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CERC orders compensatory tariff for Adani Power

Sujay Mehdudia
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This has come as a whiff of fresh air for the ailing sector

A view of Adani Power plant at Mundra, Gujarat.— FILE PHOTO: AFP
A view of Adani Power plant at Mundra, Gujarat.— FILE PHOTO: AFP

The Central Electricity Regulatory Commission (CERC) order on Wednesday granting ‘compensation package’ to Adani Power for its Mundra power project has come as a whiff of fresh air for the ailing power sector and could act as a trend setter for bringing out of the woods major power projects, including Tata Power’s Mundra ultra mega power project (UMPP).

In its order on a petition filed by Adani Power for its 1,980 MW power project last year, the power sector regulator said: “In the present case, the escalation in price of imported coal on account of Indonesian regulation and non-availability of adequate fuel linkage from state-run Coal India limited (CIL) for the project of the petitioner (Adani Power) is a temporary phenomenon, and is likely to be stabilised after some time. Therefore, the petitioner needs to be compensated for the intervening period with a compensation package over and above the tariff discovered through the competitive bidding. The compensation package will be called compensatory tariff, and it could be variable in nature in proportion with the hardship that the company is suffering on account of the unforeseen events,” it said.

The CERC also favoured the constitution of a committee consisting of the Principal Secretaries of the States concerned and CMDs of the distribution companies concerned, chairman of the petitioner company or his nominee, an independent financial analyst and an eminent banker to recommend the compensatory tariff within one month. However, the CERC order also had a dissenting note with S. Jayaraman, member, stating that re-negotiation of tariff could not be ordered when such tariff had been discovered through the international competitive bidding process. “The renegotiation of tariff in such cases defeats the competitive bidding process. The company, through its own economics, decided to bid for non-scalable energy charges, presumably based on its mining interest in Indonesia,” he added.

“The rationalisation of power tariffs will also pave way for many other power projects to start generating power at a viable tariff. This could insulate them from further losses, and secure the investments in the power sector which has been struggling due to various issues, including fuel supplies, tariff issues and failure of discoms to pay their dues,” a senior Power Ministry official said.

Last year, in July, Tata Power had also moved the CERC seeking higher tariff for power generated from the 4,000 MW Mundra UMPP located in Gujarat. It had argued that the changes in Indonesian fuel pricing regulations had made the UMPP unviable at existing tariffs. Hence, it had sought higher tariff.

The company won the Mundra UMPP through competitive bidding by quoting a price of Rs.2.26 per unit, a tariff which has now become unviable.

The company has now sought higher tariff of about Rs.3 per unit. The matter is in the final stages of hearing, and an order by CERC is expected soon.

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