Power will cost more as Ministry decides to allow fuel price pass on

Get ready for higher electricity bills. The Power Ministry will soon allow developers to pass on the volatility in fuel prices to customers.

The Power Minister, Mr Sushilkumar Shinde, told Business Line that the Government will make this provision as part of the soon-to-be released bidding documents. All projects under the 12th Plan will have this benefit.

Till now, only NTPC was allowed to do so, as it operates under a regulated regime. Private players have been acquiring projects through tariff-based competitive bidding. But they have been crying foul over volatility in fuel prices. If benefits are not given, no developer would enter this country, Mr Shinde said, adding “Why should they invest their money?”

On electricity pricing, he said, “at the moment, I think we will have to see the overall picture. It is the duty of the regulator to fix the price.”

But the Ministry has to consider both sides, developer and consumer, he said, adding that “I feel both the parties should not face any losses, and the country, too, should move forward.”

For 2011-12, NTPC charged around Rs 2.96 a unit to discoms (distribution companies), which had their own commissions. The end consumer price averaged between Rs 4 and Rs 5 a unit.

In the case of Tata Power's Mundra project, the tariff is levelised at Rs 2.26 a unit, a price at which they had bid in 2007, despite huge volatility in imported fuel price. The end consumer price is at Rs 2.40 a unit.

The business risk profile of projects based on imported coal is impacted by high price volatility, unpredictable long-term price arrangement and change in law/political risk in the source countries where the mine is located.

While private players mostly opted for the tariff-based model, NTPC followed the cost-plus method. Incidentally, the private players had termed NTPC's method as safe and expensive. Today, with their calculations going wrong, they also are seeking a similar model, sources said.

Private players have been saying that to cover the risk associated with high fuel prices, the Government should incorporate the provisions in the relevant articles of the power purchase agreements (PPAs).

The entire exercise is to ensure quicker capacity addition. Projects of over 50,000 MW capacity are at present under construction by private developers. The private sector is likely to add about 52 per cent of the total capacity in the 12{+t}{+h} Plan. More than 80,000 MW capacity (both public and private) is under construction for 11{+t}{+h} and 12{+t}{+h} Plan. NTPC's current capacity is 37,514 MW.

The private sector has grown from 11.6 per cent in 2006 to 30 per cent as of date. They have invested more than Rs 1 lakh crore and have committed an expenditure of Rs 2 lakh crore up to the first two years of the 12{+t}{+h} Plan.

Interview with Power Minister on Page 4

richam@thehindu.co.in

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