The end appears to be in sight for the issues plaguing the imported coal-based power plants in Gujarat owned by the Adanis, the Tatas and the Essar Group.

The high-powered committee (HPC) appointed by the State government in July has suggested that the tariff structure of the power purchase agreements (PPAs) be revised. The companies had sought a revision since the projects depend on coal imported from Indonesia. Recent changes in Indonesian regulation have rendered the coal imports costlier.

“The committee has submitted the report and the recommendations to GUVNL (Gujarat Urja Vikas Nigam Ltd) and SBI Capital, suggesting a fuel pass-through with a cap which can be revised after five years based on coal price movement,” said a person with knowledge of the matter.

The resolution for the three power projects will take 15-20 more days, he added, as the proposal has to go through a clearance process from the State government departments to the Chief Minister and the Cabinet.

Tata Power and Adani Power did not respond to requests for comments. Essar Power’s spokesperson confirmed that its Salaya plant is close to securing a resolution, but refused to provide any details.

The Supreme Court had in April 2017 ruled out a tariff hike for the three projects, which had fallen on hard times. Tata Power and Adani Power’s plants in Mundra became unviable. Essar Power’s Salaya plant, too, suffered losses.

Last year, the three power developers separately approached the Gujarat government and the discoms, offering to sell a 51 per cent stake in the stressed projects for a nominal sum of ₹1. With lenders panicking, state-owned NTPC conducted a due diligence of the projects, assessing the possibility of feeding them with domestic coal. But this would have required a large amount of fresh capital since the plants are not designed to run on domestic coal, according to experts. The stake sale talks have since been suspended.

Industry experts note that while the net worth of the three power projects — Tata Power’s 4,000 MW, Adani’s 4,620 MW plants in Mundra and Essar Power’s 1,200 MW plant at Salaya — has been wiped off as a result of continuous losses, only Essar’s plant has become an NPA.

Hard to sustain operations

“If power plants are unable to recover the actual fuel costs, given the thin margins, they cannot sustain operations beyond a few months. Also, they run out of this ability quicker as coal prices go up, as they are now, with global coal prices at a five-year high,” Kameswara Rao, Leader, Power and Mining, PwC India, told BusinessLine .

He added that any new thermal power project built now will deliver at the same variable cost, and will have higher capital costs; in a market where demand for power is growing, this makes a strong economic case to accept the pass-through.

“There may be safeguards put in so that super profits don’t arise at any point in the value chain, but I believe that would be the best possible outcome. It will have a marginal impact on consumer tariffs, but they will pay for it otherwise too, as utilities buy replacement power from short-term and commercial sources,” Rao added.