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SC order: 'imported coal-based projs with 9K MW capacity may be impacted'

 

Mumbai | Apr 26, 2017: The Supreme Courts recent order disallowing tariff relief to Adani Power and Coastal Gujarat Power for their imported coal-based projects is likely to have a negative impact on such projects with aggregate PPA capacity of around 9,000 MW, a report has said. According to the ratings agency ICRA, since these power producers (IPPs) have competitively bid based power purchase agreements (PPAs) with either nil or limited fuel hike clause in bid tariff, their ability to optimise their fuel cost by way of use of low calorific value coal suitably and improving their operational efficiency remains critical going forward. The SC in its order dated April 11 noted that the change in international regulations would not be construed as a change in law or force majeure event with respect to the PPAs signed with distribution utilities. "The apex courts order is a negative development for these projects, as well as for other imported coal-based projects which have aggregate PPA capacity of about 9000 MW," ICRA said. It noted that the extent of negative impact would vary among the affected entities and will be dependent upon the cash flow benefit available from the ownership in overseas coal mining projects. On positive side, ICRA said, the SC has also directed the Central Electricity Regulatory Commission (CERC) to review and determine the relief that can be granted to power generation projects affected by change in law under Indian conditions. "This is a positive development for power projects having aggregate PPA capacity of about 10000 MW, which has been affected by shortfall in supply of domestic coal by Coal India, leading to dependence on costlier imports till FY2015. "However, timelines in implementation of such relief remain unclear given that overall progress in resolution of tariff compensation even under change in law has remained very slow," ICRAs senior vice president and group head Sabyasachi Majumdar said. In addition to the under-recovery of energy charges, many recently commissioned and under-construction projects with competitively bid-based PPAs remain exposed to the risk of under-recovery of fixed charges, the agency said. "This is due to significant increase in capital costs following delays in execution, exchange rate volatility, funding problems and such other issues coupled with the non-escalable or limited escalable nature of the competitively bid based tariffs," ICRA noted. The SC order was subsequent to an order issued by CERC on December 6, 2016 approving a tariff relief for APL and CGPL, considering the increase in the cost of imported coal due to change in mining regulations by the Government of Indonesia as a `force majeure event.

 

 

(Source: http://indiatoday.intoday.in/)