PPA rates are like a mirage, not the gospel truth
Although power purchase agreements (PPAs) with private thermals were signed 13 years ago, different statistics and claims regarding purchase rates from these pacts are being presented till now, creating confusion in the minds of the public.
Players instrumental in signing of these agreements are not only claiming rates of Talwandi and Rajpura thermal plants being as low as Rs 2.86 and Rs 2.89 per unit, respectively, but are also confirming of having purchased power at these rates. The detractors, however, term PPAs as the root cause of high power tariff in the state. No definitive figure --- neither Rs 2.86/2.89 nor anything else --regarding rates is mentioned at all in the PPAs. This article attempts to throw light on this highly complex riddle.
Punjab’s power demand during the paddy season (for 2-3 months) is almost double in comparison to the remaining months. Principally, it is prudent to meet round the year demand with base load plants through banking, short- term power purchase, need-based purchase from power exchange and peak load plants (gas-based or hydel) etc.
The PPAs are a consequence of a written communication from the Union power ministry in March 2006 to install two thermal plants of 1000 MW each to meet state’s future power demand. Punjab State Electricity Board (PSEB) sent a proposal to the state government to install a 1000 MW thermal in the private sector and another 1000 MW in the state sector.
The root cause
The state cabinet, in September 2006, gave approval to set up both plants of 1000 MW each in the private sector, so as to utilise the coal from the state’s captive mines in Jharkhand and to meet the power shortage.
Thereafter, all three then PSEB technical members (distribution, generation and transmission) jointly wrote to the state government, asking it to install one of the two plants in the state sector. The expression of interest (EOI) for these plants was floated in April 2007. On the pretext of meeting the peak paddy season demand, the capacity of Talwandi plant was increased to 1800 + 10% MW and that of Rajpura to 1200 + 10% MW. As a result, 1980 MW and 1400 MW private thermals were installed at Talwandi and Rajpura. respectively. Further, a 540 MW private thermal plant was installed at Sri Goindwal Sahib. So, private thermal plants, with a capacity of 3920 MW, were installed against the initial proposal of 2000 MW.
As per the Union power ministry’s 2005 guidelines, for tendering to purchase power from private thermals, electricity rates were divided into two parts, capacity charges (fixed) and energy charges (variable). Fixed charges are payable on the basis of prescribed units to be purchased annually as per the PPA. Even if the prescribed units are not purchased, fixed charges are payable for unused units too, resulting in an increased per unit cost of power purchased. Energy charges (variable charges) mainly depend upon the cost of coal, its freight and annual increase in coal cost/freight as well as coal quality. So, as per a clause in the PPA, it was imperative to ensure source of coal before issue of tender. The proposal to utilise coal from Pachhwara mine for these plants was dropped in 2007 but no alternative coal source was confirmed.
Without knowing the exact coal source, coal cost (Rs 723 per ton), rail freight (Rs 1,295 per ton) and coal having calorific value of 4,500 per kg and ash 33-34% was entered into the tender. The rate of annual increase in coal cost and rail freight @ 6.77% & 0.54%, respectively, and discounted rate @ 10.49% was also entered into the tender. As per the tender, 100 % capacity charges were payable for 80% availability of the plant round the year, irrespective of actual power purchased.
Inferior quality coal adds to woes
Subject to above stipulations, the year-wise sum total of capacity charges and energy charges quoted by bidders is calculated for 25 years and the average rate calculated after applying discounted rates is called levelised tariff. Against Talwandi plant tender, the levelised tariff of M/s Sterlite Vedanta Group was lowest @ Rs 2.86 per unit. So the letter of intent (LoI) was issued to the firm in July 2008. Thereafter, regular coal linkage from Mahanadi Coal Field, Odisha, for Talwandi plant was allotted in August 2008. However, the quality of coal from this allotment is inferior and the coal cost and rail freight is higher. Moreover, the allotted linkage being less as per plant capacity, PSERC in 2014 allowed the use of imported coal which is even more costly.
In comparison to the calorific value of 4500 kcal and ash content of 33-34% as per tender, the calorific value of the actual coal is 3150 kcal and ash content is 40-45%. Further, as per provision in the tender for the year 2014-15, cost of the coal was Rs 1,090 and rail freight Rs 1.340, total Rs 2,430 per ton. However, the cost of the actual coal was Rs 1,475, rail freight Rs 2,690, total Rs 4,165 per ton. Also, during the year 2014-15, instead of 80% of capacity only 62% power was purchased.
Also, nothing was mentioned regarding coal washing charges in the tender. Later, while issuing replies to the queries of the bidders, the same was not explicitly clarified and the Supreme Court in 2017 decided the issue in favour of private plants.
Similarly, in the tender for Rajpura Thermal, cost of coal entered was Rs520 per ton and rail freight Rs1,204 per ton. The annual rate of increase in coal cost and rail freight was 6.12% and 2.39%, respectively, and discounted rate as 10.19%. As per the tender, 100 % capacity charges were payable for 85% availability of the plant around the year irrespective of actual power purchased.
PPAs are not at any fixed rate
For Rajpura plant, the levelised tariff of M/s L&T was lowest @ Rs 2.89 per unit. In comparison to the calorific value of 4080 kcal and ash content of 35-40% mentioned in the tender, the calorific value of the actual coal is about 3300 kcal with ash content of 40-45%. As per tender for the year 2014-15, the cost of coal was Rs 700 and rail freight was Rs 1,355 i.e., total Rs 2,055 per ton, whereas cost of actual coal was Rs 1,055 and rail freight Rs 2,530, total Rs 3,585 per ton. During the year 2014-15, instead of 85% only 54% of the power was purchased. The per unit cost of power purchased from Rajpura Thermal to date ranges from Rs.4.17 to 4.75 per unit.
The quality of Pachhwara coal is very good as its calorific value is 4300-4400 kcal with low ash content 27-28% (no need of washing) and cost is also less.
Had the initial proposal to have a total capacity of 2000 MW of both these plants using coal from Pachhwara mine with at least one thermal in the state sector been adhered to, then the cost of power would have been quite less than being paid now.
As such, these PPAs are not at any fixed rates and the actual rates depend upon the parameters defined in the PPAs and the quantity of actual power purchased, quality and expenditure of the actual coal used for these projects.
So, the levelised tariff of Rs. 2.86/2.89 per unit mentioned in the agreement is a notional value calculated as per data and conditions mentioned in the tender for comparison and selection of the lowest bidder, and is not the factual rate. It is like a mirage, not the gospel truth.
THE ACTUAL RATES DEPEND UPON THE PARAMETERS DEFINED IN THE PPAS AND THE QUANTITY OF ACTUAL POWER PURCHASED, QUALITY AND EXPENDITURE OF THE ACTUAL COAL USED FOR THESE PROJECTS.