Declining coal prices: Gujarat revokes PPA relief to power units

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Published: July 10, 2020 2:45 AM

Now, after taking into account the fall in global coal prices, the state will revise the terms and conditions of the PPAs in new supplementary agreements, where the tariff calculation will be done on the basis of fresh parameters.

“Pending the decision in the proceedings, as at present, the energy charges in respect of Adani will be considered on provisional basis,” Gujarat’s latest resolution stated.“Pending the decision in the proceedings, as at present, the energy charges in respect of Adani will be considered on provisional basis,” Gujarat’s latest resolution stated.

Apprehending a big financial blow to its power discom GUVNL, the Gujarat government has reversed a December 2018 resolution, agreeing to provide relief to three imported coal-based power plants in the state run by Adani, Tata and Essar. Now, after taking into account the fall in global coal prices, the state will revise the terms and conditions of the PPAs in new supplementary agreements, where the tariff calculation will be done on the basis of fresh parameters.

“…Gujarat Urja Vikas Nigam (GUVNL) is hereby directed to draft the supplemental PPAs with EPGL (Essar) and CGPL (Tata) consistent with the above decision and the same shall be sent to the state government for approval on a case to case basis,” the new resolution, reviewed by FE said.

The state has already filed recall petition with the Central Electricity Regulatory Commission seeking cancellation of the relief allowed to Adani Power under the supplementary PPA it has already signed. “Pending the decision in the proceedings, as at present, the energy charges in respect of Adani will be considered on provisional basis,” Gujarat’s latest resolution stated.

In December 2018, the Gujarat government had passed a general resolution to allow these companies to sign supplementary PPA with the state to facilitate pass-through of future fuel price escalation, as per the Supreme Court’s October 2018 ruling that allowed compensatory tariff relief for the firms citing the “change in law”. While Adani Power has already signed the revised PPA with the state, Tata Power and Essar Power will have to sign the same on the new terms.

Tata Power, Adani Power and Essar Power had set up 4,150 MW, 4,620 MW and 1,200 MW imported-coal based power plants, respectively, in Gujarat. These units got into trouble due to an unforeseen hike in Indonesian coal prices. The supplementary PPAs were designed as per the recommendations of a high-level committee, which analysts said, would have increased CGPL (Tata) tariffs by Rs 0.30-0.40/unit and Adani’s tariff by Rs 0.80/unit.

“GUVNL is directed to submit the above decision of the government of Gujarat through an affidavit before the CERC in pending proceeding in the recall petition,” the state government’s latest resolution stated.

The high-level committee had also recommended reduction in fixed charge by Rs 0.20/unit, necessitating banks to reduce debts by Rs 4,240 crore for Tata and Rs 3,821 crore for Adani. The committee also suggested to allow pass through of coal costs, capped at $120/tonne. Gujarat, in its latest decision, has reduced the ceiling of coal price to $90/tonne.

In April 2019, Adani Power’s Mundra power project got a booster with the the CERC allowing tariff hike for 2,000 MW capacity linked to GUVNL by amending the PPA. The regulator’s move, which then kept the hopes alive for the plants of Tata Power and Essar Power in Gujarat facing similar problems due to unforeseen increases in imported coal prices.

Apart from GUVNL, the power from these Gujarat units is procured by discoms in Haryana, Rajasthan, Maharashtra and Punjab.

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