Column: Striking a balance

Mar 07 2014, 02:50 IST
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SummaryCERC's compensatory tariff takes care of both consumers and the Tata and Adani power projects

Two regulatory orders in February have had different effects on private sector power generators and the state-owned power utilities. The markets have responded positively to Tata Power and Adani Group, in the wake of the Central Electricity Regulatory Commission’s (CERC) orders allowing payment of ‘compensatory tariff’ to two power projects belonging to the two firms, above the rates determined through competitive bidding. But the orders will result in state-owned distribution utilities in Gujarat, Maharashtra, Haryana, Rajasthan and Punjab paying an extra 52 paise for every unit generated from Tata’s plant in Mundra, as against levelised tariffs of R2.26 offered by the promoter in the original power purchase agreements. For Adani’s plant at the same location, the extra payment for Haryana will be 43 paise and 71 paise for Gujarat as against levelised tariffs of R1.96 and R1.38 respectively. The rise, being a pass-through under the provisions of the Electricity Act 2003, will be recovered from the consumers of these utilities. How will this square with the recent trend of some state governments announcing reduction of tariffs? We plan to examine it in two parts: this part will focus on the central commission’s reasons for granting this hike and concluding one will examine what is happening in the states.

The additional tariff effectively compensates the two private developers for an unforeseen escalation in imported coal costs as a result of regulations announced by the Indonesian government. The central commission’s solution attempts to strike a balance in restoring the financial viability of the power plants while keeping the hit to the consumers to the minimum, with a series of safeguards built into the compensatory tariff order.

The central commission saw some merit in the generators’ plea that promulgation of the Indonesian regulation has led to abnormal increase in the cost of generation of electricity, making the project totally unviable. It observed that unless the concerns of the generators are addressed, the possibility of them defaulting in discharging their obligations under the power purchase agreement (PPA) due to the perceived financial burden cannot be totally ruled out and that will affect the interest of the consumers. In that event, the state utilities will be required to invite fresh bids to meet their requirement of power and till the selected project or projects are commissioned, the consumers will be deprived of power. Moreover, the tariff discovered recently for new projects are in the range

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