Tata, Adani power projects get a breather
The Supreme Court directed the Central Electricity Regulatory Commission to look at power-purchase agreements signed by various states with Tata, Essar, and Adani power projects afresh. A view would be taken under Section 79 (b) of the Electricity Act, 2003. SHREYA JAI reports
The Supreme Court on Monday directed the Central Electricity Regulatory Commission (CERC) to take a re-look at power purchase agreements (PPA) signed by various states with Tata, Essar and Adani.
A view would be taken under Section 79 (b) of the Electricity Act, 2003, that allows the CERC to regulate tariffs on sale of power to more than one state under a composite scheme.
The CERC will take views of all the stakeholders to revise tariff of imported coal-based power projects in Gujarat. The plea was filed by the Gujarat government seeking the Supreme Court’s direction for amending PPAs with Tata, Essar and Adani.
The state government had submitted the report of a high-powered committee (HPC) to the Supreme Court which proposed relief to the power companies. The committee, set up under the directive of the CERC, had come out with recommendations on the three imported coal-based power projects with power capacity totalling 7,180 Mw. The apex court has asked CERC to come up with a decision in two months. Consumer rights groups such as Prayas and Energy Watchdog had submitted to the Supreme Court contesting any change in tariff.
The three projects set up between 2006 and 2008 could not pass on the increase in cost of imported coal onto tariffs since they are bound by PPAs. Costing over ~280 billion, the projects are on the verge of landing in insolvency.
“These units need to be salvaged and should be permitted to pass through the impact of high fuel costs equitably to consumers, lenders and other stakeholders,” the HPC report had recommended.
The Supreme Court observed that
under Section 79 (b) of the Electricity Act, 2003, the CERC can propose changes in the PPA. Under the section, the CERC is vested with the function to “regulate tariff of generating companies having a composite scheme for generation and sale of electricity in more than one state.”
Both Tata and Adani Power have PPAs with Gujarat and other states, including Rajasthan, Maharashtra,
Punjab and Haryana. These are the same states which had earlier contested a similar decision 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 a CERC-appointed committee that allowed companies to recover the dues from rise in the price of imported coal.
A Supreme Court judgment in April 2017 disallowed any increased cost of coal on consumer power tariff for Adani and Tata Power projects. It said that PPAs do not have any provision for pass through on changes in the coal cost. Also, the project developers had bid accordingly – singular cost for 25 years. Tata Power signed a PPA at ~2.26 per unit and Adani power at ~2.35 per unit.
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 of coal. A K Khurana, director-general, Association of Power Producers (APP), said, “By putting a cap on tariff, the committee ensured that the energy cost remains around the marginal cost of substitute power. The proposed amendment (in PPA) would save the projects from being mothballed, save writing off of huge bank loans and provide necessary power to states at competitive rates to meet their requirement,” he said. Coal cost higher than the cap will be borne by the developer. The committee also said, “This increase in tariff due to the revised cost will be offset by a sacrifice by lenders estimated at ~92 billion, which will be used to discount the fixed charge component of the power tariff by 20 paise per unit.”
However, a sector executive said that other states are not on board for the HPC recommendations. “Other states may not agree to the tariff escalation. In the past, the CERC’s directive to increase tariff have always been contested by states, including Gujarat. Haryana, Rajasthan, Maharashtra, Punjab. They have not accepted the recommendations of the HPC,” said the executive. This, he said, could create a precarious situation for these units.
The share price movement of both companies was during the day. Tata Power was up 12.4 per cent and Adani Power by 18.7 per cent.