In major set back for private power producers Adani Power, Tata Power and Essar Power, the Gujarat government on Thursday revoked the an earlier Government Resolution (GR) which allowed these companies to charge higher tariff on the power supplied from their plants. The decision — taken at a State Cabinet meeting — came as a sudden shock to the companies.

“Due to technical reasons, we have cancelled the earlier GR of 2018, which allowed these companies to charge higher tariff due to high coal prices. We have already made due applications with the regulators, including the Central Electricity Regulatory Commission (CERC), to that effect,” informed a source at the State Energy Department.

The said GR was issued in December 2018 to salvage the companies running thermal power plants on imported coal. Following a policy change in Indonesia — a key source for the imported coal — the cost economics for the companies had gone haywire, prompting them to seek a higher tariff, citing a force majeurethat escalated their cost of imported coal.

Changed situations

“All these projects are still very high on merit order and the State needs them. At that time, the coal prices were very high and there were fluctuations in the Indonesian markets. So, the government had decided to keep these capacities alive for the State. But later on, the situations changed and coal prices have also came down. So, considering the changed scenario, adhering to the old parameters of the Power Purchase Agreements (PPAs) would not be a very prudent thing. We are interested only in giving a very realistic market price as a pass-through — nothing more than that,” said a top official of Gujarat Urja Vikas Nigam Ltd (GUVNL), the State discom (power distribution company).

The companies had signed long-term PPAs with GUVNL for power supplies. The total power capacity to be supplied to Gujarat under the said PPAs was approximately 4,600 MW.

Power sector observers said the decision will not have much bearing on Essar Power and Tata Power since their supplementary PPAs are either at the litigation stage with the appellate tribunal or not signed at all till date.

“Hence, they remain under the old tariff structure. It is Adani Power which will have an impact as the government is moving to recall the supplementary PPA signed with it,” said an industry source. At present, Adani has only one of the two units supplying power to Gujarat of its contracted 1,000 MW. After this recall, Adani Power may face a tough time staying operational without a new buyer for the power.

An Energy Department source confirmed that the supplementary PPA with Adani Power remains valid even now and “the government will have to pay them the pass-through as decided. But we are paying them absolutely in terms of new market conditions and in accordance with the new parameters provisionally. This will continue till the CERC takes a decision on this.”