RPower firm on tariff hike for Andhra UMPP

Invokes ?force majeure? clause, serves notice on procurers to discuss fare revision.

Reliance Power has made it clear that it will not go ahead with the implementation of its R17,500-crore Krishnapatnam ultra mega power project (UMPP) in Andhra Pradesh unless contracted buyers agree on tariff revision to accommodate the increase in fuel cost from the recent change in the Indonesian coal pricing law.

Sources said that the private developer has invoked the ?force majeure? clause of the power purchase agreement (PPA) and served notice on power procurers seeking negotiations for tariff revision.

Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of parties prevents one or both parties from fulfilling their obligations under the contract.

The developer has argued that the lenders are not disbursing loans approved by them earlier as the project has been rendered commercially unviable by the subsequent change in the Indonesian coal law, a development that was not envisaged at the time of bidding and hence should be treated as a force majeure condition.

The private developer bagged the 4,000 MW project in 2007 by offering the lowest power supply price in competitive tariff bidding. It achieved financial closure for the project in July 2010. Southern states like Tamil Nadu, Karnataka, Andhra Pradesh as well as Maharashtra have contracted power supply from the project.

If the two sides fail to resolve the issue between them, the matter would have to be brought before the central electricity regulatory commission (CERC) for adjudication.

Tata Power has also sought a tariff hike of more than R1 a unit for its Mundra UMPP based on Indonesian coal.

?There is provision for annual escalation to cover the normal increase in fuel cost for UMPPs in CERC?s indexation. However, there is no provision to cover increase in fuel cost necessitated by extraordinary developments like the change in the Indonesian coal law,? said RV Shahi, a former Union power secretary who was instrumental in the launch of the UMPP scheme.

?Therefore, it (change in the Indonesian coal law) is a problem which we need to recognise. No producer will sell power at a loss. The power ministry and the CERC need to formulate a strategy and provide clarifications on the basis of which concerned regulator (state electricity regulatory commission) could take a decision,? Shahi said.

Other key coal exporting countries like Australia and South Africa have also decided to impose additional mineral resource rent and carbon credit tax on their coal production. As a result, international coal prices have risen sharply in recent years.

Power projects totalling 13,000 MW capacity based on Indonesian coal supply have been allocated for implementation through tariff bidding in recent years, according to association of power producers (APP), a body of private developers.

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First published on: 19-03-2012 at 04:15 IST