Indonesia changing coal export rules is no ‘act of God’: Gujarat

Gujarat Urja Vikas Nigam Ltd, the state government-owned electricity distribution company, has said that the change in coal export regulations in Indonesia is no ‘act of God’. This statement was made to the Central Electricity Regulatory Commission in the context of Tata Power Company’s appeal for a higher tariff for the power produced by the Mundra Ultra Mega Power Project.

The 4,000 MW Mundra Ultra Mega Power of Tata Power Company’s subsidiary, Coastal Gujarat Power Ltd, has got into financial trouble following change of coal export regulations in Indonesia, the source of coal for the project. Tata Power won the Mundra Project in a competitive bidding process in 2006, bidding a tariff of Rs 2.26 a kWhr. The project was to get coal from Tata Power’s coal mines in Indonesia. A couple of years ago, the Indonesian Government made it mandatory to link the Indonesian coal prices to international prices of coal. The resultant increase in fuel prices made it unviable for Tata Power to sell electricity at Rs 2.26 a unit.

Tata Power has since appealed to the Central Electricity Regulatory Commission for a tariff hike. It has said that it needs at least 40 paise more even for breaking even, and a further 25 paise for a reasonable return.

Gujarat Urja Vikas Nigam (GUVNL) has been arguing that Tata Power knew at the time of bidding that fuel costs could go up.

Tata Power won the Mundra Project in a competitive bidding process in 2006, bidding a tariff of Rs 2.26 a kWhr. The project was to get coal from Tata Power’s coal mines in Indonesia. A couple of years ago, the Indonesian Government made it mandatory to link the Indonesian coal prices to international prices of coal. The resultant increase in fuel prices made it unviable for Tata Power to sell electricity at Rs 2.26 a unit.

Tata Power has since appealed to the Central Electricity Regulatory Commission (CERC) for a tariff hike. It has said that it needs at least 40 paise more even for breaking even, and a further 25 paise for a reasonable return. The various state electricity distribution companies, notably that of Gujarat, have opposed the demand for tariff hike on the grounds that Tata Power knew at the time of bidding that fuel costs could go up.

“If the petitioner (Tata Power) is losing money on procurement it cannot be ‘Force Majeure’ (act of God) because Force Majeure deals with impossibility of performance or delay in performance and not rise in price,” GUVNL has said in its written submissions to CERC. “Indonesian regulation does not make the performance impossible or delay in performance,” the company has said.

Stressing that the “sanctity of the basic contract must be upheld,” GUVNL has said that “re-negotiation should not be used to correct the mistakes in bidding or overly risky or aggressive bids.” The bidder should be held accountable for the submitted bid, it said.

Tata Power suffered a loss of Rs 850 crore for the first nine months of 2012-13, (Rs 600 crore in the third quarter alone) on account of the Mundra project. As a result, the company reported a net loss of Rs 329 crore for the quarter ended December, its second consecutive quarterly loss.

ramesh.m@the

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