In a power battle between the providers and consumers of electricity, the latter lose, yet again
During the first decade of the 2000s, in a bid to boost power generation and to make it available at ‘affordable’ and ‘stable’ price to consumers, the then Government had mooted the idea of ultra mega power projects. Two such plants were bagged by Tata Power Ltd (TPL) and Adani Power Ltd (APL) under tariff-based competitive bidding (TBCB), each with an installed capacity of 4,000 MW and 4,620 MW, respectively. While the TPL is based entirely on imported coal, APL uses 70 per cent domestic and 30 per cent imported coal. Under long-term power purchase agreements (PPAs), they committed to sell to power distribution companies at fixed tariff — in case of the TPL, tariff was Rs 2.26 per unit and for APL, it was Rs 2.35/ 2.94 per unit. The beauty of this dispensation was that unlike all subsisting PPAs, wherein increase in cost of fuel was pass-through for supplies from UMPPs, they were fully shielded against the hike.
This meant that the projects would have arrangements in place to ensure that they got coal supplies at a fixed price all through. Even if they were to pay more, tariffs would not change. In other words, higher fuel cost would be absorbed by the generator. Indeed, both TPL and APL took steps to ensure an uninterrupted source of coal supply at the desired price. For instance, TPL acquired 25-30 per cent equity in three Indonesian mines. Likewise, Adani acquired a coal mine in Queensland in 2010. Yet, these project promoters left no stone unturned in insisting on pass-through of the fuel price hike. Even worse, the executive, regulators and judiciary, whose prime role is to uphold sanctity of the PPAs and protect the interests of consumers, went out of the way to extend them a helping hand. In 2012, TPL/APL petitioned the Central Electricity Regulatory Commission, seeking the so-called “compensatory tariff” — a sophisticated nomenclature for hike in tariff. Their argument was that in September 2011, the Government of Indonesia imposed a minimum ‘benchmark’ price below which coal could not be exported from that country, and this event being beyond their control, they had no option but to seek pass-through.
In February 2014, the CERC sanctioned hike of 52/41 paise per unit for TPL/APL. The Appellate Tribunal for Electricity — vide an interim order (July 2014) — endorsed it and further confirmed in its final order (December 2016) given under directions from the Supreme Court. The Tribunal used ‘force majeure’ clause — euphemism for an event beyond control — to justify its order. In its order (April 2017), the apex court rejected the claim of Tata/Adani for compensatory tariff under ‘force majeure’ clause to an extent the hike was caused by increase in price of coal imported from Indonesia. For domestic supplies, however, it agreed with the interpretation of the APTEL resulting in corresponding relief to the APL, which sources 70 per cent of its requirement locally.
However, in an order dated October 29, 2018, the Supreme Court reversed its own decision by directing the CERC to amend their PPAs to facilitate pass-through of future fuel price escalation, which was subject to a cap. Apart from accepting the main contention of generators viz ‘force majeure’, this is based on the recommendations of a committee (set up by the Gujarat Government in July 2018), which argued that at tariff allowed under the extant PPA, plants are running at low utilisation forcing the state/PDCs to buy power from other sources at a much higher rate. None of these arguments is sustainable. The change in Indonesian law cannot be given the benefit of ‘force majeure’ as at the time of bidding and signing PPAs, TPL/APL were expected to be aware of all possible factors (regulatory changes included) having a bearing on the fuel price. Indeed, they were as reflected in their decision to acquire stakes in mines located in foreign jurisdictions. The very rationale of such acquisitions was to immunise the generation cost against fuel price hike. The second argument that PDCs/states will have to pay much more (buying from other sources) if the said projects are rendered unviable is also not tenable. The generators must honour the terms of the contract/PPA by supplying power at the agreed price. If they can’t, they should compensate PDCs for excess price paid for purchasing from other sources. Both companies belong to conglomerates which have diversified interests and deep pockets. If their initial projections/calculations went haywire, they must be prepared to pay for it instead of expecting consumers to bear the burden. Yet, they went for the easy option.
Unfortunately, the executive/regulator/judiciary — all have abdicated responsibility. The Gujarat Government, which along with other affected States, had put up a brave fight until last year, is the biggest culprit as it has done all the ground work leading to meek surrender to untenable demands of generators. The apex court’s verdict is the last word. Hence, there is no hope for hapless consumers who will have to pay more for electricity. It also forestalls any chance of getting immunity from fuel price hike in the future.
(The writer is a freelance journalist)
https://www.dailypioneer.com/2018/columnists/more-than-meets-the-eye.html