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CERC gives push to power availability

The CERC’s final orders on Tata Power and Adani Power, have been largely touted as pragmatic in the given circumstance.

Published: February 26, 2014 2:07:10 am

Two regulatory orders in recent weeks have had exactly the opposite effect on private sector power generators and the state-owned firms. The markets have responded positively to Tata Power and Adani Group in the wake of the CERC’s Friday orders allowing payment of ‘compensatory tariff’ to two power projects belonging to the two firms, above the rates determined through competitive tendering.

On the other hand, CERC’s final tariff regulations for FY15-19, which are broadly in line with draft regulations issued late last year, has tightened incentives on capacity utilisation and tax treatments for the state-owned companies, the impact of which, are seen as big negative for the country’s largest power producer, NTPC Ltd, and other state-owned firms such as transmission major Power Grid Corporation of India Ltd.

Earning of incentives has now been linked with utilisation of generation plants instead of the current practice of basing it on plant availability, which will hit NTPC’s earnings in the current scenario of low demand. The markets have responded likewise, hammering NTPC and the other state-owned counters, even as Tata Power and Adani Power have seen steady gains.

The CERC’s final orders on Tata Power and Adani Power, have been largely touted as pragmatic in the given circumstance. The orders will result in state-owned distribution utilities paying an extra 50 paise or so for every unit generated from the two plants in Mundra, as against levelised tariffs of Rs 2.26-2.94 offered by the promoters in the original power purchase agreements (PPAs).

The additional tariff effectively compensates the two private developers for an unforeseen escalation in imported coal costs as a result of regulations announced subsequently by the Indonesian government. While at the time of bidding, the two generators had entered into long-term contracts for sourcing coal at landed costs of around $35/tonne from Indonesia, the new regulations promulgated by the Indonesian government in September 2010 barred any exports at below minimum ‘benchmark’ global prices. That, in effect, doubled fuel costs.

The PPAs from these two coastal imported coal-based power projects — which between them amount to a generation capacity of over 8,600 MW — did not provide for the pass-through of fuel costs. However, keeping in view the fact that both projects were losing over 40-50 paise per unit of power generated and that current tariffs from imported coal-based projects are in the range of Rs 4-6 per unit, the CERC’s solution attempts to strike a balance in restoring the financial viability of the power plant while keeping the hit on consumers at the minimum, with a series of safeguards built into the compensatory tariff order. It’s over to the procuring states now.

Anil is a senior editor based in New Delhi.

anil.s@expressindia.com

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