Thermal power firms seek clarity in 'change in law

The thermal power industry has urged the government to review, and preferably reiterate, the wording of the ‘change in law’ provisions in the national policy on rates (National Tariff Policy).


The section they are concerned with allows them, as they see it, to pass on any additional cost borne by them after the winning bid for a power purchase agreement (PPA), in the final consumer rate (tariff).


However, a recent order of the Central Electricity Regulatory Commission (CERC) disallowed various rates and surcharges levied by Indian Railways and state governments, to be passed on in the final power rates.


The CERC order said any post-bidding increase in cost owing to change in state regulations should be treated as ‘force majeure’. Under this definition, the power developer has to bear/adjust the additional cost in its books; it is not a pass-through one.


“There is a clear-cut finding that the increase in price of coal on account of change in the National Coal Distribution Policy, linked to reduced availability of domestic coal, does not constitute an event of Change in Law. Therefore, relief on account of higher purchase cost of coal due to reduced availability of domestic coal cannot be granted to the petitioner as under Change in Law,” the CERC said, in the matter of EMCO Energy against Maharashtra State Electricity Distribution Company.


The power sector has contested the decision. Their representation to the central government cites the National Tariff Policy (NTT), in contending the order is in contrast to it.


They have pointed to Section 6.2 of the NTT, which says: “After the award of the bids, if there is any change in domestic duties, levies, cess and taxes imposed by the central government, state/UT government or by any government instrumentality leading to corresponding changes in the cost, the same way be treated as ‘change in law’ and may unless provided otherwise in the PPA, be allowed to pass through, subject to approval of the Appropriate Commission.”


In a letter to the Union ministry of power, the Association of Power Producers (APP) has asked for a direction to ensure their members are enabled to fully recover the additional costs incurred by imposition of such charges.


“As the interpretation by the regulators is completely contrary to the intent of policy makers, you may like to intervene and initiate necessary steps to resolve this issue satisfactorily,” says the letter, reviewed by Business Standard.


The secretary, ministry of power, could not be reached for a comment.


The major escalation in fuel cost, apart from the notified price of coal, has been in railway freight rates, royalty, clean environment cess, service tax, coal terminal surcharge, and busy season and development surcharge. Leaving the price of coal and freight charges, none of the others are part of the PPA. Hence, it requires the power developer to file a petition with the appropriate regulatory commission.


APP says treating additional charges by the railways as unallowable under ‘change in law’ would set a wrong precedent and would lead to ‘corrupt practises’.


“Holding that the cost increase arising out of change in New Coal Distribution Policy (NCDP) may be treated under ‘force majeure’ would bestow huge discretionary power in the hand of the regulators,” says the letter. NCDP lays down the provisions for supply and pricing of coal by the government-owned near-monopoly, Coal India.

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