With power projects increasingly facing difficulties in meeting their contractual obligations related to electricity supply due to bottlenecks in key areas like fuel availability, land acquisition and environmental clearance, the power ministry has begun a process to review the existing competitive tariff-bidding guidelines. The intention behind the move is to keep investor interest alive in the sector by making the guidelines attuned to the ground realities.
The Mahrashtra Electricity Regulatory Commission (MERC) has recently allowed the state discom MSEDCL to deviate from standard bidding guidelines and make provisions for passing through of increase in fuel cost under circumstances which could be beyond the control of electricity supplier. The power ministry is likely to take a cue from MERC’s landmark order while conducting review of tariff bidding guidelines. “We are conducting a review of tariff bidding guidelines. Revised guidelines will be applicable prospectively,” Union power secretary P Uma Shankar told FE.
The ministry is concerned over the increasing incidences of private developers approaching electricity regulators for review of the key contractual terms relating to power supply committed by them while bidding for projects.
According to industry sources, about half a dozen private power projects including JSW Energy’s Ratnagiri and Adani Power’s Mundra are facing the prospect of defaulting on their power supply commitments, either due to coal shortage from linked mines or because of their inability to pass on rise in fuel import prices to electricity buyers.
Imported coal prices have shot up by $25-27 a tonne following recent changes in coal pricing regulations in exporting countries like Indonesia and Australia.
Coal India has not signed any fuel supply agreement post March 2009 despite signing Letters of Assurance with power project developers. It is meeting only 50% of the coal requirements of these projects. Developers have no option but to import coal to meet shortfall in fuel supply from CIL.
Power project developers with captive coal blocks are unable to start mining work due to delay in getting environmental clearances. What is even more frustrating for developers is that regulators cannot provide any relief in such cases as they do not have the authority to review tariff in such cases.
But despite that, some developers have approached the concerned state electricity regulatory commissions (SERCs) for a review of key contractual obligations relating to power supply.
The existing norms were formulated by the ministry in 2005 when fuel availability from domestic sources was comfortable and prices in the international coal market affordable. But since then, the scenario has changed dramatically, with domestic coal demand-supply widening sharply in recent years due to tightening environmental regulations for the mining sector. Meanwhile, international coal prices have also shot up beyond expectations.
The government introduced tariff bidding for private players in January 2006. Till now, about 42,000 mw capacity has been awarded for development through this route. Of this, 35,000 mw is based on domestic fuel linkage while the balance is to be fired with imported coal
With coal mining projects facing serious difficulties in getting environmental clearance, power project developers are insisting on bringing tariff under ‘force majeure’ provisions while bidding for power projects. Power distribution companies have no option but to agree on such deviations. In a departure from the past trend, regulators are also inclined to consider favourably distribution companies' petitions seeking such deviations
For example, the Maharashtra State Electricity Distribution Company’s (MSEDCL) has recently floated tender to buy 500-600 mw electricity from a Greenfield project. It has been allocated the Bhivkund captive mine by the coal ministry to meet the fuel requirement of the project. On insistence of interested bidders, it has amended bidding guidelines and brought fuel price under ‘force majeure’ clause.
In other words, it can pass on increase in fuel cost to the MSEDCL if it has to procure additional coal from an alternate source to meet the fuel shortfall. In a landmark order passed recently, the Maharashtra Electricity Regulatory Commission has approved these deviations.
Even as the power ministry has undertaken review of its tariff bidding guidelines, it has no plan as yet to move a proposal to amend the Electricity Act to empower regulators to review existing power supply agreements. “It is for the power supplier and procurer to decide this issue between them,” the power secretary said.
The recent change in coal pricing methodology by the Indonesian government, which mandates all parties to sell coal at market prices, has given rise to doubts about the viability of many Indian power projects including ultra mega power projects at Mundra and Krishnapatnam where developers cannot pass on increase in fuel cost to buyers under the existing contracts.
In response to a letter written by the power secretary, the Indonesian government has clarified that it has indeed amended its coal pricing regulations and that even the existing contracts have to comply with that.
“The contracts that we signed have become impossible to deliver due to conditions beyond our control. A prudent person could not have foreseen such conditions at the time of signing contracts,” Ashok Khurana, director general, association of power producers (APP), said.
APP is an association of key private producers like Tata Power, Reliance Power, Adani Power and Lanco. “In view of these changes in laws and regulations in source countries, we have requested the government to devise a mechanism to assess the impact of these changes on the tariffs,” Khurana said.
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