A power producers’ group has demanded clauses to offset changes in international laws, with regard to ultra mega power project contracts, while opposing tariff renegotiation after the financial bids are opened.
The Association of Power Producers (APP) want changes in international law to be part of the force majeure provisions — which excuse a party from liability in the event of chance or unavoidable occurrences — for the upcoming ultra mega power projects (UMPPs). The grouping of prominent power producers has also expressed their opposition to tariff renegotiation after the opening of financial bids for UMPPs.
The comments assume importance against the backdrop of Reliance Power and Tata asking for tariff revisions for their Krishnapatnam and Mundra UMPPs, respectively, following a change in coal pricing policy by the Indonesian government, making the fuel costlier.
| DEMANDS EXPLAINED |
| * Association of Power Producers want force majeure to cover change in foreign countries’ laws |
| * Force majeure removes liability of a party in case of natural or unavoidable happenings |
| * Producers against tariff negotiation after bids are opened for UMPPs |
APP includes Reliance Power, Tata Power, Adani Power, Lanco Infratech and GVK Power. So far, four UMPPs have been awarded — three to Reliance Power and one to Tata Power. APP deputy director general (policy and regulatory affairs) Sunil Kumar Sharma said: “The restriction imposed on import of fuel due to change in any of the source country or international law is beyond the control of the seller. Hence, ‘delivery of fuel’ should be a force majeure condition (to be removed from exclusion list) to address the potential impact due to any such changes in law.”
In a letter to ministry of power secretary P Uma Shankar, Sharma said: “After the bid, we would like to reiterate that if the tariff is determined by the process as laid down in the competitive bidding guidelines framework and the regulator can find no flaw in the process, the same tariff should be adopted. Further, no tariff renegotiation should be allowed after opening of financial bids.”
The proposed arrangement is also in line with the Central Vigilance Commission guidelines.
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The Indonesian government had switched coal pricing system to include global prices. Indian companies had long-term coal contracts with Indonesia mines which had to modified after the change.
APP’s Sharma said both the demands are separate as one talks about any tariff revision after the documents are placed in the public domain and bid process has been started, while the second issue is about any change in international law. “There have been some instances in the past where the project size has been changed after the bidding. Such changes impact the developers afterwards,” he said.
If the force majeure clause, he added, when the government recognises that any change in national law can render the project unworkable, then it should also realise that the same can happen with changes in the international law too.
“On imported coal-based UMPP, we maintain that due to unprecedented price volatility seen in international coal market in recent times, a 25-30 year contractual arrangement on fixed levellised tariffs is unworkable,” he said.
The comments on draft revised standard bid documents for UMPPs have been forwarded to the ministry of power.
“Efficiency needs to be ensured through station heat rate and fixed charges discovered through competitive bidding process, with fuel cost being pass through,” he said.
SHR — an indicator of efficiency — generally refers to kilocalories of heat required to produce one unit of power.
The captive mine allocated to UMPP should have all clearances for environment and forests related issues.