Gujarat Govt Panel Charged With Aiding Tata, Adani, Essar Power Plants to Meet

The meeting, which will take place on Sunday in Delhi, will involve interactions with consumer representatives and energy secretaries of states procuring power from these plants.

New Delhi: The top-level committee set up by the Gujarat government to find ways to bail out the loss-making, imported coal-based power plants of Adani Power, Tata Power and Essar will meet tomorrow for the first time, according to sources.

The meeting, which will take place in New Delhi, will primarily involve an interaction with consumer representatives and energy secretaries of states procuring power from these plants under long-term contracts.

A handful of power plants of Adani, Tata and Essar were rendered financially unviable by the Supreme Court’s judgment last year, which quashed the compensatory tariff that was awarded to them by the Central Electricity Regulatory Commission (CERC).

The power distribution companies (discoms) from Maharashtra, Rajasthan, Haryana and Punjab, besides the home state of Gujarat, are among contracted buyers of electricity from these plants.

Sunday’s meeting assumes added significance given that discoms and consumer groups have strongly opposed tariff hike proposals. Sources with knowledge of the matter say if a relief package is in the offing, the committee wants to understand how it would impact all stakeholders.

The panel, which was formed recently by the Gujarat government, includes former Supreme Court judge justice R.K. Agarwal, former Reserve Bank of India deputy governor S.S. Mundra and ex-CERC chairman Pramod Deo.  

It is being assisted by NTPC and SBI Caps.

Significantly, it was Pramod Deo who as CERC chairman in 2013 approved compensatory tariff for Adani Power’s and Tata Power’s generating stations in Mundra, Gujarat.

The panel has been asked to submit its report within two months. Possible recommendations could include ensuring that tariffs are viable by reviewing power purchase agreements or acquisition of the projects. 

Indonesia wrench

When these plants were conceptualised, the price of Indonesian coal was comparatively low. But in 2012, Indonesia shifted to international market-based pricing for its coal. This led to a sharp increase in prices and threw a wrench in the fuel cost calculations of developers.

As per contracts, they are not allowed to pass on the increase in coal costs as they have quoted a fixed fuel costs.

Unable to pass on additional fuel costs to discoms under contracts, private developers moved the CERC for relief.

The regulator interpreted as force majeure the change in Indonesian mining law that led to a sharp rise in its coal price and, based on that, awarded compensatory tariff to these plants. However, the apex court has rejected CERC’s interpretation.

Following the Supreme Court verdict, developers have been forced to write off revenues booked as compensatory tariff. Consequently, their losses have ballooned out, leaving lenders staring at huge non-performing assets (NPAs).

The RBI’s revised framework on identification and resolution of bad loans, issued in February this year, has further complicated things for lenders as they are required to implement a resolution plan within 180 days from the day of default. Failing that, they have to initiate insolvency proceedings against corporate loan defaulters.

Going by the new framework, developers have time till the end of August to regularise their loan accounts and avoid being dragged to the National Company Law Tribunal (NCLT) by lenders for initiation of bankruptcy proceedings.

The companies – Tata, Adani and Essar – all earlier tried to sell 51% stakes in their respective projects to Gujarat state utility, Gujarat Urja Vikas Nigam Ltd, for a token amount of one rupee to cut their losses. But, the RBI’s revised guidelines threw a wrench in their plan. These plants have drastically scaled down their generation to cut operational losses.