In case of Gujarat, the government – through state enterprise Gujarat Urja Vikas Nigam Limited (GUVNL) – signed PPAs with power generating companies Essar Power Gujarat Limited (EPGL), Adani Power Mundra Limited (APMuL) and Tata Power Company Limited in 2007 to purchase power generated by these companies at their plants. While EPGL falls in the purview of GERC (Gujarat Electricity Regulatory Commission), APMuL and TPCL come under CERC (Central Electricity Regulatory Commission) when it comes to regulating the terms and conditions of such agreements. It is the regulatory commissions that adjudicate on tariff hikes.

PPAs lay down various aspects of purchasing power, including prices, as well as technical aspects like gross station heat rate or gross calorific value. Any change in conditions to the originally laid out terms can be modified through SPPAs.

As per a GERC official, prices are negotiated with gencos keeping consumers in mind to minimise the cost incurred by them in their electricity bills, while also taking into consideration that the cost is feasible with sufficient cash flow for gencos to continue production.

Over the years, the three gencos signed SPPAs, amending several clauses of the original PPAs. EPGL is currently in the process of negotiating the terms for its fifth SPPA, said a GERC official.

What were some trigger points that led to revision of PPA terms?

In 2010, Indonesia changed its coal import regulations, effectively changing the pricing framework, making it higher. Gencos ran power plants on imported coal and complained of the viability of running their plants, as they were unable to pass on the coal price hike to the procurers.

In 2018, a high-power committee of the Gujarat government recommended that the hike in coal prices be partially passed on to consumers. Sources said in Gujarat, this was done after gencos indicated that they would be unable to continue production. Import of coal was also a necessity owing to a shortfall of domestic coal to meet the demand.

The DRI in 2016 had initiated a probe into at least 40 companies, including Adani Power and four other companies of the Adani Group, for alleged overvaluation of coal imports and over-invoicing. Pricing of coal also varies on the rates being charged by the importing trader, a GERC official noted.

What has changed?

In May 2022, the Ministry of Power noted that some gencos were unwilling to import coal for blending “due to lack of clarity on compensation”. It instructed state governments and state electricity regulatory commissions (SERC) to ensure that all gencos under them take immediate action to import coal. It also instructed CERC to take suitable action to allow higher amount of blending with imported coal. This instruction was significant after one SERC refused to allow the increased cost of coal due to blending as passthrough (allowing the cost to trickle down to users).

The May 2022 communication also noted that to enable gencos import coal with adequate cash flow, provisional billing shall be done by the gencos on weekly basis and payment of at least 15 pe cent of the provisional bill shall be made by the procurers within a week from the date of receipt of the bill. It noted that the provisional billing and payment “shall be subject to reconciliation during final billing and payment on monthly basis as per the PPA”.