Power firms cheer Gujarat's tariff hike proposal, but many hurdles remain

Regulatory approval and nod from other states & consumer forums pending

Imported coal-based thermal power units in Gujarat are delighted at the new prospect of a rise in permitted electricity supply rates.

After an order of the Supreme Court, the state government has told its power distribution companies (discoms) to ask for the Central Electricity Regulatory Commission’s (CERC's) approval in this regard. 

The hike pertains to power-purchase agreements (PPAs) signed by various states, including Gujarat, with imported coal-based projects of Tata, Essar and Adani. 

Sources said Gujarat Urja Vikas Nigam, the umbrella state entity for electrical services, would meet this week on the proposed application. For Essar Power, the application will be filed at the Gujarat Electricity Regulatory Commission (CERC); for Tata and Adani Power, at the CERC. Tata and Adani Power have PPAs with Gujarat, Rajasthan, Maharashtra, Punjab and Haryana.

The three projects were set up between 2006 2008. And, could not pass on the subsequent increase in cost of imported coal on to their supply rates, being bound by the prior PPAs. Costing around Rs280 billion, the projects are on the verge of insolvency.

The Gujarat government had sent the report of a high-powered committee (HPC) on the matter to the Supreme Court. The panel was set up under a CERC directive and recommended on all three projects, where the installed power capacity totals 7,180 Mw. The HPC suggested a cap at $120 a tonne on the cost of coal that could be passed on to customers.

Tata Power said it welcomed the resolution by the government of Gujarat to accept the HPC recommendations. “This relief will help Coastal Gujarat Power Ltd (its project is near Mundra, Kutch) to continue its operations, to meet its obligations to all the five beneficiary states. In case these projects were shut down, replacing such huge capacity with alternate sources from the market would not be feasible, as the short-term market prices are not only much higher and volatile but the availability of power is uncertain,” it stated. 

The application, as mentioned, needs CERC approval. "As these PPAs come under a composite scheme (supplying to more than one state), all procuring states would also be heard,” said a CERC official. 

"We will hear all stakeholders, including consumer forums and all those who have been party to this case.”  Tata Power also noted of the approval of other states was pertinent. 

"Though coal cost is now a pass-through, the company would continue to make losses due to the rebate on financing cost and coal mine profit being passed on to the beneficiary states. We expect to get the consent of the other four procurer states," it said.

Gujarat apart, no other state has yet agreed to the revised rates as suggested by the HPC. And, energy rights groups have protested against any rate increase.

The procuring states had earlier contested a decision on raising of rates by the CERC in 2014. 

It had at the time allowed a compensatory 52p a unit for Tata and 41p for Adani.

In April 2017, a Supreme Court judgement had disallowed any pass-through of the cost of coal on the consumer power rates for Adani and Tata Power projects; it noted the PPAs had no provision to pass on such changes. Also, the project developers had bid a singular coal cost for 25 years. 

Tata Power had signed a PPA at Rs2.26 a unit and Adani Power at Rs2.35 a unit.