India’s largest private sector power producer is in more than a spot. A sharp jump in the price of coal overseas has thrown the economics of Tata Power’s 4,000 MW ultra-mega power plant (UMPP) in Mundra, Gujarat, out of gear. It turns out that fuel needed to generate the power is costlier by about $30-35 a tonne and that could crimp the bottom line; a back-of-the-envelope calculation shows that if the plant is run at a load factor of 80%, losses could come in at an estimated R2,200 a year, if, as the Tatas claim, tariffs need to be upped by 80 paise per kwh. Analysts, however, estimate the break-even tariff at half that level—about 40-50 paise per kwh—more than the R2.26 per unit that’s been fixed, which means losses could come in somewhere between R1,100-1,200 crore a year.
But Tata Power can’t afford that and has been working overtime to re-negotiate the tariff with buyers—discoms of the State Electricity Boards (SEBs). Obviously, the state-owned discoms see no reason why they should pay more—and even if they were convinced they should, they wouldn’t say so for fear of the CAG coming down on them. And so the matter has landed up with the Central Electricity Regulatory Commission (CERC); it will be a long-drawn-out affair, given the large sums of money involved, protests by consumers and possible protests from losing bidders. It’s not just Tata Power that wants tariff hikes—a couple of other UMPPs are hanging fire because the price of imported coal has shot up and the verdict, whether from the CERC or finally the courts, will set a precedent.
Tata Power, for its part, believes there is a case for invoking the force majeure clause in the PPA (power purchase agreement). Lawyers representing the firm are understood to have argued that the PPA can be amended if laws are changed and, in this instance, it’s the changes in Indonesian law that caused the price of coal to become dearer. Whether or not Tata Power gets to increase the tariff, and if so by how much, will depend on how the law is interpreted. CERC, for instance, may allow Tata Power to charge more for the power but it would also want to make sure consumers don’t end up paying too much. The commission would, therefore, take into account the fact that Tata Power gains from higher coal prices because it also