Tata Power's Mundra UMPP gets CERC compensation breather

The ruling is similar to the regulator's April 2 order allowing Adani Power to charge more for electricity produced at its Mundra plant in Gujarat

The apex power sector regulator on Monday passed a landmark order extending relief in the form of a “compensatory tariff” to Tata Power for sale of electricity from its 4,000-Megawatt (Mw) Mundra ultra mega power project in Gujarat.

The Central Electricity Regulatory Commission (CERC) breather was similar to the April 2 one given to Adani Power, granting it compensation to offset losses incurred from generating electricity from its Mundra project, on account of costly imported coal.

Tata Power’s share price failed to react to the late-evening development. It closed at Rs 94.15, down one per cent against the previous close, on the BSE.

The ruling would make power costlier for millions of consumers in Gujarat, Maharashtra, Punjab, Rajasthan and Haryana. Tata Power had signed a pact for supply of power from the ultra mega power project (UMPP) at Rs 2.2 a unit with the five states. Like Adani, Tata Power had sought a revision in tariff, citing a change in Indonesian coal regulation that jacked up fuel costs, leading to losses of Rs 1,873 crore annually and extrapolated to Rs 47,500 crore over 25 years.    

In its 98-page order, CERC noted that it was necessary to consider adjustment in rates due to the impact of an unanticipated increase in the price of imported coal. “The compensation package could be variable in nature, commensurate with the hardship the petitioner is suffering on account of unforeseen events....” The compensatory tariff should be revised or withdrawn as and when the hardship is removed or lessened, it added.

CERC also ordered the setting up a panel — comprising representatives of the five states, Tata Power and bankers — to work out the quantum of the compensation over the current tariff for the imported coal-based project.

Partner at law firm J Sagar Associates Amit Kapur, who argued the case on behalf of Tata Power, said: “The committee will consider the net profit, excluding taxes and cess, etc, earned by the petitioner's company from the coal mines in Indonesia, due to Indonesian regulation corresponding to the quantity of the coal supplied to the Mundra UMPP being passed to the consumers.”

As in Adani’s case, CERC member S Jayaraman dissented with the majority order passed by the five-member panel, headed by Pramod Deo. He called the matter a dispute outside the scope of CERC’s regulatory powers. “The decision will be a precedent to be followed in future. The exercise of regulatory power in such cases will have a cascading effect and the sanctity of competitive bidding will be lost. It is not the commission’s mandate to ensure the developer earns profit in every situation,” Jayaraman said in a separate order.

Tata Power said the development was positive and an important step in resolving the impasse affecting imported coal-based power projects, which were hit due to extraneous factors beyond the control of the project developers.

Tata Power said in a statement its subsidiary, Coastal Gujarat Power Ltd, has been delivering “the full potential of Mundra”, albeit with “tremendous fiscal pain”, and hoped for a quicker resolution of the issues.
* 2006 The company bags the project by quoting Rs 2.26 per unit in competitive bidding

* 2007 CGPL enters into PPA with five states, with Gujarat as lead procurer, for supplying 3,800-Mw power for 25 years  

  Coal requirement of 12 mtpa for project being met from Indonesia’s IndoCoal Resource (Cayman) Ltd

* 2011 Indonesian mineral export regulations come into effect in September, raising fuel cost

* 2012 Owing to new regulation, coal cost jumps from $42 in 2006 to $72 a tonne

  Tata Power says suffering losses of Rs 1,873 cr annually, extrapolated to Rs 47,500 crore over 25 years

* 2012 It approaches CERC. Case heard in December

* 2013 CERC says company deserves compensation package. Forms committee to work out details