The imported-coal-based thermal power units in Gujarat are delighted at the prospects of long-pending power tariff hike. However, the regulatory route continues to remain challenging.
Following the directive of a Supreme Court order last month, the Gujarat government has asked its power distribution companies (discoms) to move the Central Electricity Regulatory Commission (CERC) and seek approval for a tariff hike. The hike pertains to power purchase agreements (PPAs) signed by various states, including Gujarat with Tata, Essar and Adani imported-coal-based power projects.
The three projects set up between 2006-08 could not pass on the increase in cost of imported coal onto tariffs since they are bound by PPAs. Costing over Rs 280 billion, the projects are on the verge of landing in insolvency.
The state government had submitted the report of a high-powered committee (HPC) to the Supreme Court that proposed relief to the power companies. The committee, set up under the directive of CERC, had come out with recommendations on the three imported coal-based power projects with power capacity totaling 7,180 Mw. The HPC, in its report, has suggested a cap on the cost of coal that can be passed on to the customer at $120 per metric tonne.
In a statement issued by Tata Power, the company said it welcomes the resolution by the Government of Gujarat to accept the recommendations of the HPC. “This relief will help Coastal Gujarat Power Ltd to continue its operations to meet its obligations to all the five beneficiary states. In case these projects were shut down, replacing such huge capacity with alternate sources from the market would not be feasible as the short-term market prices are higher and volatile and the availability of power is uncertain,” it said.
These companies, however, will have to wait for CERC’s nod. Officials in the regulatory commission said no application has yet been received from any procurer. The tariff hike in the PPA proposed by the Gujarat government would be legitimate only when the CERC approves of it. “As these PPAs come under composite scheme (supplying to more than one state), all procuring states would also be heard,” said the official.
He further added that Gujarat alone can increase tariff in its PPA with these developers while other states don’t need to. “But we will hear all stakeholders, including other states, consumer forums and all those who have been party to this case,” said the official.
Tata Power in its statement also said that the approval of other states is pertinent. “Though the coal cost is now a pass through, the company would continue to make losses due to rebate on financing cost and coal mines profit is being passed on to the beneficiary states. We expect to get the consent of other four procurer states,” said the company.
Apart from Gujarat, no other state has till yet agreed to the revised tariff suggested by the HPC. At the same time, energy rights groups have also protested against any tariff hike citing “crony capitalism and consumer rights”.
Tata, Essar and Adani Power have PPAs with Gujarat and other states, including Rajasthan, Maharashtra, Punjab and Haryana. These are the same states that had earlier contested the decision of increasing power tariff by the CERC in 2014. The Regulator in 2014 had used its powers under Section 79 to allow a compensatory tariff of 52 paisa per unit for Tata and 41 paisa for Adani.
State utilities had challenged a compensation formula worked out by the CERC-appointed committee that allowed the companies to recover the higher cost from the rise in the price of imported coal.
A SC judgement in April 2017 disallowed any pass through of cost of coal on the consumer power tariff for Adani and Tata Power project on the ground that PPAs do not have any provision to pass on changes in the coal cost. The project developers had bid a singular coal cost for 25 years. Tata Power signed PPA at Rs 2.26 per unit and Adani power at Rs 2.35 per unit.
