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Adani Power’s Mundra unit gets a boost as CERC allows tariff hike

Anupam Chatterjee

Adani Power’s beleaguered, imported coal-based Mundra power project on Friday got a much-needed booster with the Central Electricity Regulatory Commission (CERC) allowing tariff hike for 2,000 MW capacity linked to Gujarat discom GUVNL by amending the power purchase agreement (PPA).

The regulator s move, which keeps hopes alive for the plants of Tata Power and Essar Power in Gujarat facing similar problems, could allow Adani Power to hike tariffs by Rs 0.80/unit or close to a third in the current coal environment.

Edelweiss Securities had said that the tariff hike (as recommended by a high-powered committee and now approved by the regulator) could boost earnings before interest, taxes, depreciation and amortisation (Ebitda) of the firm by about Rs 1,600 crore (annually) at 70% PLF level.

There s also a 20 paise/unit cut in capacity charge owing to the haircut by lenders.

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The Adani Power stock went up 5.2% on Friday to close at Rs 52.95.

The regulator also allowed pass through of coal costs, subject to a cap of $110/tonne. Additionally, it allowed extension of PPA with GUVNL by another 10 years after the completion of the 25-year tenure by 2032.

The supplemental PPA will take effect retrospectively from October 15, 2018.

Adani Power is the first to benefit from the Supreme Court s October 29, 2018, ruling that extended the lifeline to the three troubled imported-coal-based power plants in Gujarat (Tata Power s Mundra unit and Essar s Salaya plant are the other two) by allowing the CERC to amend their PPAs to facilitate pass-through of future fuel price escalation, subject to a ceiling.

The court said its April 2017 order denying compensatory tariffs to these plants wouldn t come in the way of implementing the fuel cost pass-through and other measures recommended by a high-level committee to salvage the units. These units got into trouble due to unforeseen hike in Indonesian coal prices.

Adani s Mundra unit which a total capacity of 4,620 MW reported accumulated losses of Rs 10,300 crore as at end of Q3FY19; its outstanding debt stood at Rs 11,180 crore; the plants have been operating at very low PLF levels for quite some time.

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The company had signed two PPAs with Gujarat discom (1,000 MW each) in 2007 at Rs 2.89/unit and Rs 2.35/unit. Gujarat s average power purchase price from all thermal sources is Rs 3.49/unit. Even after the latest tariff hike by the CERC, power from Adani s Mundra unit will still be cheaper than the average rate of Rs 4.66/unit that Gujarat buys power from power exchanges and under bilateral arrangements.

However, Coastal Gujarat Power (CGPL), the Tata Power arm that runs the 4,150 MW Mundra ultra mega power plant, is still seeking relief and has sought more time from CERC to get state distribution utilities consent for tariff revision for its imported coal based unit. The electricity regulator did not accept CGPL s petition as the company had approached the quasi-judicial body unilaterally, requesting it to direct the discoms to adopt revised PPA to facilitate pass-through of future fuel price escalation.

CGPL in its petition mentioned that its awaits a concrete response from procurers regarding the proposal to amend PPAs. The Mundra plant, where Tata Power has invested Rs 14,986 crore, has PPAs with Gujarat, Maharashtra, Haryana, Rajasthan and Punjab under the integrated Ultra Mega Power Plant (UMPP) scheme.

Tata Power, Adani Power and Essar Power had set up 4,150 MW, 4,620 MW and 1,200 MW imported-coal based power plants, respectively, in Gujarat. These projects constitute about 45% of the overall power requirement of Gujarat and 22% of demand from Haryana. While the Adani plant sells power to Gujarat and Haryana, Essar s Salaya plant has a PPA only with Gujarat. The Tata plant has PPAs with Gujarat, Maharashtra, Haryana, Rajasthan and Punjab under UMPP.

The high-level committee had recommended reduction in fixed charge by Rs 0.20/unit, which would necessitate banks to reduce debts by over Rs 10,000 crore for the three plants.