Discoms sever supply deals as tariffs soar

Power cos meet only 1/3 of coal import targets in current fiscal

High power tariff is forcing distribution companies to surrender secure supply contracts, a domino effect triggered by the rising cost of imported coal and high fixed costs of power projects.

Delhi has surrendered power supply contracts for the next four to five months with six projects of state-run National Thermal power Corporation (NTPC) citing high tariff. According to sources in distribution utilities, tariff from NTPC's Jhajjar project in Haryana touched a high of Rs 13.3 a unit in May and Rs 12.4 a unit in September.

While Delhi power distributor BSES blames tariff rise for the surrender of contracts, an NTPC official said it is the utility's inability to purchase and trim down losses that has forced it to do so.

When asked for a comment, a spokesperson for BSES said, "We have not received any communication in this regard." Ashok Khurana, director-general of Association of Power Producers, said, "All projects post 2009 will face this problem. Rise in international prices of imported coal coupled with resource nationalism has increased the cost of power produced."

"Private players are unable to meet contractual commitments as they are locked in bid prices whereas cost-plus projects have an option of imputing this as variable costs. A solution, therefore, lies in revising contracts and consumer tariffs," he added.

Tariff for NTPC projects is determined on a cost-plus margin basis, which helps the company pass on the burden of fuel price increase to consumers, a facility not available to private companies that have won projects under competitive bidding.

NTPC is set to import 16 million tonne of coal this year, which will account for the 10% imported coal it blends with the domestic input. Blending imported coal, which currently costs about $120 a tonne in the international market, raises power tariff by 30-40 paise a unit.

The power producer had earlier expressed concern over states distribution companies reneging on their purchase commitments. "Surrendering of power by states is a problem, but not a major concern. We will sell the power elsewhere. We would still be paid for the fixed costs," the NTPC official said.