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MAR 07 2013

Indonesia changing coal export rules is no act of God: Gujarat

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 07th MAR 2013

GujaratUrja Vikas Nigam Ltd, the state government-owned electricity distributioncompany, has said that the change in coal export regulations in Indonesia is noact of God. This statement was made to the Central Electricity RegulatoryCommission in the context of Tata Power Companys appeal for a higher tarifffor the power produced by the Mundra Ultra Mega Power Project.

The 4,000MW Mundra Ultra Mega Power of Tata Power Companys subsidiary, Coastal GujaratPower Ltd, has got into financial trouble following change of coal exportregulations in Indonesia, the source of coal for the project. Tata Power wonthe Mundra Project in a competitive bidding process in 2006, bidding a tariffof Rs 2.26 a kWhr. The project was to get coal from Tata Powers coal mines in Indonesia.A couple of years ago, the Indonesian Government made it mandatory to link theIndonesian coal prices to international prices of coal. The resultant increasein fuel prices made it unviable for Tata Power to sell electricity at Rs 2.26 aunit.

TataPower has since appealed to the Central Electricity Regulatory Commission for atariff hike. It has said that it needs at least 40 paise more even for breakingeven, and a further 25 paise for a reasonable return.

GujaratUrja Vikas Nigam (GUVNL) has been arguing that Tata Power knew at the time ofbidding that fuel costs could go up.

TataPower won the Mundra Project in a competitive bidding process in 2006, biddinga tariff of Rs 2.26 a kWhr. The project was to get coal from Tata Powers coalmines in Indonesia. A couple of years ago, the Indonesian Government made itmandatory to link the Indonesian coal prices to international prices of coal.The resultant increase in fuel prices made it unviable for Tata Power to sellelectricity at Rs 2.26 a unit.

TataPower has since appealed to the Central Electricity Regulatory Commission(CERC) for a tariff hike. It has said that it needs at least 40 paise more evenfor breaking even, and a further 25 paise for a reasonable return. The variousstate electricity distribution companies, notably that of Gujarat, have opposedthe demand for tariff hike on the grounds that Tata Power knew at the time ofbidding that fuel costs could go up.

"If thepetitioner (Tata Power) is losing money on procurement it cannot be ForceMajeure (act of God) because Force Majeure deals with impossibility ofperformance or delay in performance and not rise in price, GUVNL has said inits written submissions to CERC. "Indonesian regulation does not make theperformance impossible or delay in performance, the company has said.

Stressingthat the "sanctity of the basic contract must be upheld, GUVNL has said that"re-negotiation should not be used to correct the mistakes in bidding or overlyrisky or aggressive bids. The bidder should be held accountable for thesubmitted bid, it said.

TataPower suffered a loss of Rs 850 crore for the first nine months of 2012-13, (Rs600 crore in the third quarter alone) on account of the Mundra project. As aresult, the company reported a net loss of Rs 329 crore for the quarter endedDecember, its second consecutive quarterly loss.

Tags

Gujarat Gujarat Urja Vikas Nigam Carbon Emission Reduction Central Electricity Regulatory Commission Indonesia Electricity Regulatory Commission Mega Power Project Ultra Mega Power Project Power Tata Power Electricity

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