CERC Allows Adani’s Mundra Plant To Pass On Higher Cost Of Coal

The power regulator today allowed Adani Power Ltd.'s Mundra thermal power unit to pass on higher cost of imported coal that had made the project unviable.

The Mundra unit will be allowed increase the variable component of tariff to pass through the cost of fuel up to $110 per metric tonne, according to the order by Central Electricity Regulatory Commission. This increase will be offset by reduction in fixed cost by 20 paise/kilowatt for billionaire Gautam Adani-owned group company, ultimately to be borne by the lenders to the project.

The order pertains to just 2,000 megawatt capacity, of the total 4,620 MW plant, that is covered under the power purchase agreement between Adani Power and Gujarat Urja Vikas Nigam Ltd., the Gujarat state electricity board.

These changes were among suggestions by a panel appointed by Gujarat. The state government agreed to accept all the proposals, the power regulator said. The former chairman of the regulator, Pramod Deo, told BloombergQuint in an interview that the issue was resolved faster as the Kutch region in Gujarat faced power shortage and low voltage problems. “However, other state governments will take time to pass similar resolutions with the elections underway.”

That comes after the Supreme Court in October paved the way for three power projects—by Adani, Tata Power Company Ltd., and Essar Power Ltd.—to renegotiate power tariffs to factor in costlier coal imported from Indonesia. The prices had risen after the Southeast Asian nation changed the benchmark. The top court asked the regulator to decide after Gujarat sought its intervention to implement recommendations of the committee appointed by the state.

The Mundra unit reported a loss of Rs 1,694 crore for the year ended March 2018 and had accumulated losses of Rs 9,748 crore, according to its filing.

While Adani Power runs a 4,620-megawatt unit in the coastal town of Mundra, Tata Power operates a 4,000-megawatt plant there. Essar's 1,200-megawatt plant is located at Salaya, Gujarat. They haven't been running at full capacity after the supreme court ruled in 2017 that a change in regulations overseas couldn't be a ground for increasing power prices. The Supreme Court in October 2018 said that a final decision shouldn't be directed by the earlier single-judge order. Deo said consumers may approach the CERC—the appropriate tribunal in this case—to appeal against the order as it's a multi-state project.

Key Highlights Of CERC Order

• The Gujarat government decided to accept all recommendations of the high-powered committee.
• Adani Power can increase the variable component of tariff.
• Fixed cost at 20 paise/kilowatt hour to be reduced to extent of the plant generation availability of above 80 percent, to be sacrificed by bankers.
• Procurers have the option for extending power purchase agreements for 10 years after the tenure of 25 years
• Adani Power will have to share 100 percent mining profit of its Indonesian mines towards coal utilised
• State electricity boards may tie up the untied capacity of 550 megawatts available with Adani Power
• Adani Power shall increase the availability up to 90 percent of the Mundra Power plant without the state electricity board paying a capacity charge.