In a major relief for Tata Power, the Central Electricity Regulatory Commission (CERC) on Monday upheld the company?s right to recover additional fuel cost for its Mundra ultra-mega power project (UMPP) due to the spike in price of coal imported from Indonesia since September 2011. The regulator?s decision to allow ?compensatory tariff? to Tata Power, on the lines of its order early this month in case of Adani Power?s Mundra plant, has brightened the prospects of these and a host of other projects awarded through tariff-based bidding.

For buyers of power from Tata Power?s Mundra UMPP ? state electricity boards in Gujarat, Haryana, Punjab, Rajasthan and Maharashtra ? the order would lead to an additional outgo of R0.67 for each unit of power.

Though the regulator said the force majeure clause cannot be invoked, it said since the developer is being hit by the rise in fuel costs, compensatory tariff could be allowed. The extra tariff would be reviewed periodically in sync with the landed cost of Indonesian coal and could also be withdrawn if no escalation of cost from the energy price quoted by the firms in their bids is found.

Tata Power said at current tariffs, it is losing R1,873 crore annually in supplying power to the five states which have signed power purchase agreements (PPAs) with it.

Only 45% of any increase in fuel costs is recoverable by the generator as per the terms of the PPA. Unlike in the case of Adani Power, where fuel cost is non-escalable, Tata Power has kept 55% of the fuel cost as fixed and the rest, variable.

Reliance Power?s 4,000 MW Krishnapatnam UMPP, JSW Energy?s 1,320 MW Ratnagiri project and Lanco Power?s 1,200 MW Udupi project are also being affected by the rise in Indonesian coal price and might seek similar reliefs.

The CERC said the quantum of additional tariff will be determined by a committee comprising of principal secretaries (power) of the states concerned and managing directors of their electricity boards. The committee is required to submit its report by May 15 for consideration and further directions by the regulator.

The developer welcomed the CERC order. ?This decision is an important step in resolving the major impasse affecting imported coal-based power projects in the country which got impacted due to extraneous factors well beyond the control of developers,? Tata Power said.

Former Union power secretary RV Shahi who is credited with finalising the UMPP scheme also expressed satisfaction at the order. Shahi said: ?It is indeed thoughtful of the CERC to have recognised the problem that change in law in the source country of coal import is a reality and requires to be appropriately compensated. It will have a positive impact on the power sector which has been facing several uncertainties.?

In September 2011, Indonesia moved to an international index for pricing its coal, triggering a sharp hike in fuel costs for power producers sourcing its coal. Indian power generators, which had entered into contracts with Indonesian mining companies for coal supply before the new law came into force, are now required to pay international prices rather than the contracted price.

The petitioner submitted that following the change, prices jumped from $40-50 per tonne in 2006 to $110-120 per tonne in 2011. Tata Power had bagged the project Coastal Gujarat Power in a competitive bidding in 2006 by quoting a levelised tariff of Rs 2.26 a unit.

Last year, Tata Power moved CERC after procuring states declined its request for adjustment of tariff for the project to reflect the increase in Indonesian coal price following change in that country?s mining law.