State Bank of India (SBI) has come out with a set of workable solutions to salvage three imported fuel-based power plants in Gujarat — the Mundra units of Tatas and Adani and Essar Power’s Salaya unit — that are in trouble after the Supreme Court struck down regulator-granted compensatory tariffs. At a recent brainstorming session in Ahmedabad, SBI, the lead lender for all three units, has proposed the state government buy imported coal and supply to the plants while only paying the generators the fixed cost — 40% of the tariff. While the state government requested for some time to assess the suggestion and its potential impact on the state’s finances, the viability of “tariff correction” under a bilateral agreement between the generators and state-run discom GUVNL, the committed long-term buyer of electricity from these plants, is also being explored, sources privy to the matter told FE.
Earlier, the state government had mulled over a plan to take over majority stakes in these three plants for a nominal price of `1 each, as suggested by the companies; but that plan has since been put on the back-burner.
The three power plants, in which Rs 60,000 crore capital investments have been made, are under the theat of becoming of non-performing assets; Adani Power Mundra unit’s outstanding debt stood at Rs 28,750 crore in June 2017 while Tata’s unit had a debt of around Rs 15,000 crore at that time. Essar’s Salaya unit has an outstanding debt of around Rs 6,500 crore at present.
In an April 2017 ruling, the SC rejected the claims to compensatory tariffs of Adani Power and Tata Power on their Mundra units on account of an increase in Indonesian coal prices. Neither “change in law” or force majeure, provisions in the power purchase agreements, could be invoked for such increase in fuel costs, the court stated.
The increase in fuel costs have pushed the power plants into losses; capacity utilisation at Adani and Essar plants are quite low at present.
According to sources, raising the tariff on mutually agreed terms between the generating companies and the discom might not be a contravention of the SC verdict. The generating companies had earlier sought for `0.4-0.5/unit hike in tariffs to run the power stations, which would still keep the prices of electricity attractive to the discom, given the low rates (in the range of Rs 2.26-2.89/unit) at which the PPAs were signed. Average power purchase price in Gujarat is Rs 3.44/unit.
Facing supply shortage, GUVNL has recently started buying more power from the spot markets, where the average electricity prices in March have shot up to more than Rs 4/unit.
In fact, on March 16, the average price of power in the Indian Energy Exchange was as high as Rs 4.95/unit, when the state procured more than 36 million units of electricity. The landed cost of spot market power to GUVNL came to a prohibitive `8/unit on that day. The supply constraints due to the shutting of the two plants have triggered Gujarat seeking tenders for 2,000 MW of short-term power for April, May and June.
In February, generation from Adani Power’s 4,620 MW Mundra plant was 680 MU, down 75% from a year ago. Even Essar Power’s imported coal-based station did not generate any electricity at all. However, at 2,615 MU, Tata Power’s 4,000 MW power plant’s production remained at par with February 2017 levels. According to Jefferies India, Tata’s Mundra power plant saw an under-recovery of Re 0.79/unit in Q3FY18 due to higher coal prices. Its management has discussed using lower grade coal options (up to 15-20% in volume) for blending to contain costs and run the plant efficiently.
