CERC’s order approving relief under force majeure for Adani Power, Tata Power is a positive development; however, implementation timelines unclear: ICRA
On December 6, 2016, the Central Electricity Regulatory Commission (CERC) has come out with the final order on tariff relief for imported coal-based projects of Adani Power Limited (APL) and Coastal Gujarat Power Limited (CGPL), a subsidiary of Tata Power Company Limited. The CERC has estimated the tariff relief for APL at Rs. 0.29 per unit and Rs. 0.26 per unit for the PPAs with distribution utilities (or discoms) in Gujarat and Haryana respectively, based on the prices of coal and index exchange rate in March 2016. The CERC has estimated the tariff relief for CGPL at Rs. 0.05 per unit based on the prices of coal and exchange rate prevailing in August 2015.
Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings, said: “ICRA is of the view that the CERC order allowing a tariff relief as per directions of APTEL is a positive development for APL and CGPL, however, it is subject to final approval by the SC and thus, timelines of its implementation remain uncertain and are not clear.”
The CERC’s aforesaid order was subsequent to the order issued by the Appellate Tribunal of Electricity (APTEL) on April 7, 2016, directing the CERC to assess the impact of change in regulations in Indonesia, on the projects of APL and CGPL and provide them such relief under the force majeure event, as may be available under the respective PPAs. The implementation of the order issued by the CERC is subject to the permission of the Supreme Court of India (SC), given the pending appeals filed by the off-takers before the SC.
This tariff relief is before the adjustment of incremental profits from mines owned by Adani Enterprises Limited and Tata Power Company Limited in Indonesia, arising from higher coal price, post change in Indonesian regulations. In addition, the CERC has allowed a relief for the past period, which has to be paid in six equal monthly installments by the procurers, from the date of implementation of this order.
However, CERC has not allowed the actual exchange rate level for tariff relief estimation in case of APL, and instead has allowed the exchange rate in line with the bid assumption till the project completion date, which thereafter is escalated at the CERC indexed rate. In turn, the actual tariff relief requirement at the prevailing exchange rate for APL is estimated to remain higher by about 8-10 paise/unit over the estimated level as per CERC’s directive. Further, as per ICRA’s estimates, the tariff relief estimate for CGPL at prevailing coal price level based on CERC’s order is lower by about 12-15 paise/unit, which is mainly arising on account of change in formulae by CERC for calculating the tariff relief based on the contracted coal price level, instead of fuel charge recovery as per tariff bid.
“The impact of implementation of the tariff relief on the power purchase cost of the procuring state-owned discoms and hence in turn on retail electricity tariff is estimated to remain limited, in ICRA’s view. The impact on retail tariff is estimated to vary between 1 to 6 paisa/unit for FY2017 (which is equivalent to 0.1% to 1% on tariff applicable for FY2017 across the states), with a relatively higher impact on the discoms in the states of Gujarat and Haryana. Consequently, timely pass-through of the additional cost under the fuel and power purchase cost adjustment (FFPCA) framework remain crucial for the discoms, else it could affect their cash flow position,” Mr. Majumdar added.
