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After Adanis, power watchdog allows Tatas to increase tariff

In a significant ruling, the national electricity regulator on Monday allowed Tata Power to raise power tariffs to compensate for an unexpected increase in coal costs. The Central Electricity Regulatory Commission (CERC) has asked states that buy electricity from Tata Power's 4,000-megawatt Mundra Plant in Gujarat to form an expert panel to decide on compensating the firm for the higher costs of coal imports from Indonesia.

The ruling is similar to the regulator's April 2 order allowing Adani Power to charge more for electricity produced at its Mundra plant in Gujarat. Indonesia's move to link its coal prices to international benchmark rates has led to cost increases for Indian power companies and rendered their contract tariffs unviable. With domestic coal production lagging demand, utilities like Tata Power and Adani Power have little choice other than bringing in costlier coal that would mean higher electricity cost. Coastal Gujarat Power Ltd, a wholly-owned subsidiary of Tata Power, had petitioned CERC seeking relief on account of adverse impact of the unforeseen, uncontrollable and unprecedented escalation in the imported coal price.  'In the present case, the escalation in price of imported coal on account of Indonesian regulation is a temporary phenomenon and will 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," CERC said in its order.

Four-members of CERC including its Chairperson Pramod Deo ruled in favour of Tata Power while one member, S Jayaraman, dissented. Welcoming the CERC order, Tata Power in a statement said, 'This decision of the CERC is an important step in resolving the major impasse affecting imported coal-based power projects in the country that got impacted due to extraneous factors well beyond the control of developers.'  Coastal Gujarat Power Ltd (CGPL) has been delivering the full potential of Mundra across the five beneficiary states albeit with tremendous fiscal pain. CGPL will continue to honour its commitment towards the nation's energy security by providing reliable and competitive power supply through the project and hope for quicker resolution of the issues, the statement added.

The order is similar to CERC's April 2 order allowing Adani Power to charge more for electricity from Gujarat and Haryana for the electricity it will supply from its 4,260 MW Mundra plant in Gujarat. Like in case of Adani, the regulator ordered the formation of a panel comprising officials of Tata Power, customer states, a financial analyst and a banker, to assess the impact of the higher cost of imported coal.

CERC rulings in the two cases set the stage for utilities to revise tariff for power plants they are setting up based on coal imported from Indonesia. Tata Power, in its petition, had said the company explored the remedies under the Coal Supply Agreement (CSA) and found that the fuel supplier, IndoCoal, (which holds the mining rights in Indonesia) was required to adhere to the Law of the Land (Indonesia) while discharging its obligations under the CSA.

'In the event of breach of the CSA, the liability of IndoCoal on account of all losses, costs and expenses incurred by Tata Power as result of the loss of under the CSA and in entering into any alternative arrangement for the supply of coal, is limited to the extent of USD 55 million only,' the regulator said in the order.

In February last year Tata Power approached the Indonesian Government and requested that the existing contracts for coal supply should be exempted from the purview of the Indonesian Regulations but to no avail. In August 2012 the company approached the Ministry of Power to take up the matter with the government of Indonesia and exempt contracts entered before the announcement of change in law in 2010.

The company submitted that the financial impact of the unforeseeable increase in prices of imported coal on account of Indonesian Pricing Regulations is Rs 1,900 crore per annum, based on June 2012 prices.
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