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Gujarat removes $110/t ceiling on imported coal price in PPAs

Rishi Ranjan Kala | Updated on: Jun 13, 2022

‘Decision will avoid disputes on energy payments and will ensure that pass-through of coal cost is done in a prudent and transparent manner’

The Gujarat government has removed the Harga Batubara Acuan index ceiling of free on board (FOB) price of coal of $110 per tonne for the supplemental power purchase agreement between Gujarat Urja Vikas Nigam (GUVNL) and Adani Power Mundra (APMuL)

The Supplementary PPAs were inked on December 5, 2018 and March 30, 2022.

Removing the ceiling on imported coal will aid both the parties in avoiding disputes on energy payments and will ensure that pass-through of coal cost is done in a prudent and transparent manner. It will also aid imported coal based plants in import fuel, whose prices have been rising in the international markets due to high demand.

GUVNL’s petition was for determining the base rate of imported coal used in APMuL units as on October 15, 2008 taking into account the consumer interest and all relevant factors  in the petition and recommended the Base Rate to the Government of Gujarat.

Removing ceiling

In a petition filed before the Central Electricity Regulatory Commission (CERC), GUVNL said that Gujarat government through a resolution on February 25 issued the order on ceiling on cost.

“HBA index ceiling of FOB price of coal of $110 per tonne as per Government of Gujarat as per the SPPAs dated December 5, 2018 and ceiling of $90 a tonne as per the Government guideline of June 12, 2020 shall be deleted and the provision related to reset of the aforesaid ceiling from time to time shall also be deleted,” the GUVNL petition said.

The order also instructed that existing provisions in SPPAs on computing energy charges and working out the landed cost of fuel shall be modified and a provision shall be incorporated whereby energy charge shall be worked out considering the base rate recommended by CERC and finally approved by the state.

Determining the base rate will include parameters such as FOB coal cost in $ per kWh for quality of coal consumed including other charges. Ocean Freight in US Dollar per kWh and Port Handling Charges in ₹ per kWh as on October 15, 2018 based on normative operating parameters as per provisions of SPPA of December 5, 2018.

CERC order

The CERC in its Monday order said, “We have already laid down the methodology for computation of monthly escalation index, Furthermore, in view of the above, it is left to GUVNL and APMuL to mutually decide whether to adopt the monthly escalation index for the purpose of payment in terms of the SPPA dated March 30, 2022.”

The commission also ruled on determining the methodology for the base rate of coal as on October 15, 2010 keeping in view the provisions of the Deed of Settlement, SPPA of February 30, 2018 and the actual coal consumed at the Mundra Power Project.

“In course of consultative process for the above order, some stakeholders had suggested to use country specific indices. The Commission after due consideration of the said suggestions decided that country specific indices may not always be available or reliability could be an issue. Moreover, the rationale for using composite index instead of country specific index was to induce efficiency in procurement and diversification of supplies,” CERC said.

There have been instances in the past as brought to the notice of the Commission through other petitions where shipments from countries other than Indonesia were received and its possibility in future cannot be overlooked by the Commission while fixing the base, it added.

“Therefore, Base Rate on the basis of CERC composite index would ensure pass through of coal cost in a prudent and transparent manner, avoid any future disputes between the parties in computation of the energy charges as has been stated in the government of Gujarat’s GR of February 25, 2022,” it added.

Published on June 13, 2022
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