The Hindu Business Line : CERC caps per unit tariff at Rs 2.20 for Nagarjuna Power's Udupi project

The CERC order, however, allowed for flexibility to improve on the capital costs. In such a situation, these costs would then be taken as completion costs for tariff purposes.

Bangalore , Oct. 27

IN a landmark order, the Central Electricity Regulatory Commission (CERC) has capped the tariff of the 1,015-MW inter-State power project in Udupi promoted by the Nagarjuna Power Corporation Ltd (NPCL).

The CERC order, issued on October 25, which accorded in-principle clearance for the NPCL project, made it clear that the present capital cost would be a ceiling for tariff purposes. On the basis of the CERC order, the approved capital cost for the project now becomes Rs 4,299.12 crore on the basis of a 70:30 debt-equity ratio. This would translate into first-year power tariff of about Rs 2.20 per unit.

The CERC Chairman, Mr A.K. Basu, told Business Line, "There could be better terms than this during the course of negotiations, but this capital cost is a cap." This essentially implies that the CERC had capped existing tariff levels.

The CERC order, however, allowed for flexibility to improve on the capital costs. In such a situation, these costs would then be taken as completion costs for tariff purposes. However, the order has also made it clear that pass through of additional capital expenditure would not be permitted.

This is the first such "in-principle clearance" being accorded by the CERC since it announced the norms in August. The August notification was an amendment to the original circular that had specified tariff approvals only on the basis of the completion cost. The CERC had then stated the amendment was to promote private participation in the power sector and provide comfort to project investors. This comfort level was necessitated by the Electricity Act of 2003 dispensing with the Techno-Economic Clearance by the Central Electricity Authority.

90 pc power to Karnataka: NPCL had sought the CERC's approval of tariff since it had signed a power purchase agreement with Karnataka and Kerala. Karnataka would get 90 per cent of the power generated from the plant and the remaining 10 per cent would be fed to the Kerala State Electricity Board grid. When fully operational, the plant would generate at least 7,113 million units per year or about 19.5 mu per day when fully commissioned in 2009.

The CERC has also fixed a deadline of 120 days for the project to go into financial closure. The NPCL project has not yet gone into financial closure, though the lead arrangers for the debt funding, Power Finance Corporation, has already sanctioned the loan requirement. Besides, the project's fuel supply agreement has also been tied up with Australian coal suppliers.

Benchmarked to NTPC project: In drafting the order, the NPCL project was benchmarked against NTPC's 1,000-MW Simhadri project that was commissioned in March 2003. The completion cost of Simhadri was Rs 3,586 crore, then. However, the order observed that Simhadri's cost did not have flue gas desulphurisation, desalination and external coal handling plants. Inclusive of these costs, the CERC order said, the NPCL's project cost compared favourably with Simhadri.

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