MahaVitaran can scrap Mundra project PPA if it becomes unviable

Repudiation of contract without any compensation to Coastal Gujarat Power Ltd

The Maharashtra Cabinet on Wednesday allowed Maharashtra State Electricity Distribution Company (MahaVitaran) to scrap its power purchase agreement (PPA) with Coastal Gujarat Power Ltd (CGPL) if the power drawal from the Mundra ultra mega power project (UMPP) becomes unviable. The repudiation will be done without any compensation to CGPL, an arm of Tata Power.

MahaVitaran can explore this option if and when the Mundra UMPP tariff is revised. The Central Electricity Regulatory Commission (CERC) has approved the compensatory tariff at 56 paise a unit as suggested by the Deepak Parekh committee. The tariff will be adjusted for profits that Tata Power earns from its coal mines in Indonesia.

The state Cabinet also cleared MahaVitaran’s plea to allow it to file an affidavit before the CERC, which is currently hearing the case in this regard. The Cabinet asked MahaVitaran to strongly put up its case before the CERC, even if it means renegotiating its PPA before resorting to the repudiation on the grounds of unviability.

A senior minister told Business Standard, “If the tariff becomes unviable, MahaVitaran can repudiate its 25-year-long PPA with CGPL for the purchase of 800MW. MahaVitaran informed the Cabinet on Wednesday that it will have to bear an additional burden of Rs 300 crore annually if the compensatory tariff of 56 paise is accepted.”

As Business Standard reported in October, MahaVitaran has argued that CGPL should cut the return on equity (RoE) to give relief to its consumers. “CGPL is earning an RoE of 35 paise a unit. Besides, MahaVitaran wants that the lenders of CGPL should also agree to reducing the interest rate and that the relief be passed on to procurers,” added the minister.