• Tuesday, 18 June 2019

Gujarat panel report spells 'windfall' for private power players


Oct 12, 2018 (8 months ago) |
Mumbai/Ahmedabad, Oct 11 : A High-Power Committee of the Gujarat government has recommended "a complete pass-through of fuel costs" as well as "extension of Power Purchase Agreements", setting the stage for a significant escalation in tariffs for millions of consumers across Gujarat and four northern states and "windfall gains" for heavily loss-making private power producers, sources and market analysts said here on Thursday.
The draft recommendations by the three-member HPC set up in July 2018, which run into more than 1,000 pages, pertain to three private power producers -- Adani Power Mundra Ltd's 4,620 MW project, Tata Power-owned Coastal Gujarat Power Ltd's 4,000 MW plant and Essar Power-owned Gujarat Power Ltd's 1,200 MW facility.

According to analysts and informed sources, the HPC has reportedly recommended "a complete pass-through of fuel costs and an extension of Power Purchase Agreement terms" which could benefit the three sick power units dogged by the imported coal crises, but in possible contravention of a Supreme Court judgment of April 2017.

If accepted, the HPC's recommendations, submitted recently, would burden consumers with the risk of both a hike in imported coal prices as well as the risk of rupee-dollar exchange rate fluctuations for more than 30 years.

Analysts believe that the increased cost to consumers from these decisions over this period could run into thousands of crores. "Over a 30-year period this cost could be upwards of Rs 1.2 lakh crore", said one. "The lenders are also likely to take a substantial hit."

The biggest hit by way of power tariff hikes could be taken by unsuspecting consumers in Gujarat, followed by those in Haryana, Maharashtra, Punjab, and poll-bound Rajasthan, in that order.

Incidentally, prior to the HPC recommendations, the issues plaguing these sick projects were discussed at length within the existing legal and regulatory frameworks -- Central Electricity Regulatory Commission (CERC), Appellate Tribunal for Electricity (APTEL) and, finally, Supreme Court.

In April 2017, the Supreme Court had rejected the compensation for the losses sought by the three companies invoking provisions of the PPAs, bidding guidelines and regulatory framework.

The analysts point out that the HPC proposals are "clearly violative of the apex court judgement and are aimed at providing a specific bail-out for Tatas, Adanis and Ruias" at the direct cost of consumers in the five states.

Besides the consumers, even public sector banks will take a big hit and incur additional losses of Rs 18,000 crore for the wrong decisions taken, firstly by the project sponsors and now by the HPC recommendations, the sources said.

Interestingly, experts point out that if the projects had made huge profits for the risks taken by the three companies, neither the common man nor the banks would have got any share from them.

"Now, apparently a mechanism is in place where the losses will be borne by the common man and the banks, while all the profits will be gulped down by the project sponsors. Effectively this amounts to 'Privatisation of Profits and Nationalisation of Losses'," said a top Mumbai analyst.

It is feared that the HPC's recommendations are likely to be issued in the form of directives by the five state governments to their respective power distribution companies (Discoms), which would be against public interest and contempt of the Supreme Court while benefiting the three companies.

Among the solutions that are forwarded for these loss-making power projects owing to the fuel supply risks undertaken by them are to continue funding their losses which is currently done based on the guarantees extended by them, or invoke provisions of the Insolvency and Bankruptcy Code by referring them to the National Company Law Tribunal.

Meanwhile, speculation over the relief given by the HPC boosted the stock prices of Adani Power and Tata Power earlier this week.

On the BSE, Adani Power rose on Wednesday by 24.79 per cent to close at Rs 29.95, while it remained unchanged in a plunging market on Thursday.

Similarly, the stocks of Tata Power gained over five per cent to close at Rs 65 on Wednesday.

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