The Maharashtra cabinet has approved state power distribution utility Mahavitaran’s proposal to allow Tata Power Co. Ltd’s 4,000MW (megawatt) power project in Mundra, Gujarat to raise tariffs, but with a set of tough riders.
Tata Power can raise the tariff for electricity generated from its ultra-mega power project (UMPP) in Mundra provided it maintains return on equity at a minimum level, and factors in its stake in Indonesian mines while deciding compensatory tariff, Mahavitaran said in a statement on Wednesday.
Mahavitaran also wants any electricity generated “above normative capacity to be made available to it without capacity charges”. Besides, the state utility said it should have the right to walk out of its power purchase agreement (PPA) with Tata Power—“without paying any damages”—if it finds the compensatory tariff unviable.
Normally, 80% of a power plant’s generation capacity is considered to be its normative capacity, which means if a plant’s capacity is 100 MW then throughout the year it should produce at least 80 MW of power daily. A Tata Power spokesperson declined to comment on the development as the Central Electricity Regulatory Commission (CERC) is hearing the company’s petition to be allowed to charge a higher tariff for electricity generated from its Mundra UMPP. Analysts say Mahavitaran’s conditional approval is tantamount to saying “No” to the tariff hike.
“I don’t think the conditions put forward by Mahavitaran will stand legal scrutiny. They seem to be an emotional response to the legal issue and a nice way to say no,” said Arijit Maitra, counsel for Probiyon Power, a regulatory advisory firm.
“CERC has no jurisdiction over financial institutions. It can’t order financial institution to lower their interest rate,” he added, talking about the lenders. Mahavitaran’s PPA clause, too, drew criticism. “Since the PPA signed between all the parties is a long-term agreement, Mahavitaran can’t insert a condition like walking out of the PPA at any point of time,” said a partner and leader of energy practice at a consultancy firm, declining to be identified. The Mundra project ran into trouble after Indonesia linked prices of coal exported from that country to spot prices in the international market in September 2011. This made the long-term contract signed by Tata Power null and void.
The company took a hit of Rs.2,450 crore due to impairment charges (after assets were revalued) due to losses at the Mundra UMPP.
All these factors made it ask to be allowed to raise its tariff. Power tariff comprises fixed charges or capacity charges and variable charges. Fixed charges include cost of plant, wages and interest costs, among others, while variable cost is mainly fuel expenses.
After all distribution utilities refused Tata Power’s proposal for a tariff hike, the company filed a petition with CERC demanding a tariff hike.
In April, while accepting Tata Power’s demand for a compensatory tariff in principle, CERC appointed a committee under the chairmanship of Housing Development Finance Corp. Ltd’s chairman Deepak Parekh to suggest a formula for deciding a compensatory tariff.
Punjab rejected any move to increase tariffs and Rajasthan expressed its reservations, while Gujarat informed CERC about its conditional consent for a tariff hike.
The Parkeh committee submitted its report in September suggesting a tariff hike of 59 paisa per unit.
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