CGPL ops may stay afloat, Tata Power says talks to continue
As the Gujarat government decided not to allow compensatory tariff to imported coal-based mega power projects in the state, Tata Power on Friday said that the amendment to the PPA with its Coastal Gujarat Power Ltd (CGPL) will still be considered, although with few additional conditions.
There were concerns that the state government’s latest move not to allow higher compensatory tariff may lead to the closure of operations at the CGPL, which runs the country’s first ultra mega power project (UMPP) at Mundra, to cut losses.
“The amendment to the PPA (power purchase agreement) with Coastal Gujarat Power Ltd will still be considered with HPC (High Powered Committee) conditions although with few additional conditions in view of the recent order of GERC (Gujarat Electricity Regulatory Commission) in the case of Essar Power,” a Tata Power statement said.
“Hence in our view, the cancellation of GR (government resolution) will not impact the progress of the ongoing discussions with CGPL on the supplemental PPA,” it said.
The company said that it is examining all the aspects of the HPC terms in view of the latest low imported coal prices and its long term trends.
It added that based on legal opinion, the Gujarat government has also agreed that separate supplemental PPAs can be finalised with the CGPL instead of the composite common PPA, which was envisaged earlier with all the five states. This would mean that the PPA terms may remain unchanged with other beneficiary states that are getting power from the CGPL but can only be revised in case of Gujarat.
Sources privy to the development said that Tata Power’s CGPL had been in dialogue with all the beneficiary states, including Gujarat with which it has a 25-year PPA for revision of tariff to cut its under recoveries and make the project viable.
But this seems to have not borne any result In the past leading to Gujarat rescinding its December 2018 resolution to provide compensatory tariff to three power projects of Tata’s, Adani and Essar to ensure their viability and prevent projects from shutting operations.
In March this year, Tata Power CEO Praveer Sinha reportedly said that the company could not continue to run the plant if no resolution on tariff was reached soon.
The CGPL’s 4000 MW Mundra power plant has PPAs with Gujarat, Maharashtra, Haryana, Rajasthan and Punjab. As part of its terms of bidding, the CGPL had to get all the states on board for getting higher compensatory tariff. But apart from Gujarat, none of the other states were keen to approve a tariff hike. Now even Gujarat has decided to have supplementary tariff for the project that would be lower than compensatory tariff it agreed in 2018.
The tariff for the CGPL is around Rs 2.7 per unit. If compensatory tariff was agreed upon, this would have taken up the tariff to about Rs 3 per unit. Even this would not have fully compensated the Tata backed project that lost Rs 0.32 for per unit of electricity produced and supplied in October-December quarter of FY20 losing around Rs 160 crore.
All imported coal based projects have been suggesting a higher tariff as a change of law in Indonesia, the prime source of imported fuel, has raised costs for coal and the companies that now face difficulty in adhering to the bid out tariff. The companies have been saying that a change in law in Indonesia was not something in their control, so higher fuel cost should be passed through in tariff.
The Supreme Court’s October 29, 2018 ruling extended a lifeline to these three power plants in Gujarat by allowing the Central Electricity Regulatory Commission (CERC) to amend their PPAs to facilitate pass-through of future fuel price escalation. Subsequently, Gujarat’s discom Gujarat Urja Vitran Nigam Ltd (GUVNL) agreed to amend the PPAs with power companies to provide for compensatory tariff. This order has now been withdrawn.
According to brokerages, the level of losses for imported coal based projects in Gujarat makes no sense for these entities to continue operations as loses could be checked if plants shut operations.
The three power projects — Tata Power’s 4,000 MW, Adani’s 4,620 MW plants in Mundra and Essar Power’s 1,200 MW plant at Salaya have in all PPAs for supply of 4600 MW power to GUVNL for 25 years. While Adani Power has two PPAs for 1000 MW each, Tata Power has PPA for 1800 MW and Essar for 800 MW with state utility.
The 2018 decision of the Gujarat government to compensate the projects that were reeling under losses due to increased cost had come as big relief to the three imported coal-based projects. As per estimates made then, the increase in fuel cost resulted in losses to the tune of Rs 24,000 crore for these companies, which were incurring losses to the tune of Rs 5,000 crore annually.