Rajasthan discoms challenge compensatory order for Tata UMPP

Discoms argued that regulator does not have power to revise tariff for a project based on competitive bidding

The Rajasthan government’s three power distribution companies have moved the Appellate Tribunal for Electricity (APTEL) challenging a February 21 order passed by the power regulator, the Central Electricity Regulatory Commission (CERC), which allowed a compensatory tariff to Tata Power for electricity generated at the company’s Mundra Ultra Mega Power Project.The discoms have sought quashing of the CERC order on multiple grounds.

They have argued the regulator does not have the power to revise tariff for a project based on competitive bidding; CERC ignored the in-principle approval given by procurers and whether the analysis of hardship faced by the company is correct. CERC had allowed Tata Power 52 paise per unit tariff over and above the project’s levelised tariff of Rs 2.26 per unit as compensation for loss incurred due to change in Indonesian coal regulations in 2011.

The company took around Rs 1,800 crore impairment on the Mundra investment in 2011-12 followed by Rs 8,500 crore impairment in 2012-13. The CERC order had made power costlier for millions of consumers across five states — Gujarat, Maharashtra, Punjab, Rajasthan and Haryana.

According to ratings agency ICRA, the retail tariff from the 4,000 Mw project for consumers in five procuring states after thecompensation are expected to increase in a range between 3 paise and 10 paiseper unit.

However, the compensatory tariff could be offset by at least three factors -- sharing of profits earnedby Tata's Indonesian mining companies, sacrificing 1% Return on Equity (RoE) and lower auxiliary consumption of 4.75% allowed by CERC.

The three factors, put together, are likely to bring down the effective compensatory tariff from the project to 47 paise per unit, according to an estimate.

Tata Power holds 30% stake in three coal mines in Indonesia which supply fuel for the imported coal-based Mundra project located in Gujarat. The compensation announced by CERC was based on the recommendations of Deepak Parekh committee report.

The Rajasthan discoms have argued CERC accepted the report signed by three members only and decided the matter by allowing compensatory tariff overriding the conditions and objections of the Procurers.