Tata Power's Mundra plant in final talks to ink supplemental PPA deal

Tata Power arm CGPL, which runs Mundra plant, is in advance stage of discussion with Gujarat's utility GUVNL to ink a supplemental power purchase agreement (PPA) to facilitate suitable increase in power tariff, an industry source said.

Earlier this month, the Gujarat government had decided to reverse its 2018 decision to amend the PPAs it signed with three producers - Tata Power, Adani Power and Essar Power - to raise the power tariffs in order to offset the rising cost of imported coal.

The Gujarat government revoked its Government Resolution (GR) in this regard in view of easing coal prices in the international market.

"While the Gujarat government has decided not to amend the main PPA, the state is negotiating with the CGPL (Coastal Gujarat Power Ltd) on a supplemental PPA. Even though there has been a drop in coal prices, there is still room for a hike in power tariff in line with the prevailing prices and the supplemental PPA will take that into consideration. We expect negotiations to conclude soon," the industry source said.

In its order dated June 12, 2020, the Energy and Petrochemicals Department of Gujarat government had said the matter of signing supplemental PPAs with EPGL and CGPL will be decided on case to case basis by the government.

The order also noted that GUVNL will submit the draft supplemental PPA with CGPL separately for approval of the state government. Further, all modifications made in supplemental PPA with EPGL (Essar Power Gujarat Ltd) will be appropriately incorporated in the supplemental PPA with CGPL.

The supplemental PPA will come into effect from the date of order of CERC approving supplemental PPA.

According to industry sources, the Additional Solicitor General (ASG) of India had informed the central power ministry in April this year that the CGPL may supply power to Gujarat and Maharashtra at "higher revised tariff" and continue to supply power as per tariff determined through competitive bidding process to Punjab, Rajasthan and Haryana.

However, the "higher revised tariff" for Gujarat and Maharashtra has to be supported by a supplemental agreement and duly approved by power regulator Central Electricity Regulatory Commission (CERC).

"It was brought out in the April meeting, which was chaired by Power Secretary Sanjiv Nandan Sahai, that the PPA provides for two different sets of decisions for procurers, one where the procuring states are to take decisions jointly and second where the decisions can be taken separately.

"It was further brought out that as per the opinion of ASG, the decision to sign the supplementary PPA can be taken by the procuring states separately," the sources said.

Accordingly, it was determined during the meeting that it was legally possible for Gujarat and Maharashtra to sign the supplemental PPAs and approach CERC for it to take effect, while Tata Power negotiates the same with the other procuring states - Punjab, Haryana and Rajasthan," the industry sources said.

The three power producers have PPAs for supply of 4,600 MW power to the state utility Gujarat Urja Vikas Nigam Ltd (GUVNL) for 25 years.

The Adani Power has two PPAs for 1,000 MW each, Tata Power has 1,800MW and Essar Power has 800 MW.