BW Communities

Courting Trouble

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Things are not going right for Reliance Power's (R-Power) Krishnapatnam project. Coastal Andhra Power (CAPL), R- Power's wholly owned subsidiary, filed an appeal on 3 July in the Delhi High Court challenging the judgment of its single bench which lifted the stay on the notice served by the distribution utilities. The court has deferred its decision till  9 July and the respondents (distribution utilities) will now wait till Monday for the court's verdict on invoking the bank guarantee. R-Power had some interim relief on 4 July after the distribution utilities gave an assurance that they would not insist on invoking the bank guarantee of Rs 300 crore till the matter is pending in the court. "Statement of learned counsel for the respondents is taken on record that the respondents would not insist on the bank which has issued the bank guarantee to remit the payment under the bank guarantee," the bench said in its order. The single-judge bench in its judgment on 2 July lifted the stay on the notice served by 11 power procurers, which enabled them to invoke the bank guarantee submitted by CAPL in case of delay in the development of the project. The issue relates to the 4,000 MW ultra mega power project (UMPP) developed by R-Power in Krishnapatnam, Andhra Pradesh. The power produced by the project was scheduled to be supplied to 11 power distribution companies — four in Andhra Pradesh, five in Karnataka and one each in Tamil Nadu and Maharashtra. R-Power won the bid to develop the Krishnapatnam UMPP in 2007 by quoting a tariff of Rs 2.33 per unit at an investment of Rs 17,500 crore. The power project planned to use coal mined in Indonesia but the Indonesian government's decision to benchmark the price of its coal to international market prices in 2011 affected the power producer's calculations. Since then, R-Power has been maintaining that the project has become unviable for it and unless the procurers agree to raise the tariff, it would not be possible for the company to develop the project. <table style="width: 200px;" align="right" border="1" cellpadding="8" cellspacing="8"> <tbody> <tr> <td>BACKGROUND TO THE DISPUTE</td> </tr> <tr> <td>It was in 2007 that RPower won the bid to develop the 4,000 MW Krishnapatnam UMPP; it quoted a tariff of Rs 2.33 per unit at an investment of Rs 17,500 crore. The power produced by the project was to be supplied to 11 power distribution companies. However, when there was no progress on the project, the 11 companies threatened to invoke the Rs 300 crore bank guarantee that R-Power had issued to them.</td> </tr> </tbody> </table> There has been no further development in the project, which was based on a debt-equity ratio of 75:25 and though the loans have been sanctioned by the lenders, there has been no disbursal as yet. "We have not disbursed any amount to Reliance for the development of their Krishnapatnam UMPP as there has been no work done on the project," says H.D. Khunteta, director (finance), Rural Electrification Corporation. In a related development, R-Power has also filed for arbitration against the 11 procurers before the Indian Council for Arbitration for renegotiating the power purchase agreement (PPA) citing changes in the Indonesian mining regulations and the consequent tariff changes. "This is irrelevant as sections 17 and 58 of the Electricity Act, 2003 do not allow for private arbitration and only CERC (Central Electricity Regulatory Commission) has the power to decide this," informs P. Shiva Rao, legal advisor to the distribution utilities. (This story was published in Businessworld Issue Dated 16-07-2012)