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Prayas submission to the High Power Committee set up by the Government of Gujarat for finding solutions in respect of power supply from imported coal based power projects

Author(s): Prayas (Energy Group) Publication Date: July, 2018

The Government of Gujarat has set up a high power committee to review financial viability related issues faced by a few thermal power projects in the state. As per the terms of reference issued by the government, the committee is expected to review and establish financial hardship, if any, faced by the concerned projects, especially in light of promulgation of the Indonesian regulation dated September 2010. The committee is also required to undertake stakeholder consultation for this purpose and in this regard it had requested Prayas (Energy Group) to submit its comments and suggestions. This attached submission is in response to such a request of the committee.

Prayas (Energy Group) has been a party to the various proceedings before the different fora in matters concerning some of the projects being reviewed by the present committee. Past submissions by Prayas (Energy Group) in the proceedings before the CERC and the Appellate Tribunal for Electricity (ATE) have made certain suggestions for addressing hardship on account of increase in the price of imported coal. The same are attached as annexures. The present submission is in line with these suggestions.

The submission argues that any solution should adhere to certain basic principles such as, safeguarding sanctity of contracts, ensuring fair and equitable burden sharing between all stakeholders, and that relief, if any, should only be prospective in nature. Additionally, any solution in this regard should only be applicable to projects that are mandated to use imported coal as the primary source of fuel. Keeping in mind the various technical, legal and regulatory issues involved in these matters, it is absolutely essential to undertake due public process before arriving at any decision in this regard. 

Based on these principles, the approach suggested by PEG consists of the following measures:

  • Ensuring that the procurers continue to get supply of power up to 80% PLF / availability as per the PPA tariff and other terms and condition.
  • The procurers forgo their first right of refusal on any additional / optional generation beyond the normative availability of 80%. In lieu of this, the PPA term should be extended by 15 years at tariff as per PPA’s last year capacity charge and variable charge to be determined by regulatory commission subject to prudence. This will ensure that procurers get benefit of low fixed charge generation capacity beyond existing term of the PPA.
  • The developers are allowed to sell the additional generation beyond the normative availability at market rates to offset hardship, if any. The developers also forgo return on equity depending on prevailing coal price and rate of sale of additional power.
  • The lenders agree to restructure loans and/or take the necessary haircut to ensure that project can sustain operations and debt repayment within the revenue that can be generated based on the above measures.

The suggested approach will ensure due accountability of project developers and lenders, while preventing the projects from turning into non-performing assets.

 

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