the panel said.
The Gujarat government said states were suffering big losses. “Due to non-availability of power under these PPAs, there is a huge financial implication on procurer states in respect of power purchased/generated at the cost much higher than PPA rates which is putting these states under heavy stress,” it said. Officials said Gujarat had to purchase costly electricity from the spot market at an additional cost of Rs 3,000 crore in the last few months.
Officials said the committee would deliberate on the recommendations of State Bank of India, the lead banker to the Mundra units of Tatas, and Adani and Essar Power’s Salaya unit, which has proposed that the Gujarat government buy imported coal and supply to the plants while only paying the generators the fixed cost—which is 40% of the tariff.
While Adani Power’s 4,620 MW plant and Essar Power’s 1,320 MW Salaya plant have stopped operating, citing non viability, Tata Power has been operating the 4,000 MW project that made a loss of Rs 1,700 crore in the last financial year.
In June last year, Tata Power, Adani Power and Essar Power had offered majority stakes in their imported coal-based power plants in Gujarat to the state government at Rs 1 each.
The three companies had sought interventions of the Gujarat government, the Union power ministry and the prime minister’s office (PMO) after the Supreme Court disallowed tariff compensation to Tata Power and Adani Power for rise in imported coal prices due to change in the Indonesian law.
In letters written to Gujarat Urja Vitaran Nigam (GUVNL), also marked to the power ministry, the chief secretary to the Gujarat government, and the principal secretary to the prime minister, the companies had suggested selling 51% equity at Re1and letting the company operate the 4,000 MW plant as remaining stakeholder. CGPL’s Mundra has power supply pacts with five states.
On April 11, 2017, the Supreme Court ruled that increase in coal prices due to change in overseas laws cannot be considered as change in law under the PPA.
Adani Power and Tata Power had approached power regulator Central Electricity Regulatory Commission (CERC) for compensation after Indonesia banned coal supply at less than international prices in September 2010. The CERC had ruled that such change cannot be classified as change in law or ‘force majeure’ under the PPAs but allowed compensatory tariff under exercise of regulatory power.
The Appellate Tribunal for Electricity ruled that the case qualifies under the force majeure clause and asked the CERC to reconsider the quantum of compensation. Against this, the state distribution companies appealed in the Supreme Court. The apex court allowed the CERC to calculate compensation till verdict. The CERC had issued the mechanism to compensate the companies. The Supreme Court finally said the increase in coal prices cannot be considered force majeure or change in law and asked the CERC to look into the matter afresh in light of its verdict.
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