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Can Gujarat save its imported coal-based power plants?

PB Jayakumar     July 5, 2018

The Gujarat Government's lenient move to form a high power committee to bail out three imported coal-based power plants in the state belonging to Tata Power, Adani Power and Essar Power may be a ray of hope for the companies, but finding viable solutions satisfactory to all stakeholders may not be easy, say industry sources.

The committee formed this week, which will submit its report within two months, is chaired by former Supreme Court judge Justice R. K. Agrawal. It has high profile members like former RBI Deputy Governor S. S. Mundra and former Central Electricity Regulatory Commission Chairman Pramod Deo and will be assisted by SBI Capital Markets and NTPC.

The state government hopes that various stakeholders, including banks, project developers and procurers will compromise on their part to revive these plants, which ran into losses, following a decision of the Indonesian Government in 2012 to benchmark sale of its domestic coal in accordance to prevailing international coal prices. The state government says that it is initiating the High Power Committee to solve the crisis, since the procuring states are facing shortage of power available at levelised tariff and are required to purchase the power at higher cost. As a result, the consumers of these states have to pay much higher cost for their electricity.

Industry sources point out that scrapping old power purchase agreements (PPAs) and entering into new PPAs at higher cost will not be easy as these plants supply power to different procuring state distribution companies, who had vehemently opposed such attempts in the past along with consumer groups. Further, there are legal issues in scrapping PPAs and the financial health of most of these discoms are still not good to soak in the losses. Most of the lender banks, which are already reeling from huge bad debts, are not in a position to take a huge hair cut to revive these plants that have incurred huge amount of investments.

Further, power availability is not an issue as in the past, since wind and solar power is now available at almost the same prices as that of coal generated power. Desperately, Tata Power and Adani power had in the past offered to sell their plants to the Gujarat Government, but that offer was not taken up by the Gujarat Government. Their issues were compounded when after years of litigation, the Supreme Court had set aside a Electricity Appellate Tribunal decision to allow compensatory tariff against the increased cost of coal imported from Indonesia.

Five states have PPAs for 8224 MW with Tata Power, Adani Power and Essar Power and of this, 4800 MW PPA is with Gujarat. While Essar and Adani have stopped generation citing the projects are now unviable, Tata Power's subsidiary Coastal Gujarat Power Ltd (CGPL) is still producing power at huge losses.

Tata Power's 4,000 mega-watt (MW) Mundra ultra mega power project (UMPP) and Adani's 4620 MW plants in Mundra and 1320 power plant of Essar at Salaya near Jamnagar, were all planned on imported cheap coal from Indonesia and the PPA were signed in accordance to those input costs.

Tata Power had incurred a loss of over Rs 1,400 crore from sale of power from Mundra during the last year. It is also awaiting a favourable decision from the government to sell about 20 per cent of its production beyond the PPAs in the spot market. As against this, Adani Power preferred to close down the Mundra plant, partially helping to reduce its consolidated net loss to Rs 67 crore in Q4FY18, as against Rs 4,960 crore in the same period of last year.

The ministry of power, Government of India had last year formed a Working Group comprising of procurer states and State Bank of India to find options to bail out stressed imported coal based generation projects.

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