Compensatory rate rise for Tata UMPP has riders

Parekh panel wants adjustment for some benefits; rise for FY14 could be 58p a unit

The Deepak Parekh committee’s recommendation on a compensatory rate for Tata Power’s Mundra ultra mega power project (UMPP) has come with some riders. The compensation would be adjusted not only for the benefits earned from the company’s Indonesian mine, but also for any slump in global coal prices.

Based on the committee’s recommendation, the rate for the 4,000-Mw project might go up by 58 paise a unit in the current financial year. The company had signed power purchase agreements (PPAs) in 2007 with the distribution companies of five states – Gujarat, Maharashtra, Punjab, Rajasthan and Haryana – with Gujarat as the lead procurer, to supply 3,800 Mw of electricity for 25 years at a levelised Rs 2.26 a unit.

The committee has recommended true-up of compensatory tariff at the end of each financial year with adjustments for Tata Power’s share of profit from the Indonesian mining companies proportionate to the offtake for the UMPP and also the actual normative fuel energy expenses, according to sources.

The committee’s recommendation of 58 paise a unit compensation is based on the assumption that the imported coal price for July 2013 is indicative of the average price for the current financial year’s average price.

The committee was set up by the Central Electricity Regulatory Commission (CERC) in April to work out the exact quantum of “compensation” over the current rate for the project due to the impact of unanticipated increase in price of imported coal. It will make power costlier for millions of consumers across the five states. The committee is understood to have given similar recommendation for a Adani Power’s UMPP at Mundra.

Tata Power has a 30 per cent stake in Indonesian mining companies PT Kaltim Prima Coal and PT Arutmin. The Mundra UMPP will source coal from the two companies. New Indonesian mineral export regulations come into effect in September 2011, jacking up fuel cost. Owing to the new “unforeseen” regulation, coal cost jumped from $42 in 2006 to $72 a tonne in 2012. The company says it is suffering losses of Rs 1,873 crore annually, extrapolated to Rs 47,500 crore over 25 years.

According to the committee’s recommendation, the rate is to be reviewed every quarter. Also, the panel has suggested a 61-87 paise a unit ceiling on the compensatory rate this financial year. The panel has also floated the idea of third-party sale of power beyond the normative availability of 80 per cent.

Tata Power reported a 12.4 per cent decline in net profit at Rs 1,024 crore last financial year. Tata Power reported a consolidated profit of Rs 990 crore in FY13. The Mundra UMPP’s under-recoveries of fuel costs were reportedly around 50 paise a unit on a generation of 6,148 million units in the first quarter ended June.