State rule bars rise in power tariff influenced by foreign govt policy change.
Anil Ambani Group firm Reliance Power’s 4,000-Mw Krishnapatnam ultra-mega power project (UMPP) may face a hurdle with the Andhra Pradesh government likely to turn down the company's suggestion for a tariff rise.
According to government officials, provisions under the power purchase agreement (PPA) with RPower, do not allow rate rise that is influenced by change in policies by foreign governments.
RPower had acquired three coal mines in Indonesia and imports coal from the country to feed its power plant at Krishnapatnam. A recent modification to the Indonesian law mandates all parties to sell coal at market prices. Earlier, Indonesian coal mines had the freedom to bilaterally come to an agreement with buyers on coal prices.
The PPA for UMPPs exclude fuel from the force majeure provisions that allow a company to seek noncompliance to contract provisions. Fuel is specifically excluded under clause (a) of Article 12.4 of the PPA that lists out heads that do not attract force majeure provisions. Besides, the ‘Non-natural Force Majeure events' specified in the PPA does not include actions by a foreign government.
Krishnapatnam has been planned as an imported coal-based power plant. “They (RPower) had made a presentation to Central Electricity Authority (CEA) on this issue. We will soon call a meeting of all the procurers and RPower officials to look into the tariff issue raised by the company,” S Bhattacharya, principal secretary, energy department, Andhra Pradesh government told Business Standard.
Another official from the central power ministry said: “The Andhra government is unwilling to pay a higher price, other than which was fixed, to purchase power.”
More From This Section
“The government cannot change tariffs, retrospectively, that was fixed through a competitive bidding process. The meeting of the company and the procurers will help us avoid such situations in the future. Moreover, there was no such provision in the PPA agreement,” the official added.
The company now wants to pass on the increase in fuel costs to consumers. In its presentation before the CEA and state government officials, RPower said the change in the Indonesian law beyond reasonable control were impacting debt drawdown.
Following the tariff-based international competitive bidding process, RPower was asked to supply power to eleven procurers from four states – Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra – at Rs 2.33 kWh.
The new Indonesian law would see coal costs soar to almost double from $26 a tonne to $60 at current international price. As the project requires 15 million tonnes every year, the loss on account of increased fuel cost would be around $500-$550 million.
According to RPower’s website, the Krishnapatnam UMPP has completed land acquisition, water and environment clearances. The EPC for the project has been awarded to Reliance Infrastructure and equipment will be sourced from Shanghai Electric Corporation, China.
RPower had earlier changed the unit configuration for the project from 5x800 Mw units to 6x660 Mw after an approval from Central Electricity Regulatory Commission. The first unit was expected to be commissioned in June 2013.