RPower seeks remedy for increase in Sasan UMPP costs

Finding it difficult to supply power at the levelised rate of Rs 1.19 per unit from its Sasan ultra mega power project (UMPP), Reliance Power Ltd is looking for a new mechanism to take care of over Rs 4,000-crore (Rs 40 billion) increase in costs during the construction and operational phases.

The Anil Ambani-promoted company has filed three petitions with the Central Electricity Regulatory Commission (CERC) over the past two months. It is now awaiting a meeting with 14 power procurers to work out a solution.

CERC last week held a hearing on the three petitions, of which two had been admitted.

Reliance Power Ltd (RPower) is seeking "economic restitution" due to rupee depreciation, change in law during the construction period, and change in law impacting revenues and costs during the operation period.

It has sought CERC intervention under Section 79 of the Electricity Act, stating the compensatory mechanism set out under Article 13 of the power purchase agreement (PPA) was unable to restore "the same economic condition as if the change in law had not occurred".

When contacted, an RPower spokesperson said: "The company asked for suitable treatment for increase in costs in line with the PPA." It, however, did not petition for any specific increase in rates consequent to the increase in cost.

In its third petition, RPower has said the issue of increase in costs on account of change in law during the construction period was taken up with the procurers twice in December, but they did not take any steps to resolve the dispute.

"The mechanism provided under Article 13.2(a) of the PPA to compensate

the petitioner is not sufficient to restore the petitioner to the same economic position," said the petition.

In fact, by applying the mechanism provided in the article, the company would only be able to recover Rs 169 crore (Rs 1.69 billion) over the 25-year term of the project instead of Rs 1,330 crore (Rs 13.3 billion), which is the additional capital cost it would "incur for reasons beyond its control".

The company has claimed that the capital cost with respect to seven items exceeded the indicative costs provided by the procurers to the bidders for the power project in 2006.

Besides, there has been an increase in the capital cost on account of Customs and excise duty on cement, steel and mining equipment.

"Though the cost increase during the construction phase will be a one-time increase, impact on the operation of project due to changes like royalty rate can be adjusted in future depending on the increase or decrease," said the RPower spokesperson.

The second petition filed early last month but yet to be admitted, is for a Rs 2,800-crore (Rs 28 billion) increase in capital cost due to a rupee devaluation of six per cent annually against 0.74 per cent permitted by CERC in 2007.

When RPower bid for the project in 2007, the rupee was Rs 40.27 a dollar but has since depreciated by 37 per cent.

In its petition, RPower argued that "wherever infrastructure concessions and long-term contracts do not provide a comprehensive and unambiguous mechanism to deal with the unforeseen events as also for periodic readjustment, it results in incomplete contracts that are likely to be renegotiated."

It had last week announced that the first 660 megawatt (Mw) unit of the 3,960-Mw Sasan UMPP had been successfully synchronised.