CERC order lifts uncertainty over recovery of additional fuel costs by Adani Power

In a regulatory ruling, which would clear the uncertainty in an issue common to a host of mega power plants, the Central Electricity Regulatory Commission (CERC) has upheld Adani Power's right to recover additional fuel costs arising from the recent hike in Indonesian coal price from those who buy electricity from its Mundra project.

The ruling would allow discoms in Haryana and Gujarat that buy power from the plant to pay almost Rs1 more for each unit of power from the plant. The discoms would between them need to shell out an additional Rs1,200 crore per annum if the CERC order were to be implemented and the tariffs so revised. The extra cost would, however, be ultimately passed on to the retail consumers in these states, given that the policy of pass-through of cost was under implementation in the sector with renewed vigour.

The CERC, though did not come out with any formula for tariff revision, saying the quantum of extra fuel cost would be decided by the parties concerned through mutual consent. A panel comprising the company, principal secretaries (power) in the two states and chiefs of discoms concerned would assess the impact of the higher coal price on the viability of the project and decide the quantum of additional tariff.

The ultra-mega power plant (UMPP) of Tata Power at Mundra and Reliance Power's Krishnapatnam UMPP would likely benefit from Tuesday's CERC decision as their pleas for tariff revision on similar grounds have been pending with the regulator and the ruling in the Adani Power case could set a precedent. Adani Group chairman Gautam Adani said the group welcomed the CERC order, which would pave the way to enhancing investor confidence in the power sector.

The regulator also called or setting up of a committee to work out the exact quantum of ''compensation'' over the current tariff for the 4,620-MW project.

The group had signed two PPAs of 1,000 MW each with the Gujarat government, at Rs2.35 per unit and Rs2.89 per unit, for its project in 2007.

The state government had committed allocation of Morga-II coal block at the time of the bid. Adani Power had also entered into a PPA with the Haryana government for sale of power at Rs2.94 per unit in 2008. The group had considered use of 70 per cent indigenous coal and 30 per cent imported coal at the time of the bid.

Adani Power's memoranda of understanding with Japan's Kowa Company Ltd and Germany's Coal Orbis Trading GmBH were terminated in 2008, which led the company to enter into an agreement with its Indonesian subsidiary.

The company had been sourcing coal from Indonesia at $92 a tonne (this price has come down to less than $72 a tonne now), as against $36 per tonne before the notification of the Indonesian regulation. According to the company, it had incurred annual losses of Rs790 crore in the supply of power to Gujarat and Rs580 crore in supplies to Haryana. Gautam Adani said the order would pave the way to bring back investor confidence in the power sector.