The apex power sector regulator Central Electricity Regulatory Commission (CERC) has upheld an earlier order that awarded a monetary compensation package to Tata Power Company Ltd for the electricity generated from its 4,000 MW imported coal-based plant at Mundra in Gujarat.
The CERC has also granted a nearly Rs 830 crore compensation for Adani Power’s 4,620 MW Mundra plant in Gujarat. The amount is to make up for the losses incurred by the Adani project due to higher cost of imported Indonesian coal.
In a 133-page order, the CERC has said that Gujarat has to pay Rs 420.24 crore while Haryana has to shell out Rs 409.51 crore as compensation from the commissioning date till March 31, 2013.
In response to the CERC order, indications are that state utilities may approach the Appellate Tribunal for Electricity against it.
As a result of the order, the electricity tariff from Tata’s Mundra project would increase by 52 paise per unit for the current fiscal and would have to be borne by states such as Gujarat, Maharashtra, Haryana, Punjab and Rajasthan, which are the procurers of electricity from this project.
Tata Power had earlier approached the CERC seeking an increase in its power tariffs after states refused to pay higher charges. The latest CERC order has far-reaching ramifications as it opens the door to compensation for other power projects that have run into rough weather due to a seemingly unexpected turn of circumstances, especially with respect to a rise in imported fuel costs.
Tata Power arm Coastal Gujarat Power Ltd (CGPL) had signed agreements, after bagging the project through a tariff-based bidding process, to sell electricity generated to Gujarat, Maharashtra, Haryana, Punjab and Rajasthan at Rs 2.26 per unit.
In an order issued Friday, the CERC ruled that the company will be entitled to temporarily increase tariffs to compensate for the additional fuel costs it is incurring on account of coal imports becoming expensive when the Indonesian government in 2012 started levying higher royalty and income tax, affecting the financial viability of the project. The position will be reviewed after three years.
CERC, in its order, said that while working out the compensatory tariff, issues such as profits earned by Tata Power’s coal mines and revenue share on account of electricity sales over and above the commitment under power purchase agreements (PPAs) be considered.
In addition, the regulator also ordered CGPL to share the “burden of hardship” with it allowing a haircut of 1per cent of its return on equity to be adjusted in the compensatory tariff.
In addition, CERC has also provided for Rs 329.45 crore “lump sum compensation” from the electricity procurers for 2012-13 financial year. This has to be paid by the procurer states in 36 equated monthly instalments and any delay would result in a late payment surcharge as per the power purchase agreement.
“The petitioner is further directed to submit claim to procurers with actual cost on month to month basis for final settlement,” CERC said in its order. Tata Power, in an emailed statement, said, “The company finds the order balanced perhaps keeping in view the beneficiaries and consumer interests. The decision of CERC was awaited to make Mundra viable, which had got impacted due to no fault of itself, but due to change of law at Indonesia as also other coal exporting countries and an unprecedented rise which could not have been perceived.”
The power sector regulator in April 2013 offered to allow Tata Power a variable compensatory tariff till the fuel situation stabilised, as well as a bailout package in a repeat of its earlier judgement on a similar petition by Adani Power Ltd for a tariff hike.
It appointed the Deepak Parekh committee to suggest revised tariff for both the companies. The Deepak Parekh recommended an increase in tariff.