Revised Cogentrix Ppa Ready To Be Signed
A revised power purchase agreement (PPA) for the 1,000 mw power project in Mangalore is to be signed shortly by the Karnataka State Electricity Board and the Mangalore Power Company. Once signed, the PPA will be forwarded to the power ministry and then to the finance ministry for a counter-guarantee.
Under the terms of the revised PPA, savings made on the heat rate, auxiliary consumption, and operation and maintenance would not be allowed to be a pass-through. The savings under these heads would be taxed and have to be borne by the developer.
While depreciation, foreign exchange protection and incentive for generation beyond the normative level is slated to be a pass-through, the state government is contemplating over the allowing of depreciation to be a complete pass-through only when the company is incurring losses.
The Mangalore Power Co is promoted by US-based power major Cogentrix Energy Inc, which holds a 60 per cent stake in the company. The rest is held by Hong Kong-based China Light and Power International.
The revised PPA has been thrashed out by the state government and the developers based on the finance ministrys recommendation on the heads which merit taxation to be borne by the developer and those which deserve a pass-through wherein the developer is spared the burden which is recovered through tariff.
The finance ministry had earlier refused to issue a counter-guarantee to the project as it did not want the entire tax on income to be a pass-through.
The ministry had recently decided to amend the Income Tax Act to bring the depreciation levels in line with that provided under the Electricity (Supply) Act. This removes the possibility of power developers raking in extra income through the depreciation route owing to the differential depreciation rates.
With this anomaly removed, depreciation would now be recovered through tariff at the rate specified by the Electricity (Supply) Act. The new PPA will not allow the developer to retain the entire savings made by reducing the heat rate, auxiliary consumption, and operation and maintenance below the limit specified by the power ministry. The income from this saving would be taxed and would have to be borne by the developer completely.
The earlier policy allowed power developers to bracket all taxes on income arising out of power generation to be a pass-through.
The new PPA also provides cover to the developer from any foreign exchange variation. Any depreciation in the value of the rupee would be borne by the power purchaser. Apart from this, tax on income which accrues to the developer for bonus generation beyond the 68.5 per cent level plant load factor would now be a pass-through.
One outstanding issue which Cogentrix and the state government are trying to resolve is the time period for which the fuel supply is to be made. As per the recommendation of the consultants to the state government ACE of Australia and Herbertson Smith of the UK long-term contracts, say for 13 years would be unprofitable to the Board. Such contracts with companies shoot down the possibility of shopping around for cheaper coal without a comprise on quality. Cogentrix wants to source its coal from Australia and S Africa but is yet to identify the company from which it would buy it. the coal. Savings on heat rate, auxiliary consumption and operation and maintenance to be taxed and borne by developer Cover to developer from foreign exchange variation
Power purchaser to bear depreciation on rupee variation
Tax on income which accrues to developer from bonus generation to be a pass-through
Cogentrix, state government bid to decide time-period for which fuel supply is to be made