Procurers may sue Reliance Power for project delay in AP

S Shanker Mumbai | Updated on March 12, 2018 Published on March 19, 2012

The 4,000 MW Krishnapatnam power project appears to be heading for a legal battle between Reliance Power and power procurers.

The procurers, totalling 11, comprise State electricity boards and electricity distribution companies in Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra.

The lead procurer, Andhra Pradesh Southern Power Distribution Co, has written to RPower advising it to take up construction work or face legal consequences under the PPA (power purchase agreement).

RPower was awarded the project, based on imported coal, under the competitive bidding process. The Krishnapatnam Ultra Mega Power Project of 3,960 MW (6 units of 660 MW each) is based on super critical technology in Nellore district, Andhra Pradesh.

The Rs 17,400-crore project is being implemented by Coastal Andhra Power Ltd (CAPL), a subsidiary of RPower. CAPL had entered into a 25-year PPA with the procurers for its entire capacity at a competitive tariff of Rs 2.33 per kWh. The supply was proposed to off-takers in the four States.

Suspended work

RPower suspended work at the Krishnapatnam project last year, stating that the fuel supply at benchmark prices made the project unviable and lenders were unwilling to fund the plant.

Citing the changes in Indonesian mining law which mandated coal supplies to be in line with international prices, RPower told procurers that this was not envisaged during bidding and was completely out of its control. Further, its consequences prevented it from meeting its obligations under the PPA.

Moreover, with the increase in coal cost, as the existing fuel supply deal for the tenure of the PPA stood nullified by the Indonesian law, the lenders to the project were unconvinced about its viability. Hence, RPower was deprived of the debt draw down.

Reliance Power said it had been in constant touch with the procurers to find an amicable solution to issue.

Seeking relief under the PPA as laid out in ‘force majeure', RPower said the current tariff of Rs 2.23 per KWh was not viable.

Under the PPA, force majeure events provisioned for relief such as restoration of economic value to the extent -- had the coal not being available at the contracted price, it said.

Besides Reliance Power, Adani and Tata Power too are impacted by the change in Indonesian mining law.

About 13,000 MW of the upcoming capacity addition of 45,000 MW is based on imported coal. Tata Power recently commissioned the first of its five units of 830 MW at Mundra this month.

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Published on March 19, 2012
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