CERC offers compensation package for Adani Power’s Mundra project

* Allows utility to temporarily hike tariffs from its 4,620 MW power station in Gujarat

Written by ENS Economic Bureau | New Delhi | Published: April 4, 2013 1:43:24 am

The country’s power sector regulator,in an order issued late on Tuesday,offered a breather to Adani Power Ltd by allowing the utility to temporarily hike electricity tariffs from its imported coal-based 4,620 MW power station at Mundra in Gujarat.

The decision by the Central Electricity Regulatory Commission (CERC),which was strongly opposed by one of the three members at the commission,may have a favourable impact on similar contracts awarded through a competitive bidding process for projects,including Tata Power’s Mundra ultra mega power project (UMPP) and Reliance Power’s Krishnapatnam UMPP,that are affected by the hike in international coal prices.

Adani Power had approached the CERC to consider increases in the power tariff after utilities in Haryana and Gujarat declined to pay higher rates for the electricity generated from its Mundra plant. In the order,CERC called for a variable “compensatory tariff” to be offered to Gautam Adani-promoted Adani Power till the fuel price situation “stabilises”.

Project developers such as Adani Power,Tata Power and Reliance Power had bought coal mines in countries such as Indonesia to fuel their upcoming generation stations in India,promising aggressively low tariffs in power purchase agreements (PPAs) with distribution utilities. But a change in coal mining laws by the Indonesian government,brought in with retrospective effect,rendered imports unviable at the quoted tariff levels.

“In the present case,the escalation in price of imported coal on account of Indonesian Regulation and non-availability of adequate fuel linkage from Coal India Ltd for the project of the petitioner is a temporary phenomenon and is likely to be stabilised after some time,” CERC said in its order passed by chairman Pramod Deo,and members M Deena Dayalan and VS Verma. “Accordingly,we direct the petitioner and the respondents and the respective state governments to constitute a committee within one week from the date of this order…the Committee shall submit its report to the Commission by 30 April 2013 for consideration and for further directions,” CERC said in the order. According to Adani Power,the additional cost for the Haryana and Gujarat tariffs are 64 paise and Rs 1.11 per unit,respectively,in the first year of supply.

S Jayaraman,member,CERC,disagreed with the order. “The decision in the present case will be the precedent to be followed in future. The exercise of regulatory power in such cases will have a cascading effect. In case there is again some development of similar nature,will the Commission interfere again at the instance of the project developer? Will such an exercise of power not jeopardise the consumers’ interest?” Jayaraman wrote in his separate order.

Indications are that distribution utilities of Gujarat and Haryana,which have contracts to buy power from the Adani project,are likely to move the Appellate Tribunal for Electricity against the order. Responding to the order,Gautam Adani,chairman,Adani Group said,“We welcome the CERC order,which will pave the way forward to bring back investor confidence into the sector”. Adani Power had entered into two power purchase agreements of 1,000 MW each with the Gujarat government at Rs 2.35 per unit and Rs 2.89 per unit for its Mundra plant. It entered into a similar accord with the Haryana government at Rs 2.94 per unit.

“When level-playing field having been provided between the project developer and the distribution licensees and opportunity having been provided to cover their respective commercial risks,it is not the mandate of the Commission to ensure that the project developer earns profit in every situation,irrespective of business risks assumed by the developer,” Jayaraman argued in his order. He also wrote that with Gautam Adani-led group holding 74 per cent of shares in the Indonesian coal company,“the Adani Group as a whole may be the ultimate beneficiary of the Indonesian regulations”.

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