The government will soon spell out the norms wherein the transportation risk, running into a few thousand crore, arising out of the fuel-supply contract with Independent Power Producers (IPPs) will be apportioned between various government agencies.
The Hinduja-National Power fast track power project in Vizag will be the first instance where the new norms will come in place. To effect these changes, the government will be moving a cabinet note to amend the Railway Act to accommodate the transportation risk.
It has also been decided that the Secretary (coordination) of the High Powered Board on power projects will function as an arbitrator and apportion the liability between the coal supplier and the railways.
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Once the amendment to the Railways Act is effected, the risk arising out of fuel transportation can be fully met by the Railways. In the transition period, the portion of the liability that can't be met through the railways, will be borne by the general budget.
At present in the event of any default in the supply of fuel to power projects, the Railways Act does not permit them pick any liability beyond the value of the goods _- while the actual liability runs into several thousands of crore.
The government has made a sole exception for the Hinduja-National Power combine, promoters of the 1000 mw project in Andhra Pradesh whereby the union government would bear the difference between the value the Railways can meet and the actual liability.
Under the plan chalked out it would initially take on the unmet liabilities arising out of the Railways default in the Railway Budget as a contingent liability which would be met by the finance ministry (out of the Union Budget) . This mechanism would later be withdrawn once the amendment to the Railway Act is made.
Under the coal supply and transportation deal between the Hinduja's and Mahanadi Coalfields, there is back-to-back arrangement between the Railways and MCL to settle the huge penalties arising out of any default during the process of delivering coal to the power project. But in the event of any fault on account of the Railways they would be constrained by the Railways Act whereby the liabilities are limited to the value of the goods.
The actual liabilities on the contrary would be far more than the value of the goods and would be measured in terms of the resulting loss in fixed costs arising out of loss of power output.
As recovery of fixed costs include both debt and equity for the 1000 mw project - the amount that would have to coughed up out runs into several crore of rupees.