Gujarat to raise tariffs of power units hit by coal price hike

The Gujarat government has directed its power distribution company to raise tariffs of the three imported coal-based power plants owned by Tata Power, Adani Power and Essar Power by amending their power purchase agreements (PPAs) and approaching the power regulators for approval. 

This comes as a big relief for the three plants which together can generate about 10,000 mw but have been making heavy losses after an abrupt jump in the price of Indonesian coal and the refusal of various states to pay higher tariffs as they said the power producers were bound by the PPAs. The matter has lingered for years as it was put up to various regulators, courts, committees, appellate authorities and governments. 
Gujarat Urja Vikas Nigam Ltd (GUVNL), the main power procurer from the three plants, has been directed to immediately amend the pacts and approach regulators for tariff adoption and approval, sources said. The directive was issued late on Saturday night by the state. The amended PPAs will soon be circulated among other states for cabinet approvals, they said. 

“It is decided to execute amendments in PPAs of Adani Power and Essar Power Gujarat Ltd and approach appropriate regulatory commission for approval of the
same immediately. In case of amendment in PPA of Coastal Gujarat Power Ltd (of Tata Power), the amendment shall be carried out and presented to CERC along with consent from the other four states,” the order said. 

Tata Power’s Coastal Gujarat Power Ltd that runs the 4,000-mw imported coal fired power plant in Mundra has PPAs with five states — Gujarat, Maharashtra, Rajasthan, Punjab and Haryana, while Adani Power’s 4,600-mw plant has contracts with Gujarat and Haryana. Essar Power’s 1,320-mw Salaya plant is better placed among the three plants as it has power supply pact only with Gujarat. 

“It is resolved to direct GUVNL to ensure adequate and efficient supply of energy at economical tariff and maintain its respective energy basket in a manner that has a mix of power sources that addresses all issues including availability of reliable base load power generation, optimum utilisation of existing resources and installed generation capacities by allowing revival and rehabilitation package to the financially stressed and economically unviable imported coal- based power projects through consequential amendments in existing PPAs in larger public interest,” the order said. 

On October 29, the Supreme Court asked the Central Electricity Regulatory Commission (CERC) to decide on compensation for high fuel cost to the imported coalbased plants within eight weeks. 

The order was based on recommendations of a high-powered committee, set up by Gujarat, that suggested fuel cost passthrough for the projects and an option to the companies to extend the power purchase contracts by 10 years. 

Last year the three companies had offered majority stakes in their plants in Gujarat to the state government at Re 1 each after Supreme Court ruled that increase in coal prices due to change in overseas laws cannot be considered as change in law under the PPAs. 

In 2010, Adani Power and Tata Power had approached CERC for compensation after Indonesia issued regulations introducing benchmark sale price. CERC had ruled that such change cannot be classified as change in law or force majeure under the PPAs but allowed compensatory tariff under exercise of regulatory power. The Appellate Tribunal for Electricity ruled that the case qualifies under force majeure clause and asked CERC to reconsider the quantum of compensation. 

Against this the state distribution companies appealed in the Supreme Court. The apex court allowed CERC to calculate compensation till verdict. 

CERC had issued the mechanism to compensate the companies. The Supreme Court finally said the increase in coal prices cannot be considered force majeure or change in law and asked CERC to look into the matter afresh in light of its verdict.