Adanis, Ambanis and Tatas fail to build Thermal Power Plants in India

The Indian government has sold the common Indian consumer short, to pander to the interest of the big business groups in India. The government will increase the electricity tariffs to be paid by state utilities to power producers, despite fixed PPAs having been signed. The contracts will be changed instead of being enforced against the Adanis, Ambanis and Tatas. These big conglomerates had signed long term power purchase agreements with electricity distribution companies after winning the rights to build massive thermal power plants.

The projects called UMPPs with 4 GW size each would have resulted in massive profits for the companies. However, the increase in coal prices made the calculations of the companies go wary and they refused to build those plants, despite having signed the contracts. They held the government to ransom as they refused to supply power to an energy hungry India. The CERC has finally been forced to increase tariffs by almost 15%, so that these powerful business groups will supply power. While the Tatas have built the plant and are still running into losses, the less ethical groups like Adanis and Ambanis have simply refused to do anything.

Read about Top Power/Electricity Companies/Utilities in India.

No Government Action so far

The government should have enforced the bank guarantees and imposed heavy penalties on these groups. The companies should have been blacklisted and the tenders should have been floated again. However, the government has bowed to the interests of big business and allowed them to reap profits at the expense of Indian customers (many of them extremely poor). 

Indian Coal Shortage leads to Idle Power

There are massive power brownouts across India as electricity supply is shut down due to lack of fuel. Note the majority of India’s power capacity is built using thermal power plants run on coal. However India’s coal mining policy is a huge mess with Coal India the monopoly government producer being highly inefficient and ridden with corruption. While CIL is blaming the lack of coal production due to environmental problems, the real issue is that CIL is badly managed state owned company. Millions of tons of coal are stolen and the company is over bloated in terms of manpower. With little competition, the company has no incentive to increase production or improve efficiency.

With a gargantuan coal scam unearthed by the government auditing agency, the UPA Government is again in a paralysis state regarding the mining policy. Its top leaders are accused of stealing millions of dollars by awarding private coal mining contracts to kith and kin. Meanwhile 65 GW of the country’s electricity is said to be lying idle due to no fuel even as the running coal powered plants are with just one week’s inventory of coal. There have already been huge protests across the southern states where industries are being starved of power for days on an end.

HINDU

The Central Electricity Regulatory Commission (CERC) has allowed a ‘compensatory tariff’ for Adani Power Ltd’s (APL) imported-coal-based power project in Mundra, Gujarat.This has been done to neutralise the increase in price of imported coal following the decision of the Indonesian Government in September 2010 to impose a minimum ‘benchmark’ price below which coal cannot be exported.Armed with the CERC order, APL will charge Re 1 per unit more from discoms in Haryana and Gujarat. Together, they will have to shell out an additional Rs 1,200 crore per annum.

Historically, when power projects were assigned on an MoU basis, power purchase agreements (PPAs) included a clause allowing ‘pass-through’ of increase in fuel cost. This led to an automatic hike in tariff whenever fuel prices increased. The new concept of assigning projects under ‘CB’ route generated hopes. Under it, a promoter who bids lowest ‘fixed tariff’ for supply over a given time horizon, say, 15 years, gets the project. SEB/discoms and consumers are thus shielded against any increase in fuel price.

The shield was intended to be ‘impregnable’ as commitment to supply at ‘fixed tariff’ during the stipulated period is duly incorporated in the PPA, a legal document binding on the signatories. If this shield is demolished through a flagrant deviation from very fundamentals of PPA — duly sanctioned by the very authorities who are expected to defend its sanctity — consumers will be left completely high and dry.

The argument that ‘compensatory tariff’ will be adjusted when fuel cost declines does not inspire confidence. Will the Indonesian government undo what it did in 2010? Or will Government of India reduce gas price to bring fuel cost in sync with tariff that promoters bid for! Even so, there are umpteen instances to demonstrate that when fuel costs increase, the Government loses no time in authorising an increase in the price of the end product. When the former declines, little effort is made to reduce the latter.