Electricity boards and consumers are being systematically short-circuited by the robbing-Peter-to-pay-Paul policy
Tata Power Ltd bagged a 4000 MW ultra mega power project based on imported coal in Mundra, Gujarat, under tariff-based competitive bidding to supply power at fixed tariff of Rs. 2.26 per unit all through the project’s operational life. Likewise, Adani Power (APL) bagged a UMPP to supply to Gujarat and Haryana at Rs. 2.35/Rs. 2.94 a unit.
In April 2013, the Central Electricity Regulatory Commission (CERC) allowed compensatory tariff(CT) of Rs. 0.524 per unit to TPL for all its buyers. APL was allowed CT at Rs. 0.851 per unit and Rs. 0.364 per unit for supplies to Gujarat and Haryana, respectively.
The CT was meant to neutralise the increase in price of imported coal consequent to decision of the Indonesian government in September 2011 imposing a minimum ‘benchmark’ price below which coal cannot be exported. The companies challenged the order before the Appellate Tribunal for Electricity (APTEL).
Confused signals
In its order dated April 7, 2016, APTEL has set aside the CERC order saying “it had no powers to modify tariff for developers that had entered into power purchase agreements (PPAs) through TBCB route”. In the same breath, it directed the regulator to compute relief under the force majeure clause citing regulatory intervention by Indonesia. In the past, PPAs included a clause allowing ‘pass-through’ of increase in fuel cost. This was crippling State electricity boards and power distribution companies. The TBCB route offered hope of shielding them against such hikes. The shield was demolished, first by the CERC and then by APTEL.
Whether it is the regulator or the judicial authority, both are bent on rewarding power producers at the expense of SEBs/consumers. APTEL’s benevolence towards Tata/Adani requires a close look. Can the action of the Indonesia government be treated as a force majeure event?
When you procure fuel, there is always the risk of a change in price due to a variety of factors including regulatory intervention. The promoter necessarily takes it into account while assessing viability. To guard against such contingencies, TPL even held 25-30 per cent equity in three mines in Indonesia.
This meant that even when coal prices increased, profit accruing to TPL as owner of the mine also went up. It would be illogical and unfair for it to seek relief from the CERC for its loss. And it is untenable for APTEL to grant relief by treating the development as an ‘exogenous’ event.
Dangerous trend
There is another compelling reason as to why regulators and/or judicial authorities should refrain from considering relief. Investigations by the finance ministry and the Directorate of Revenue Intelligence (DRI) have revealed over-invoicing of coal imports by 40 companies to the tune of Rs. 35,000 crore during the past two-three years.
During this period, the average price of Indonesian coal with a gross calorific value of 3,800-4,200 kCal/kg ranged between $38 and $49 a tonne on free-on-board (FOB) basis. On CIF basis, this should be $55-60/tonne. The actual payments were almost double this price. Since coal costs are pass-through under PPAs, it was the hapless SEBs, PDCs, and consumers who ended up paying more.
The projects of Tata/Adani were expected to be free from the impact of any increase in fuel price. But it would look abhorrent if the tariff also increases due to the manipulating of coal price. Unfortunately, APTEL and CERC, whose prime responsibility is to protect the interests of consumers, are only making them more susceptible.
The Government is even reconciled to dropping the idea of TBCB. It is inviting bids only for ‘fixed’ components even as fuel cost will be pass-through. This is a dangerous trend. It will not only lead to a steep increase in tariff from all UMPPs but also ‘pre-empt’ all chances of reining in tariff in future.
It is baffling that while the Government is struggling to bring bleeding SEBs/PDCs back to health, it is making this task more difficult by allowing unabated increase in cost to generators.
Power Minister Piyush Goyal exudes confidence that consequent to the implementation of FRP and a couple of other complementing measures, SEBs/PDCs would be nursed back to health in the next 3-4 years. But this will remain a distant dream if power generators continue to be handled with kid gloves and supplies to farmers and households continue to be at abysmally low tariffs.
[The writer is a policy analyst]http://www.thehindubusinessline.com/todays-paper/tp-opinion/its-all-just-power-play/article8506292.ece