NEW DELHI: Power projects with a combined generating capacity of over 59,000 MW facing the prospect of default on supply contracts due to the developers’ inability to pass on increase in fuel cost to distribution companies might get some relief soon.
The Union power ministry is planning to ask the Central Electricity Regulatory Commission (CERC) to suggest ways to bail out these beleaguered projects, sources said. Tata Power’s Mundra and Reliance Power’s Krishnapatnam ultra mega power projects (UMPPs) and Adani Power’s Mundra plant are among projects likely to benefit from the ministry’s move.
CERC chairman Pramod Deo declined to comment on the issue. “We have not yet received any such letter from the ministry. We will comment only when we receive the letter,” Deo told FE.
Sources in the ministry, however, said the regulator might be asked to see if developers’ pleas for being allowed to pass on the increase in fuel costs are admissible. And if they are finally permitted to do so, what be the likely impact on electricity tariff would be.
Specifically, the regulator may be asked to examine the impact on electricity tariff in India arising from unforeseen developments like the change in the Indonesian coal pricing law and reduced coal supply from Coal India against linkages and delay in production from allocated captive mines owing to environmental hurdles, which would necessitate the use of alternative coal supplies to run the plants.
Sources said that the CERC might also be asked to examine if the issue can be resolved amicably under the existing contractual framework and, if this is not possible, suggest a way out.
The regulator is also likely to be mandated by the ministry to implement its suggestions in cases where it subsequently adopted tariff discovered through the bidding route. Tata Power’s Mundra and Reliance Power’s Krishnapatnam UMPPs are the only projects where the regulator has adopted tariff.
The CERC can also be mandated to advise state electricity regulators over how to resolve such disputes relating to state-level power projects, including. Adani Power’s Mundra.
The ministry’s intervention comes after months of lobbying by the Association of Power Producers (APP) over the issue with the ministry, which has formulated bidding guidelines for allocation of power projects. Power-buying states likeGujaratand Andhra Pradesh have turned down the developers’ appeal for an amicable resolution to the issue, fearing a political backlash.
“In view of changed dynamics of fuel, projects of 59,000 MW capacity are likely to become non-performing assets. We have requested the power ministry to refer the matter to the CERC,” Ashok Khurana, director general, APP, told FE. APP is a body of private power companies like Tata Power, Reliance Power, Lanco and Adani Power.
POWER MINISTRY MULLS COAL IMPORTS TO MEET SUPPLY SHORTAGE
NEW DELHI: The Power Ministry is likely to move a proposal this week to CoalIndiafor importing the dry fuel to bridge the shortfall in supply under fuel supply agreements (FSAs).
Central Electricity Authority (CEA) is working on a proposal along with the Power Ministry to work out a mechanism for importing coal, a source close the development said.
As per the Presidential Directive to CoalIndia, the PSU has to supply a minimum 80 per cent of the requirement to power companies. But CoalIndiahas expressed inability in delivering that quantity due to low production.
“To meet the gap between the 80 per cent level and whatever quantity CoalIndiacan deliver, the remaining (quantity) can be imported by CoalIndia,” the source said.
Prices of imported coal and domestic fuel would be pooled to supply coal at an average price to power generation utilities.
However, the proposal is at a nascent stage and requires assent from various stakeholders.
“Coal India has stated in one of the meetings that it cannot supply 80 per cent of the directive quantity due to production constraints at its mines,” the source said, adding that “but it (Coal India) also said that it can reach the 80 per cent mark in the next four years.
CoalIndiais believed to have made a presentation to the Ministries of Power and Coal, in which the company stated that it can assure 60-65 per cent supply in the first year, 50-55 per cent in the second, 58 per cent in the third and 80 per cent in the fourth year.
The Prime Minister’s Office, in March, had asked CoalIndiato sign Fuel Supply Agreements (FSAs) with power generation companies at minimum supply level of 80 per cent of total requirement.
Under the pact with power companies, the coal producer will have to commit itself to supply at least 80 per cent of the fuel to these users.
While, CoalIndiahas suggested a 0.01 per cent penalty on not delivering the fuel in time, but the penalty would only be applicable after three years of signing the pact.
NTPC and many other power companies have refused to sign the FSAs with CoalIndia, as they are not in agreement with the company over certain clauses in the pact. So far 14 power firms have signed the FSAs with CoalIndia.
At present, CoalIndiaproduces 436 million tonnes of the fuel and plans to enhance this capacity to 464 million tonnes by the end of the current financial year (2012-13). It has also earmarked a supply of 347 million tonnes for the power sector during the period.
POWER COMPANIES MAY GET TO RAISE TARIFFS
NEW DELHI: Power projects using imported coal would soon be allowed to raise tariffs by up to Re 1 per unit to offset the effect of increase in fuel price due to additional taxes or changes in law by the governments of source countries.
The power ministry has suggested to the central regulator to figure a way out of the logjam between promoters of big power projects and their bulk consumers – the state utilities. Power producers have been demanding tariff revision on the ground of coal prices rising substantially – in several instances five times – due to various reasons since the time their project was bid out or power supply pacts were signed.
A major upsetting factor for Indian power producers is the changes made in tax laws by source countries such asAustraliaandIndonesia. These changes have raised fuel costs for all imported coal-fired power projects, even those that were based on supplies from captive mines in these countries.
The affected projects include two of the Centre’s showcase public-private partnership projects – Tata Power’s Mundra and Reliance Power’s Krishnapatnam. While Mundra has started production, work on Krishnapatnam has stalled as its consumers have refused to agree to a higher tariff.
According to ministry documents, provisions for tariff revision in the existing power supply agreements would get Mundra’s promoters an additional Rs 600 crore a year. But they would take a hit of Rs 1,800 crore a year due the impact of changes in laws and resultant increase in the price of coal from their captive mine inIndonesia.
The higher price of imported coal has become a problem for even projects that were built with assured domestic supplies. Most of these projects have to now import coal to bridge shortfall in committed supplies by state-run CoalIndia.
Regulatory norms allow power producers to pass on the rise in fuel costs. But none of the power purchase pacts for projects that were bid out on the basis of lowest tariff foresaw or built provisions to account for changes in ground rules of fuel-source countries. The regulator has, thus, been asked to make provisions for tariff revision in line with these realities and avoid legal wrangling between promoters and state utilities.
RAY OF HOPE FOR POWER FIRMS ON RATE RAISE ISSUE
MUMBAI: The power ministry is set to refer the issue of cost escalations and price pass-throughs to the Central Electricity Regulatory Commission (CERC).
The ministry’s decision is a ray of hope for private power players such as Tata Power, Reliance Power, Adani, JSW and state-run NTPC, and comes in the backdrop of state regulators recently rejecting tariff escalations on signed power purchase agreements (PPA), though coal prices have seen major escalations.
The power ministry is likely to refer the matter to the regulator under Section 72(2) (iv) of the Electricity Act, 2003, which gives the regulator the jurisdiction to look into such contractual issues and suggest a framework. Using the same clause, the ministry will also seek CERC’s intervention for alternative scenarios if CoalIndiafails to deliver on its supply commitments to the power producers. NTPC and state-owned generating companies have been forced to rely on expensive imported coal.
The Association of Power Producers (APP), in a series of representations, had argued thatIndonesia’s move to link coal prices to international benchmarks had made coal 150 per cent more expensive. According to these producers, projects have become unviable as the players were not being allowed to hike tariffs because they had already signed PPAs with state utilities. These changes imply that the long-term contracts, which were based on discounts or flat pricing, would no longer be honored and would result in steep escalation in prices leading to significant alteration of the viability of imported-coal based projects.
Power producers have also claimed that the abrupt changes in law by the Indonesian and Australian governments have led to a huge jump in coal cost and the earlier contracts were no more enforceable. The situation, they argued, becomes more difficult as domestic-coal based projects enjoy a pass-through if there are changes in law. To get a level-playing field for imported coal-fired plants, these players want a similar regulatory framework that has in-built flexibility to address such overseas shocks.
A power ministry official, who did not want to be identified, told Business Standard: “CERC will be requested to examine the impact on the contract tariff due to change in law in the coal source countries in respect of coal plants based on imported coal blocks, inability of Coal India and other companies to meet its obligations under letter of assurance, thereby necessitating imports to meet PPA obligations for linkage projects. Besides, CERC may be urged to look into delays and denial in receiving clearance from ministry of environment and forests for captive coal blocks which have necessitated use of alternative source of coal for captive coal based projects.”
The official said CERC may initiate action where its tariff had been adopted and it can forward appropriate advisories for state electricity regulatory commissions and state governments to be issued by the power ministry. Tata Power suffered a major setback due to impairment provision for its Mundra ultra mega power project in the fourth quarter of FY12.
The company had bagged the Mundra project in 2007 on the basis of the lowest tariff bid of Rs 2.26 per unit. However,Indonesia’s move to change coal pricing impacted the cost structure and the company has said there was a room for tariff revision for Mundra UMPP. Reliance Power has indicated that it would not implement Rs 17,500-crore Krishn-apatnam ultra mega power project in Andhra Pradesh unless contracted buyers agree on tariff revision to accommodate the increase in fuel cost from the recent change in the Indonesian coal pricing law.
Adani Power, which has entered into about six PPAs for supply of 7,200 MW to utilities of Gujarat, Harayana,Maharashtraand Rajasthan, has made a strong case for renegotiation of tariffs. Moreover, JSW Energy has approached the regulatory commission in Maharashtra to invoke force majeure under article 12.3 of the PPA for supply of 300 MW to MahaVitaran as change in the coal pricing byIndonesiawas beyond its control.
This, according to APPs calculation, has impacted 14,240 MW of generating capacities. Moreover, power plants with capacity of 37,680 MW would need to import coal to meet PPA obligations due to inability of CoalIndiaand other companies to supply coal as per the letter of assurance. According to APP, the contractual framework does not allow revision of tariffs and therefore CERC be approached to provide framework for the resolution of issues faced by imported coal-based plants.
NHPC MULLS JOINT VENTURES TO REVIVE PVT HYDEL PROJECTS
NEW DELHI: State-owned hydroelectric power major NHPC plans to form joint venture companies with private sector hydel project developers to rehabilitate their projects hit by a shortage of funds and lack of technical expertise. Under a proposal being finalised by the NHPC management, the company will pick up stakes of up to 49% in private hydro projects. These projects were allocated by various state governments to private players on the basis of financial commitments and promise of free power to sections of consumers.
As per the plan, the PSU will be able to exercise control over the JVs with powers to nominate managing directors.
The proposed arrangement is expected to come handy for NHPC. While it will not lose any business at hand, the JVs would facilitate the PSU to regain control of a few projects that were taken away from it by the state governments in favour of private sector developers.
At present there are about 66 hydro power projects allocated to various private sector developers by different states but are yet to be taken up for implementation.
“State governments face a unique situation as many of the projects that they awarded to private sector developers who showered goodies to the state have failed to take off. NHPC remains the only hope as it could not only provide equity to fund-starved projects but also bring in necessary technical expertise,” said a power ministry official.
Already, a proposal has come from KSK Upper Subansiri Hydro Electric for inclusion of NHPC as a joint venture partner in the special purpose vehicle (SPV). The project was earlier entrusted with NHPC for implementation but was later offered to KSK by the Arunachal Pradesh government.
Twenty-one of the private sector projects facing delays – with a total power generating potential of 24,780 MW – are more than 500 MW in size, and have been allocated to 13 developers.
Another 24 projects with a total capacity of 7,617 MW, are with 20 developers, and 21 more projects with a total capacity of 2,796 MW are with 15 developers.
“All these projects are delayed due to various reasons and presents an opportunity for NHPC,” said an NHPC official.
It is expected that NHPC would initially pick up stakes only in the case of projects for which preliminary feasibility reports have been prepared. The techno-commercial attractiveness and presence of NHPC near the location of the project in the state would be another important criterion.
As per government guidelines, NHPC can invest up to 15% of its net worth or Rs 500 crore in each of these joint ventures. The overall ceiling on such investments in all projects put together is 30% of the net worth of the PSU. NHPC could also rope in other strategic investors, co-developers, consultants and even state governments as equity partners in the proposed JV arrangement.
NHPC will only invest in SPVs of private developers that have entered into power purchase agreements for selling 60% of the power to beneficiary states. The debt to be raised by the JV company for implementation of the project would be on non-recourse borrowing from NHPC. Alternatively, NHPC could also lend its balance sheet support to the SPV, in which case the total borrowing limit of the PSU would be enhanced.
Though the country has enormous potential to build large capacities of hydro power projects, developments have so far been sluggish. Various impediments in the form of resettlement and rehabilitation issues, land acquisition, environment and forestry clearances and financing have affected development of projects. Out of a total installed capacity of just over 200,000 MW, the hydro capacity in the country is only 39,000 MW.
BHEL MAY NOT JOIN RINL, MECON FOR RS 2,000-CRORE STEEL UNIT
NEW DELHI: Power equipment maker Bharat Heavy Electricals Ltd (BHEL) may not join hands with steel maker Rashtriya Ispat Nigam Limited (RINL) and MECON Ltd for the proposed Rs 2,000-crore joint venture that plans to set up a factory at Vizag for manufacturing steel for core sectors.
Sources in the know said BHEL has expressed its unwillingness to be a party in the venture at a meeting with steel secretary D R S Chaudhary last week. “BHEL is not keen on setting up any such manufacturing unit as it already has factories for manufacturing equipment for power, auto and rail sectors at Trichy, Ranipet, Haridwar,Hyderabad, Banga-lore andBhopal,” a source said.
“It (BHEL) does not find the proposition viable at this point in time,” the source added.
MECON is a state-run engineering and consultancy firm offering full range of services required for setting up of a core sector project from concept to commissioning, including turnkey execution.
State-owned steel maker RINL was mulling to form a joint venture with BHEL and MECON for putting up a high-end seamless tube mill atVisakhapatnamin Andhra Pradesh, entailing an investment of Rs 2,000 crore.
The facility was proposed to have four lakh tonnes per annum seamless tube installed production capacity. High-end seamless tubes find application in energy, oil and gas and water sectors among others.
The current crude steel production capacity of the country stands at 72 mtpa. The government plans to enhance the output to about 140 mtpa by the end of the current five year plan (2012-17).
BETTER PRACTICES TO IMPROVE POWER GENERATION
LUCKNOW: The Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd (UPRVUNL) has claimed of ensuring optimal generation in State sector power plants by adopting best practices.
Officials have been directed to prepare overall overhauling proposals with cost improvement analysis of all power plants to achieve the maximum generation. Besides, status of coal supply along with Renovation and Modernisation works were also reviewed by MD.
Managing director of UPRVUNL, Dheeraj Sahu said that the drop in power generation should be addressed immediately and that any instance of dereliction of duty would invite strict action.
Sahu said that the the organisational and operational reforms recommended by consultants Ernst & Young should be adhered to.
It may be noted that UPRVUNL had asked Ernst & Young to prepare a report based on the recommendations of NTPC and IIM Lucknow to improve the organisational and operational performance of the State utitlity.
Directions have also been issued to take immediate action to ensure commercial generation from 5th unit of 250 MW Parichha and 9th unit of 250 MW Harduaganj within this month. Further, MD has instructed to take immediate action to rectify the faulty transformer of unit-1 of Anpara power plant, ensure power generation from it by June 17, 2012.
NEW TARIFF MAY NOT COVER DEFICIT: DISCOMS
NEW DELHI: With the new power tariff for the financial year 2012-13 expected within a month, discoms have stressed the need for immediate implementation of the power purchase adjustment formula. Discoms said fuel cost adjustment alone is not enough to cover the deficit faced by them, and accounts for only 1/3rd of the total variation in cost.
Discoms said they are already under a financial strain and the actual cost of power procured by them was significantly higher than that factored in by the regulator, DERC, in the tariff order. This was due to the higher tariff charged by NTPC, DVC and other stations as well as higher inter- and intra-state transmission charges. “Power purchase and transmission charges cannot be controlled or predicted,” said an official.
Discoms expect the new tariff to be announced within a month as the 120-day period from when they submitted their average revenue requirement (ARR) petitions to DERC is due to lapse soon. The Electricity Act recommends that regulators announce new tariff within this period, but there have been cases when tariff has been announced beyond this time frame.
Discoms backed their demand for power purchase adjustment with a direction from the Appellate Tribunal of Electricity. On November 11, 2011, the tribunal had asked all state regulatory commissions to implement power purchase adjustment formulas instead of just the variable (fuel) cost for distribution licensees. While the BSES discoms have asked for implementation of the formula on a monthly basis, Tata Delhi power wants it to be done on a quarterly basis.
From February this year, discoms were allowed fuel cost adjustment, in which variations in fuel cost in the international market would be passed on to the consumers every three months.
The power companies, however, said this was not enough to make up for their losses as this formula was limited to certain generation stations and plants. “We receive all our power supply through long-term power purchases or bilateral purchases. If the fixed cost (capital) goes up, the generation company can pass it on to the discom according to a CERC order. Discoms, meanwhile, can only pass on variable (fuel) cost of select generating stations to consumers,” said a BSES official.
Power purchase adjustment is already applicable in Maharashtra, MP, Gujarat, Haryana, Bihar, Jharkhand, Tripura andWest Bengal.
“Apart from the APTEL judgment, even the Shunglu Committee recommends recovery of variation in power purchase cost on a regular basis to prevent discoms’ finances from taking a hit. This will also insulate consumers from being burdened by future interest. A separate recovery of power purchase variation should be allowed immediately on a monthly basis,” said a BSES official.
Power sector officials said it was unlikely that the power purchase adjustment formula will not be implemented by DERC as it was also an appellate direction.
HAVELLS INDIA LOOKS FOR ACQUISITIONS IN CHINA, AFRICA
NEW DELHI: Electrical goods maker Havells India is mulling over acquisitions in China and Africa that may entail an investment of up to $200 million (about Rs 1,100 crore) to strengthen its overseas operations.
The company is also expanding presence in other nations likeTurkey,Russia,IndonesiaandMalaysia.
“We are open for any strategic acquisition in those locations, such asChinaandAfrica, where we are not present now,” Havells India Joint Managing Director Anil Gupta told the news agency.
Last year, the company had formed a manufacturing joint venture with a local Chinese firm to produce various lighting products for its overseas markets, he added.
“We are keeping our eyes open. In fact, we have talked to some inChina, but nothing worked out,” Gupta said, adding the company is also looking for targets inAfrica.
HavellsIndiamay see an acquisition happening in the Chinese market within next three years, he added.
When asked about the size of the acquisition that the company is considering, Gupta said: “We are looking for not so small or not so big firms to acquire. The size of any acquisition will be from USD 50 million to $200 million.”
The company will fund this amount through internal accruals only, he added.
So far, the company’s biggest acquisition has been that ofSylvaniainEuropefor 230 million euro (over Rs 1,500 crore) in 2007.
Last year, HavellsIndiahad formed a 50:50 joint venture with Shanghai Yaming Lighting Co to set up a manufacturing facility atJiangsuprovince inChina. The JV, Jiangsu Havells Sylvania Lighting Co Ltd, would invest up to $100 million (nearly Rs 530 crore) in the next three years.
“At present, 90 per cent of our exports revenue come from theWestern Europenations. We now want to focus onEastern Europetoo,” added Gupta.
GREEN TRIBUNAL WANTS ENVIRONMENT MINISTRY TO STRENGTHEN PUBLIC HEARING PROCESS
CHENNAI: The Union Ministry of Environment and Forests has to strengthen the public hearing process and make it “meaningful” in the grant of environmental clearances for projects, according to the National Green Tribunal.
The Tribunal, constituted under the National Green Tribunal Act 2010, for handling environmental cases, was critical of the way public hearings are conducted. It has suggested a set of measures for the Ministry to include in the rules on conducting public hearings, and compiling draft and final environmental impact assessment reports. The Expert Appraisal Committee can also refine the procedures.
The Tribunal’s Principal Bench made these general observations while disposing the appeal against the grant of clearance for a power project in Nagapattinam, Tamil Nadu. The order was passed on May 30, 2012, on Appeal No. 12/2011 on Chettinad Power Corporation.
The Tribunal said there appears to be no improvement in following the procedures in public hearings though a number of judgments by the Supreme Court and High Courts deal with the principles to be followed. Video recordings of public hearings in a majority of the cases indicate it was a “mockery.” Despite elaborate arrangements, the result is “worthless except mere recording of ‘support’ or ‘oppose’.” Environmental and ecological views are not represented, groups clash and the object is to disrupt the proceedings while the authority is to “somehow to proceed with the hearing and complete the ritual.”
The Tribunal said the draft Environmental Impact Assessment report by the project proponent must be presented item wise, leaders of local bodies, Legislators and Members of Parliament may be requested to present their views and submit them in writing.
The public hearing should be restricted only to issues relating to the draft report and nobody should be allowed to enter the venue with party flags or shout slogans.
The persons speaking at the event should identify themselves and the subject of their representation and be called to the dais one by one. Technical or scientific presentation by experts should be in front of the public and given in writing.
The authority conducting the event may be asked to take part in each and every minute procedure, the views for and against the project may be dealt with subject wise briefly by the project proponent and the Authority should compile the minutes in line with the Environmental Impact Assessment Notification, 2006 and make it known to the public.
The Expert Approval Committee should give detailed reasons in writing for accepting or otherwise of each issue brought up at the public hearing.
The final version should be placed on the Web site of the Ministry and also communicated to the Authorities conducting the public hearing.
SUZLON ENERGY MAY GET 45-DAY BREATHER ON FCCB REPAYMENT
MUMBAI: Suzlon Energy is likely to get a breather on Monday when its foreign currency bond holders may approve of the 45-day repayment extension sought by the loss-making wind turbine maker, saving it from default, experts tracking the development said.
Loss making-Suzlon has sought the extension from bondholders to repay FCCBs maturing on June 12 while it’s trying to raise as much as $300 million in foreign currency loans to repay its $360 million liability.
The bondholders meet the company on Monday inLondonto take a call on it. “Suzlon’s assurance that it would manage to raise funds for the repayment has given comfort to bondholders,” said Bhargav Buddhadev, an analyst with Ambit Capital.
“The FCCB price has gone up and yields have fallen in the last 10 days, and there may have been some over-the-counter trade in the secondary market, indicating that bondholders expect the company to meet its obligation,” he said.
According to Bloomberg data, the price of FCCB maturing in June soared almost 9% to 135 on Friday since May 18 when the company said it was at an “advanced stage” to tie up funds with around 20 lenders for the repayments.
The bondholders and analysts ET spoke to said that the bondholders had conveyed to Suzlon that they would not be interested in restructuring the FCCBs as they want redemption at the earliest.
Suzlon’s management has been under duress for financing debt payment of $700 million in FY13, which includes FCCB repayment of $360 million in June and $209 million in October.
The company had to raise more loans after attempts to raise funds for payment of its liability through stake sale of non-core businesses, recovery of dues from its client Edison Mission, and internal cash flow did not yield much result.
Debt overhang and concerns over the company’s ability to repay liability amid muted business has resulted in shares of Suzlon Energy falling 66% in the past one year to 18 as on Friday. BSE benchmark Sensex declined 9% in the same period.
The company management told ET that it may not require any further fund raising for repayment of its FCCBs in October and term loans this year.
“Our priority for FY12 would be to deliver our guidance, raise $100-200 million by sale of non-critical business, optimising working capital and strengthening our balance sheet,” said Kirti Vagadia, chief financial officer of Suzlon told ET earlier. Analysts said they would be closely tracking the terms of the loan raised as it may be done at a high rate given that the company is highly leveraged.
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