Setback for Tatas, Adani, Essar as Guj axes compensatory tariff

New Delhi: In a setback for the imported coal-based projects of Tatas, Adanis and the Essar Group, the Gujarat Cabinet has reversed its November 2018 decision on compensatory tariff to these mega projects for offsetting higher fuel cost.

A change in law in Indonesia, the prime fuel source country for several imported coal-based projects in India, unexpectedly raised the cost for these power projects making adherence to the agreed lower tariff difficult.

According to a letter issued by the state Energy Department to the Gujarat Urja Vikas Nigam Ltd (GUVNL) earlier, a copy of which is with IANS, the discom has been informed that the state government has revoked the government resolution (GR) of December 1, 2018 that had allowed higher tariffs to the power companies for “all intent and purposes”.

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The three power projects – Tata Power’s 4,000 MW, Adani’s 4,620 MW plants in Mundra and Essar Power’s 1,200 MW plant at Salaya — have in all PPAs for supply of 4,600 MW power to GUVNL for 25 years. While Adani Power has two PPAs for 1,000 MW each, Tata Power has PPA for 1,800 MW and Essar for 800 MW with the state utility.

Sources said that the state cabinet has cancelled the 2018 GR in public interest as paying higher compensatory tariff to projects now when fuel prices have gone down substantially was not in public interest.

The 2018 decision of the state government to compensate the projects that were reeling under losses due to increased cost had come as big relief to the three imported coal-based projects. As per estimates made then, the increase in fuel cost resulted in losses to the tune of Rs 24,000 crore for these companies, which were incurring losses to the tune of Rs 5,000 crore annually.

Sources said that the order to cancel the decision on compensatory tariff and move towards supplemental PPA with the power projects has also been informed to Gujarat Electricity Regulatory Commission and the Central Electricity Regulatory Commission.

It is expected that GUVNL will sign supplementary PPAs with all these entities for the power capacity it intends to buy as per modified terms and conditions as per the CERC order of April 27. The new tariff will be applicable from the date of order of the CERC approving supplemental PPAs.

The tariff under supplemental PPAs with the power projects is expected to be a lot lower than compensatory tariff approved in 2018, as the state government proposes to reduce fixed cost for these projects by 20 paisa per unit while fuel cost would be determined on the basis of FoB charges and based on international price index and as per the terms agreed by the project developers in their while placing bids in tariff based bidding exercise. Also, any profit generated from coal mining operations through sale of thereof would be settled to reduce variable charge in tariff.

All the companies, Tata Power, Essar and Adani did not respond to the development till the time of release of the story. However, company sources said that they were studying the development and the company would respond in due course.

The Mundra projects of Adani Power and Tata Power and the Salaya coal-based plant of Essar Power (already classified NPA) had become stressed following controversial 2010 changes in Indonesian coal export norms that had substantially increased the cost for these plants without any provision for a fuel cost pass-through in existing power purchase agreements.

The issue of tariff for these projects have gone through lengthy litigation in regulatory commissions, appellate bodies, lower courts and the Supreme Court.

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