Private power companies may shift to regulated tariff regime

NEW DELHI: The government is considering giving a one-time option to private power companies to shift to regulated electricity tariff from tariff discovered through competitive bidding. The power ministry has agreed to look into a long-pending demand from private power developers that will help about Rs 4 lakh crore stressed plants recover adequate tariffs and cover costs.

The ministry has appointed a committee consisting of electricity regulators to conduct a comparative study between competitive tariff and regulatory tariff. A senior power ministry official said the proposal is being considered based on demand from power companies and suggestion from a working group constituted by the finance ministry to resolve financing issues to power plants.The committee under the chairmanship of IIFCL chairman Santosh Nayar suggested offering one-time shift of stressed assets from competitive bidding regime to regulated tariff regime.

The power ministry official said such shift in tariff derivation has also been seconded by the advisory committee led by railway minister Suresh Prabhu that said the bid documents should provide for absorption of costs that arise due to issues outside the control of developers. Power plant developers have been demanding a one-time window for migration to regulatory tariffs after they faced issues like high imported coal costs due to changes in Indonesian laws, steep rupee depreciation, nonavailability of coal and gas, high inflation and interest rates or lack of power purchase contracts.

While the regulated tariffs are governed by section 62 of the Electricity Act, section 63 covers the competitive tariffs discovered through by state distribution companies.

About 80% of the installed 1,53,000-mw coal-based power generation capacity is operating under section 62 under which the tariffs are determined by regulatory commission. Section 63 does not provide for revision in tariffs for factors beyond the control of the developers.

Association of Power Producers director general Ashok Khurana said tariff determination through section 62 provides flexibility for adjustment of uncontrollable factors unlike price discovery under section 63 which is very rigid and expects the bidder to predict 25 years price movement of uncontrollable factors – fuel, foreign exchange and interest rates.

“The outcome of the rigid process is evident as more than 90% of the plants which have tariff discovered under section 63 have requested for tariff revision on grounds of uncontrollable factors. The answer lies in a one-time dispensation allowing for redetermination of tariffs for the affected projects so that these projects don’t get mothballed.

For the future projects, a mix of tariff discovered under section 63 (competition on the basis of fixed cost during construction stage) and tariff determined under section 62 (for the operational life of the plant) will derive the best advantage for consumers,” Khurana said.Khurana claimed that the proposed shift will lead to about 50% lesser power tariffs compared to recently discovered tariff through bidding of .`5 – 6 per unit. Meanwhile, the ministry has decided to cancel the bidding for two ultra mega power projects after all private companies withdrew their bids protesting new bidding framework.