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Tuesday, February 25, 2014

Statement of Machimar Adhikar Sangarsh Sangathan on the CERC order on tariff revision of Tata Mundra project

Statement of Machimar Adhikar Sangarsh Sangathan on the CERC order on tariff revision of Tata Mundra project

Mundra: February 25, 2014

We are shocked at the Central Electricity Regulatory Commission’s (CERC) compensation order of last week, for Tata Power’s 4000-megawatt Mundra ultra mega power project (UMPP) in Gujarat to make up for the increase in cost of imported coal.

As per the order, state power utilities will now be compensated with 52 paise per KwH tariff hike over the next 12 months. The Mundra UMPP, which is partly financed by International Finance Corporation (IFC), Asian Development Bank (ADB), Korean ExIm Bank and others, supplies power to five states – Gujarat, Maharashtra, Haryana, Rajasthan and Punjab.

In 2011, Tata Power, along with Adani Power, had requested CERC for a tariff hike after the Government in Indonesia – from where both companies import most of their coal requirements at Mundra – hiked the cost of coal to an international benchmark, making it costlier to import. Order on the Adani plant is not yet out.

Consumers paying for bad business decisions

By this order CERC is passing on the cost of bad business decisions made by the companies to the consumer. Procurement of coal, machinery or technology is entirely in the purview of the companies and the consumer cannot be held liable for any bad decisions made by them. The consumers cannot be made to pay for Indonesia hiking its coal prices, nor can she be held responsible if company’s forecast of profits backfired.

Bad precedence & invalidating PPAs

By revising the tariff, CERC has made a bad precedence. There is no way that CERC can now not review the Power Purchasing Agreement (PPA) made between other companies and state utilities. By some estimates, the decision has paved the way for around 48,000 MW worth of generation capacities, which inked long-term deals through fixed tariff-based bidding, to seek a price revision.

Bids are won for these projects by quoting the lowest tariff and once secured the project, they move CERC and revise the tariff. Reliance Power owned Sasan project has already approached CERC to renegotiate tariff citing expensive foreign currency borrowings and the rupee’s fall. This order is an invitation for companies to swindle the people.

Real Costs not accounted yet
However, the real costs of coal projects, particularly the Mundra project of Adani and Tata, cannot be calculated unless the social and environmental costs are accounted. Livelihood of thousands of fisherpeople are getting affected by these projects; mangroves and mudflats are destroyed; fly ash and coal dust is impacting the dry fish, salt-pan, horticulture, animals grazing on coal infested grass and the health of elderly and children.

In a report which detailed IFC’s violation while financing the Tata Mundra project, the independent recourse mechanism of IFC, Compliance Advisor Ombudsman (CAO) observed:

“IFC’s review of its client’s (Environmental and Social) E&S assessments was not commensurate with the risk involved. IFC paid insufficient attention to the requirements of the Performance Standards. IFC should have required that its client commission additional E&S assessment in order to ensure compliance. IFC did not pay adequate attention to verifying whether pre-project consultation requirements were met. IFC failed to assure itself that directly affected fishing communities were engaged in effective consultation. IFC’s E&S review regarding marine impact did not meet the due diligence requirements set out in the Sustainability Policy. IFC has failed to ensure that its client has correctly applied the requirements of the Thermal Power Guidelines. IFC failed to meet the requirements of the Sustainability Policy despite sufficient indications of project-related displacement (both physical and economic) as to require objective assessment. IFC should have advised that CGPL’s consideration of cumulative impact needed to go beyond that contained in the SEIA. IFC is unable to demonstrate that its client’s monitoring is commensurate to risk.”

After IFC, the Board of Directors of ADB approved the recommendation of its accountability mechanism, the Compliance Review Panel (CRP) for full investigation, as published in its Eligibility Report.

In its report, CRP says, “The CRP finds prima facie evidence of noncompliance with ADB policies and procedures, and prima facie evidence that this noncompliance with ADB policies has led to harm or is likely to lead to future harm. Given the evidence of noncompliance… the CRP concludes that the noncompliance is serious enough to warrant a full compliance review.”

Unless these serious issues are taken into account, the real cost of the project can never be calculated. All that CERC is doing will only result in giving undue benefit to the companies, at the cost of consumers. By doing this, CERC is committing a dereliction of their duties to be a fair and impartial regulator.

Wrong planning
One cannot ignore the fact that this is happening because of misplaced priorities, wrong planning and poor integration. While the Integrated Energy Policy 2012 estimates that by 2032 power demand could reach nearly 7.8 lakh MW, where the share of coal is expected to be 47%, the Ministry of Environment and Forests have already cleared or are in the process of clearing coal projects with capacity of 7 lakh MW – almost 90% of the total demand. Such unplanned, unregulated expansion of projects can only lead into situations where companies fight for bigger share of profits and consumers are left to the mercy of these companies.

Bharat Patel - +91-9426469803
Joe Athialy - +91-9871153775