How a move in Indonesia may impact electricity consumers in Indiahttps://indianexpress.com/article/explained/how-a-move-in-indonesia-may-impact-electricity-consumers-in-india-5476997/

How a move in Indonesia may impact electricity consumers in India

Gujarat has asked power distribution companies to seek approval for revised tariffs. Three major projects run on imported coal from Indonesia, whose pricing changes have hit their finances.

Gujarat, Vijay rupani, Gujarat power tariff, Gujarat power sector, Gujarat electricity rates, CERC, Gujarat power consumption, Indian express
The proposed hike would aim to pass on to consumers, partially, the higher prices of imported coal, which feeds one of Gujarat’s ultra mega power projects (UMPPs) as well as two other major plants.

The Gujarat government has asked its power distribution companies (discoms) to approach the Central Electricity Regulatory Commission (CERC) to get approval for a tariff hike. The proposed hike would aim to pass on to consumers, partially, the higher prices of imported coal, which feeds one of Gujarat’s ultra mega power projects (UMPPs) as well as two other major plants.

If the regulator does clear the tariff hike, it would affect consumers of various states, including Maharashtra, Rajasthan, Punjab, Gujarat and Haryana. Each of these states has signed a power purchase agreement (PPA) with the three power plants that run on imported coal.

Issues facing the plants

The UMPP is run by the Tata group while the other two plants are run by the Adani group and the Essar group, respectively. They can run only on imported coal and have a combined generation capacity of around 10,000 megawatts.

In September 2010, Indonesia issued regulations that changed the coal mining and pricing framework. This had severe financial ramifications for Indian power plants that were designed to sustain on affordable Indonesian coal.

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A high-powered committee (HPC), which was set up in July this year by the Gujarat government, stated that “the economic viability of these projects has been severely impacted due to promulgation of Indonesian Regulations 2010, which led to unprecedented rise in the price of coal”. It added that this situation has been exacerbated because these three plants could not pass the “uncontrollable increase in the fuel prices on the procurers (discoms) under the PPAs”.

Lenders, which included major state-run banks such as SBI, stated in their submission to the HPC that “the net worth is already wiped out for these projects, and these projects are primarily managing to survive on additional fund infusion by promoter groups”. The lenders added: “There is likelihood of further erosion in the credit worthiness of the generators and the projects may become non-performing thereby leading to further significant losses being borne/to be borne by the lenders.”

Solutions on the table

The HPC report stated that the three projects needed to be “salvaged” and should be permitted to pass on the impact of the high fuel costs equitably to consumers, lenders and other stakeholders. At the same time, the HPC expressed caution stating that this may be permitted “ensuring that the entire cost impact of such financial and commercial re-structuring is not passed on merely to consumers, rather the same is equitably distributed amongst the other stakeholders too”.

To make these three projects viable, the HPC recommended that banks would have to take a haircut of more than Rs 10,000 crore. According to a senior Gujarat government official, these three projects face debts of more than Rs 22,000 crore currently.

Along with various other recommendations, the HPC has stated that the lenders “will be reducing the interest rate also” on the debt of these three projects.

Steps taken

In October this year, the Supreme Court said its previous order denying compensatory tariffs to these plants will not come in the way of implementing partial pass-through and other measures suggested by the HPC.

Currently, the state government has focused its attention on pass-through of only the fuel cost. Since only the CERC can approve an increase in power tariffs, the government has asked its discoms to get this approval. As of now, it is not clear what action would be taken on the other recommendations of the HPC.

How it unfolded: The projects

1995: Centre frames “mega power policy” for developing coal-based power projects of capacity 1000 MW and more.

2005-08: Under initiative for setting up ultra mega power projects (UMPPs), Centre invites bids for coastal UMPPs based on imported coal. Tata group wins contract while Adani and Essar groups separately build two other major plants, all three in Gujarat (combined capacity 10,000 MW). They sign power purchase agreements with distribution companies of various state governments. Their projects run on coal from Indonesia.

The problems

2010-11: Indonesia introduces changes in coal price methodology. Imported coal-based power plants across India face financial ramifications but cannot raise tariff without approval of CERC (the central regulator).

2013-14: CERC refuses relief to Adani group and Tata group on basis of force majeure (unexpected, inhibiting event) or “change of law”. A committee, formed by Gujarat and Haryana governments on CERC direction, recommends formula for “compensatory tariff” for the three plants. CERC passes order with final formula to compute compensatory tariff.

2016: Appellate Tribunal of Electricity sets aside CERC order, orders CERC to compute compensatory tariff on basis of force majeure provision of PPA. CERC passes order granting relief on this basis.

2017: Supreme Court sets aside CERC order stating that change in Indonesian pricing regime cannot be construed either as force majeure or “change in law”. Following Gujarat government request, Centre holds meeting of stakeholders; a working group is set up with officials from procurer states and banks.

New developments

January 2018: Working group report recommends forming high-powered committee (HPC).

July: Centre grants Gujarat government the liberty to examine issues and take further action; Gujarat constitutes HPC.

September: HPC recommends partial pass-through of high coal prices to consumers, and commercial restructuring plan.

October: Supreme Court says its previous order won’t come in the way of measures suggested by HPC.

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December: Gujarat government asks distribution companies to go to CERC and get approval for tariff hike.

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