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Re: Time for Govt. to revoke Bank guarantees of Adani, TataPower, RPower

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  • info@karmayog.org
    Mr. Pramod Deo Chairperson Central Electricity Regulatory Commission 3 rd & 4 th Floor, Chanderlok Building, 36, Janpath, New Delhi- 110001 info@cercind.gov.in
    Message 1 of 3 , Jul 18, 2012
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      Mr. Pramod Deo
      Chairperson
      Central Electricity Regulatory Commission
      3 rd & 4 th Floor,
      Chanderlok Building,
      36, Janpath,
      New Delhi- 110001
      info@...

      Sub.: CERC hearing scheduled for 19th July 2012 regarding plea by Adani and Tata Power to consider an increase in power tariff

      Dear Mr. Deo,

      We have learnt through media reports of the CERC hearing scheduled for 19th July 2012, where Adani Power and Tata Power are pleading before the CERC to consider an increase in power tariff, despite having entered into contracts with State Governments to supply power at a mutually agreed price earlier. [1. and 2]

      You will agree that both companies, Adani Power and Tata Power, have voluntarily first bid for the projects to supply power and then further voluntarily signed contracts that specify the terms on which the power is to be supplied by them, including the price. There was no coercion applied to them from any side, and as per due proceedure, a time and space for negotiations and discussions of the terms was also made available to them.

      In fact, Adani Power shockingly included a 0% escalation clause in its terms, as an apparent method of sweetening the deal, so that it could get the contract over rival bidding power companies. Including a 0% escalation clause in a contract displays a complete lack of any sound economic sense and a complete disregard for practicable and realistic business practices. 

      It is hardly a case for Government to change the terms of the contract because Adani and Tata Power are unable to secure coal at prices at which they (wrongly?) estimated that they could.

      Citing the depreciation of the Indian Rupee is also a ludicrous reason for either of the companies to ask for a tariff revision, as these are well known external factors that can and do affect any project.

      It is thus completely a malafide and unacceptable action by Adani and Tata Power to petition the CERC for a revision in price tariff, and we urge the CERC to not consider the same. This is certainly not a force majeure or Act of God, by any stretch of imagination, as is being made out by the companies.

      It is also known that there have been serious environmental lapses by both Adani Power and Tata Power in Gujarat, in the setting up of the Ultra Mega Power Plants at Mundra, [3.] despite which the projects were given the go-ahead, as this was deemed to be necessary for India 's growth.

      It is however not necessary at all for the people of India to also pay in financial terms for the deliberate or foolish errors of judgment of these 2 power companies, during their business dealings with the Government.

      The way ahead from such a situation would be to:

      a) Revoke the Bank Guarantees offered by the 2 companies for failure to comply with the terms of the contract
      b) Offer the already built infrastructure through bidding to other power companies as a fresh project on revised terms
      c) Allow State Power Companies to run the already built infarstructure on revised terms.

      Such steps already have precedents in India . e.g. Reliance Power could lose $55 milion bank guarantee in tariff dispute with Andhra Pradesh at http://articles.economictimes.indiatimes.com/2012-07-03/news/32523737_1_reliance-power-4000mw-project-tariff-hike, as well as the well-known Enron Dhabol power project.

      Hence Government of India and CERC in particular must not hesitate to take such steps that would ensure fairer and more economically sound business practices by private companies.

      Agreeing to an increase in power tariff by these companies amounts to a nationalisation of private losses and privatisation of profit, and we urge the CERC not to let this happen. Sir, as you are aware, the role of a Regulator such as CERC is to ensure that the market functions efficiently, providing goods and services that benefit society, using resources effectively and causing least harm. Frequently, any regulator is usually a few steps behind the sector it seeks to regulate, and companies use this to their advantage, and this case also seems to point to a deliberate manipulation of Government by the power companies, through a retrospective amendment of their contract.

      It is a normal economic activity for companies to make profit and loss, and to even fail if they take too big a risk.[5.] Perhaps Adani and Tata Power consider themselves to be "too big to fail" and hence did not make prudent risk estimates.

      Whatever the reason, we would strongly urge CERC to not consider the revision in tariffs for Adani and Tata Power and to keep the interests of the people of India first before the interests of private power companies.

      Thanking you,

      Yours sincerely,

      www.karmayog.org

      References:

      1. Mint, 18th July 2012: CERC to hear Adani, Tata pleas tomorrow at http://videos.livemint.com/2012/07/18003827/CERC-to-hear-Adani-Tata-pleas.html?h=B
      2. DNA, 17th July 2012: Escalation rider haunts Adani, Tata, RPower at http://www.dnaindia.com/money/report_escalation-rider-haunts-adani-tata-rpower_1715863]
      3. The Real Cost of Power: http://www.bicusa.org/en/Article.12658.aspx - Report of The Independent Fact Finding Team on The Social, Environmental, and Economic Impacts of Tata Mundra Ultra Mega Power Project, Kutch, Gujarat , June 2012
      4. Reliance Power could lose $55 milion bank guarantee in tariff dispute at http://articles.economictimes.indiatimes.com/2012-07-03/news/32523737_1_reliance-power-4000mw-project-tariff-hike
      5. Crisil downgrades Adani Power's bank facilities rating to 'CRISIL BBB/Negative' at http://articles.economictimes.indiatimes.com/2012-07-10/news/32618717_1_crisil-fuel-supply-agreement-bunyu

    • info@karmayog.org
      http://videos.livemint.com/2012/07/18003827/CERC-to-hear-Adani-Tata-pleas.html?h=B CERC to hear Adani, Tata pleas tomorrow The petitions seeking an increase in
      Message 2 of 3 , Jul 18, 2012
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        http://videos.livemint.com/2012/07/18003827/CERC-to-hear-Adani-Tata-pleas.html?h=B

        CERC to hear Adani, Tata pleas tomorrow

        The petitions seeking an increase in tariff for imported coal-based power
        projects were filed after customers for the electricity generated from these
        two projects, both located in Mundra in Gujarat, declined to pay higher
        rates
        Maulik Pathak & Utpal Bhaskar

        Ahmedabad/New Delhi:

        Adani Power Ltd and Tata Power Co. Ltd have approached the Central
        Electricity Regulatory Commission (CERC), India's top power sector
        regulator, to consider an increase in power tariff.

        "Adani Power and Tata Power have filed their petitions. The hearing is on 19
        July," said Pramod Deo, chairman, CERC. The Indian Express newspaper on
        Tuesday reported that Tata Power has sought regulatory intervention.

        The petitions seeking an increase in tariff for imported coal-based power
        projects were filed after customers for the electricity generated from these
        two projects, both located in Mundra in Gujarat, declined to pay higher
        rates.

        While questions emailed to Tata Power remained unanswered till press time,
        an Adani group spokesperson confirmed the development and said they
        approached CERC as their average cost of coal per unit or kilowatt hour had
        doubled to Rs2 in a year. Also, the depreciation of the rupee had an
        additional impact of at least 50 paise per unit. Adani imports coal from
        Indonesia and Africa for its Mundra plant.

        Adani Power has entered into two power purchase agreements of 1,000
        megawatts (MW) each with the Gujarat government at Rs2.35 per unit and
        Rs2.89 per unit for its 4,620MW power plant in Mundra. It entered into a
        similar accord with the Haryana government for Rs2.94 per unit. The
        remaining power would be sold in the open market.

        Adani Power is also fighting a case in the Supreme Court where it has
        challenged a Gujarat state electricity regulator's decision that did not
        allow it to scrap the Rs2.35 per unit agreement with the Gujarat state
        utility. Adani had sent a notice to the utility seeking termination of the
        agreement as it could not secure fuel from a local source and had to import
        it.

        Tata Power has been lobbying the power ministry for higher rates for the
        power generated from the country's first ultra mega power project. The
        company acquired a 30% stake in two coal mining units and a trading company
        from Indonesia's PT Bumi Resources Tbk for $1.1 billion in 2007 to source
        fuel for its Mundra plant. According to Indonesian rules, prices of coal
        produced in the country have been pegged to the prevailing international
        prices of the commodity.
        "Both Adani and Tata Power wanted a price revision in the range of 70 paise
        to Rs1 per unit, which was not acceptable to us," said a Gujarat government
        official dealing with the power sector, speaking on condition of anonymity.

        Mint reported on 4 April that at a review meeting earlier this year on
        Coastal Gujarat Power Ltd, as Tata's Mundra project is known, the company's
        officials had said that they did not have any case against the Indonesian
        government. Tata Power had signed power purchase agreements to sell
        electricity generated from Mundra plant to Gujarat, Maharashtra, Haryana,
        Punjab and Rajasthan at Rs2.26 per unit. Overall cost of the Mundra project
        is estimated at about Rs17,000 crore, with 75% funding through debt.

        With power firms consuming 78% of the total domestic production of coal,
        about 50 million tonnes of the commodity needs to be imported for
        electricity generation in India.

        maulik.p@...
      • karmayog - tanya
        http://www.kseboa.org/news/cerc-seeks-pre-bid-papers-on-mundra-umpp-13012605.html CERC seeks pre-bid papers on Mundra UMPP Sunday, 13 January 2013 08:16
        Message 3 of 3 , Jan 31, 2013
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          http://www.kseboa.org/news/cerc-seeks-pre-bid-papers-on-mundra-umpp-13012605.html

          CERC seeks pre-bid papers on Mundra UMPP

          Sunday, 13 January 2013 08:16 Pradeep B


          The Central Electricity Regulatory Commission ( CERC), which is hearing Tata Power's petition seeking higher tariff for electricity generated from its Mundra plant, has asked the Power Finance Corporation (PFC) to file pre-bid conference documents. "The next hearing on the matter is slated for January 30," a CERC official said.

          Tata Power (Coastal Gujarat Power Ltd) had filed the petition seeking higher tariff for electricity from its Mundra plant. This was because the price of coal that it uses in the plant comes from Indonesia, which recently increased its coal prices, thus causing losses for the company which it hoped would be mitigated by increasing tariff.

          Tata Power had filed the petition under Sections 61, 63 and 79 of the Electricity Act, 2003. It had raised the legal claims on the grounds of change in law, under force majeure.

          CERC gave its directions after the Gujarat Urja Vikas Nigam, the Punjab State Power Corporation and the Prayas Energy Group argued that Tata Power's contention of the qualification in India in the definition of law applies only to electricity law and not to all laws is not correct.

          The Gujarat Urja Vikas Nigam has opposed Tata Power's pleas. "The event of increase in price of Indonesian coal cannot be said to be an event of 'force majeure' affecting the Mundra project. The terms 'law' and 'change in law' relate to Indian law and not to any law outside India. Therefore, the laws of Indonesia cannot be part of the definition of law. The bidding documents cannot be possibly concerned with laws all over the world and it would lead to impossibility of implementation," the company said.

          The Punjab State Power Corporation argued that the increase in the price of coal by the Indonesian government was a post-tender development which could not alter the terms and conditions under which the bid was submitted by Tata Power. "The company has exaggerated the issue of escalation in price of coal," it said.

          The Prayas Energy Group said if the tariff was permitted to be re-determined or reconsidered because of the financial issues faced by one particular project, there might be similar demands from other project developers. In future, a bidder may take undue risks to eliminate other bidders who might be more conservative in their strategy and later on, pass on all these costs to consumers.

          Source- Business standard.


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