ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION

4th & 5th Floors, Singareni Bhavan, Red Hills, Hyderabad-500 004

 

O.P.No.19 of 2006

 

Dated: 30-12-2006

 

Present

Sri K. Swaminathan, Chairman

Sri Surinder Pal, Member

Sri R.Radha Kishen, Member

 

In the matter of consent for amendment to the

Power Purchase Agreement (PPA) between:

 

1. Transmission Corporation of Andhra Pradesh Ltd,

2. Eastern Power Distribution Company of A. P. Ltd,

3. Southern Power Distribution Company of A. P. Ltd,

4. Central Power Distribution Company of A. P. Ltd.

5. Northern Power Distribution Company of A. P. Ltd                                                                                                 Applicants

                                                                                                                                                                                    (First party to the PPA)

 

and

 

M/s Vemagiri Power Generation Limited,                                                                                                                  Second party to the PPA

 

1)         Sri. B.V.Raghavulu, Secretary, A.P.State Committee,

            Communist Party of India (Marxist), M.B.Bhavan,

            Hyderabad.

 

2)         People’s Monitoring Group on Electricity Regulation,

            C/o Centre for Environment Concerns, Barkatpura,

            Hyderabad.

 

3)         Sri.K.P.Rao, IDAS (Retd), A-1 Arsh Glory Apts.,

            East Marredpally, Secunderabad.

 

4)         Sri.M.Venugopala Rao, Special Correspondent,

            Prajasakti Telugu Daily, Ramanthapur,

            Hyderabad.

 

5)         Sri.A.Punna Rao, Ashoknagar,

            Vijayawada.

 

6)         Sri.K.Raghu, Adarshnagar,

            Hyderabad.                                                                                                                                                                          Objectors

 

            The Commission having considered the application filed by the Applicants mentioned above for grant of consent to the proposed amendments to the Power Purchase Agreement dated 31-03-1997 and Amendment Agreement dated 18-06-2003 with M/s. Vemagiri Power Generation Limited and having heard the parties concerned and members of the public and duly taking into account the material on record passed the following:

 

 


O R D E R

CHAPTER I - BACKGROUND

 

Originally, the Government of Andhra Pradesh (for short, GoAP) approved in July 1996, the offer inter-alia of M/s. Nippon Denro Ispat Limited, Mumbai, to set up a power plant of 468 MW with Naphtha as fuel at Vemagiri,.  The said company incorporated a new company by name, “M/s Ispat Power Limited,” to develop, finance, construct, complete, own and operate the project and entered into a Power Purchase Agreement (for short, ‘PPA’) with the then Andhra Pradesh State Electricity Board (for short ‘Board’) on 31-03-1997. The said company changed its name to M/s Vemagiri Power Generation Limited (for short, ‘VPGL’) with the approval of the Government. With allocation of 1.64 MCMD of Natural Gas on firm basis to it, the VPGL chose to execute the project in two stages – Stage I (370 MW) with available allocation of Natural Gas and Stage II (150 MW) after obtaining further gas allocation. Consequent to reformation and reorganization of the electricity sector, the Transmission Corporation of Andhra Pradesh Limited (for short, APTRANSCO, the Applicant No.1 herein), the successor-in-interest of the erstwhile Board, decided to amend the PPA executed on 31-03-1997 with regard to change of fuel, station heat rate, incentives, interconnection facilities, PLF, etc., in respect of the 370MW Gas based power project being implemented by M/s. VPGL and submitted the draft of amended PPA to the Commission for consent.  The Commission after conducting a public hearing, issued an Order on 12-04-2003 granting consent for such amendments with certain modifications as mentioned in the Order.   Accordingly, the Applicant No.1 herein entered into an amendment agreement with VPGL on 18-06-2003.  Similar amendment agreements to the original PPAs were also entered into with three other upcoming gas-based power projects viz., 464 MW (promoted by M/s.Gautami), 445 MW (M/s.Konaseema) and 220 MW (M/s.GVK Extension), all with the consent of the Commission.

 

2.         From the year 2003, however, as reported by APPCC (Andhra Pradesh Power Coordination Committee, an entity coordinating the actions of the all the five Applicants herein, headed presently by the CMD of Applicant No.1) / APDISCOMs (collectively the four distribution companies in the State, the Applicants No. 2 to 5 herein), Gas Authority of India Limited (for short ‘GAIL’) has not been supplying, and would also not be able to supply, the allocated quantities of Natural Gas to the existing four gas- based power projects, including VPGL, as per the Gas Supply Agreements entered into with them. In view of the same, Applicant No. 1 would be required to purchase costlier power with alternate fuel i.e. Naphtha, LSHS and the like or pay full fixed charges without drawing any energy, once these upcoming gas-based projects are commissioned as they can declare availability with costly alternate fuels like Naphtha, etc. as per the provisions of the PPAs.  The total commitment towards payment of fixed charges for the four upcoming gas- based projects, without availing energy, works out to about Rs.1020 Crores per annum. Consequently, in the year 2004, the Applicant No. 1 filed petitions before the Commission for deletion of the alternate fuel clause from the definition of ‘Fuel’ in the PPAs, including that with VPGL.

 

3.         In view of the Third Transfer Scheme notified by GoAP on 09.06.2005, the rights and obligations and agreements and contracts relating to procurement and bulk supply of electricity or trading in electricity, to which the Applicant No. 1 was originally a party were transferred to and vested in the Applicants No. 2 to 5.  As per the said Third Transfer Scheme, all the PPAs including the PPAs of the four upcoming gas- based projects are vested with APDISCOMs i.e., Applicant No. 2 to 5. In view of the same, the Applicants No. 2 to 5 were impleaded in the petitions filed by the Applicant No. 1.

 

4.         While the petitions for deletion of alternate fuel clause are pending with the Commission, owing to the concerns expressed about non-availability of natural gas for these upcoming four gas - based projects, GoAP held negotiations with the developers of four upcoming gas based power projects, including VPGL, for amendments to the PPAs to mitigate the “Fixed Cost” payment risk arising out of non-availability of Natural Gas and the developers, including VPGL, agreed to non-usage of alternate fuel till January 1, 2007.  The proposed amendments in line with the above agreement were submitted to this Commission, which issued its consent in Order dt: 14-12-2004 in O.P.No.25 of 2004.

 

5.         While the matter stood thus, VPGL submitted proposals on 02-03-2006 to GoAP for arriving at an amicable solution on the issue of deletion of alternate fuel provision from the PPA, which were referred by GoAP to a Committee constituted vide G.O.Ms.No.18, Energy (Power-I) Dept, dated 25-02-2006 for examination in depth. The Committee, on which all the Applicants herein were represented by the Chairperson of APPCC, after holding discussions with representatives of VPGL, noted that 

(i)         VPGL would be receiving fixed charges for the energy generated using Natural gas only and the risk of payment of fixed charges if gas is not available / inadequately available is mitigated for the whole PPA period.    The fixed charges payable to VPGL, if gas is not supplied is about Rs.253Crs per annum without actually availing energy, as per current PPA conditions with alternate fuel clause.

(ii)        The proposals of VPGL for deletion of usage of alternate fuel would strengthen the petitions filed by the Applicants herein before the Commission and benefit the end consumers.

(iii)       The other three upcoming projects may also come with similar proposals in which case the risk of payment of fixed charges due to fuel supply risk would be mitigated (Rs.1020 Crs per annum for all the four upcoming projects).

 

6.         Further, the Committee made some recommendations to GoAP, which are as follows:

(i)         Deletion of usage of alternate fuel provision from the definition of the ‘Fuel’ making natural gas as the only fuel for generation of electricity by VPGL.

(ii)        Supply of existing gas to existing gas-based power projects and new gas to upcoming four gas-based power projects, including VPGL, on pro-rata basis.

(iii)       To permit VPGL to sell excess capacity of 18.5MW over and above the PPA capacity (370 MW) to third parties.

(iv)       Recovery of Foreign Debt Service Charge (FDSC) shortfall in first two years (up to 31-03-2008) by extending term of the FDSC payment period.

(v)        Extension of PPA term by 8 years i.e., up to 23 years from the existing 15-year period.

(vi)       Reimbursement of full fixed monthly transportation charges during the period of non-supply /partial supply of natural gas till 31-03-2008, if GAIL does not agree to levy transportation charges proportionate to gas supplied.  GoAP to pursue with Ministry of Petroleum & Natural Gas (for short ‘MoP&NG’) on this issue.

(vii)      GoAP to take up with MoP&NG for directing ONGC and GAIL for allocating natural gas from new sources to the upcoming gas-based power projects till their firm allocations are met.

(viii)      Incorporation of suitable amendments for non-levy of Liquidated Damages (LD), Disincentives and non-operation of Default clause, due to non-availability of natural gas.

(ix)       Supply of 1.64 MCMD gas for a period of 7 days from current supplies of natural gas to enable the company to declare COD (Commercial Operation Date).

(x)        To incorporate suitable clause in the proposed amendments to make applicable the “Committed Incentive Energy” (for short, CIE) clause with effect from and including the Tariff Year in which Natural Gas is available for PLF of 85% or above.  If the company achieves actual PLF between 80% to 85%, then the incentive would be paid at the CIE rate of Rs.0.0699 per unit as per the existing PPA provisions.

(xi)       To incorporate suitable clause in the proposed amendments for recovery of additional revenue loss, if any, by way of protecting the FDSC payment and extending the PPA term, due to change in gas availability assumed by VPGL.  The clause should also reflect that in case the gas availability is more than what is assumed by VPGL then the PPA term is to be modified to pass on the benefit to APDISCOMs.

 

7.         Based on the above recommendations, the Applicants proposed amendments to the PPA entered into between them and VPGL with the latter’s concurrence and thereafter they were submitted to Government for approval. Government after detailed examination and noting that no additional financial commitment has arisen in the amendments proposed, accepted the recommendations of the Committee and conveyed approval for the amendments proposed with a request to take further necessary action.  The brief details of the amendments proposed and submitted to the Commission for consent in the petition herein are given in Annexure – I.

 

 


CHAPTER – II

OBJECTIONS / SUGGESTIONS BY GENERAL PUBLIC

 

8.         The Commission invited objections and suggestions on the proposed amendments to the PPA from the public and held public hearing. The Applicants were requested to publish a notice in prominent newspapers inviting public objections/suggestions. Accordingly, notification was published on 01.07.2006. The Commission received 6 objections. All these objections are kept in the Commission’s website www.ercap.org .

 

9.         The summary of the objection/suggestions of these six objectors is abstracted hereunder:

 

(1).       While some of the objectors have expressed the view that the financial burden on account of fixed charges liability will be reduced by the proposed amendment of deletion of alternate fuel clause, some others are of the view that the proposed amendments will increase the burden on consumers instead of reducing it.

 

(2).       The computation of the net loss of Rs.54 Crores stated as being incurred by VPGL in the process as at the end of the extended period of the agreement on NPV (net present value, at a discounting factor of 10 per cent) basis is questioned by many objectors on the following grounds: -

 

(a).       Extension of agreement by 8 years

The period of extension of agreement by 8 years is not warranted since the projected non-supply/partial supply of gas is mere 2 years.

 

(b).       O & M Expenses:

(i).        O & M charges of Rs.710 crores payable during the extended 8-year period of agreement are excessive.

 

(ii).       The useful life span of the plant should be increased by 15 to 20 years when R &M (renovation and modernization) is taken up as in the case of APGENCO (the GoAP-owned power generating company) plants.

 

(c).       Revenue from sale of surplus power

            Revenue earned by developer through the sale of surplus power was under-estimated on account of the following:

(i).        Only 15-year period is reckoned for the purpose instead of all the  23 years.

 

(ii).       The sale price of Rs.1.10 per unit adopted in the computation of revenue from the sale of surplus power is conservative.

 

(3).       The following points are also raised in connection with sale of surplus power:

(a).       The surplus capacity is not specifically mentioned in the proposed amendments leaving scope for sale of energy corresponding to a capacity in excess of 18.5 MW now declared.

 

(b).       The sale of surplus power should be  limited to only 3rd parties. Wheeling for captive use should not be allowed.

 

(4).       Other benefits allowed to Developer to compensate for loss:

(a).       The developer should not be allowed to have the benefit of waiver of liquidated damages by extending SDOC (Scheduled Date of Commissioning).

 

(b).       Committed incentive energy of 5% should be supplied from CoD and no exemption should be allowed even prior to the tariff year in which gas is available for generation of energy up to 85% PLF or above.

 

(c).       The developer should not be relieved from the liability to pay Disincentive if the PLF falls below 68.5%.

 

(5).       Other issues

(a).       Transportation charges paid if any by the developer during the period of non-supply of fuel up to 31-03-2008 should not be reimbursed.

 

(b).       If the gas prices increase, there should be a cap on the variable cost corresponding to the highest tariff for any coal-based station in the State.

 

(c).       After the loan component in the OFC (other fixed charges) is fully recovered, the benefit of reduction in fixed charges should be passed on to the consumers.

 

(d).       The clause 5.2 (e) which provides for payment of fixed charges in proportion to the availability of gas should continue to be operative beyond 31-03-2008 also.  Payment of full fixed charges upfront every month and adjustment at the end of the year is un-warranted.

 

(e)         It is the declared policy of Government of India (GoI) that the fuel risks devolve on the developer. The policy resolution of GoI dated
6-11-1995 was included in the PPAs concluded earlier, e.g., with M/s. Spectrum, M/s. GVK etc., which has not been done in the present case.

 

(f)          The benefit of re-scheduling of loans by the developer in the present low-interest scenario shall be passed on to the consumers.

 

(g).    A clear picture of gas availability is not made available to the public even now.

 

 


CHAPTER – III

RESPONSE OF APPLICANTS TO THE OBJECTIONS / SUGGESTIONS RECEIVED

 

10.       The Commission directed the Applicants to submit replies to the objections / suggestions of all the six objectors On behalf of the Applicants, the CE(IPC), APPCC, in letter dt: 14-07-2006, furnished written responses on the above objections, which can be summarized as follows:

 

(i).        With the proposed amendments, VPGL would be receiving fixed charges for the energy generated using natural gas only and that would mitigate risk of payment of fixed charges if gas is not available or is inadequately available, for whole of the PPA period.  The proposed amendments are beneficial to the end- consumers by utilizing the plant to the extent of availability of gas.

 

(ii).       VPGL has not proposed any renovation and modernization as mentioned by the objectors, but only informed that as per the manufacturer’s recommendations and O&M agreement entered into , it has to carry out major maintenance and overhaul of the plant in every 3rd year of operation, incurring expenditure.   It has not proposed any shutdown of the plant up to 31-03-2008 as mentioned by the objectors.  It has assumed partial availability of natural gas up to 31-03-2008 and generation proportionate to the gas availability.  Since no renovation and modernization has been envisaged, the question of increase in the useful life span of the project as raised by the objectors does not arise.  The plant can run beyond 23 years as suggested by the objectors, but by incurring additional expenditure for major maintenance and overhaul, every 3 years.

 

(iii).      As per the PPA provisions, the installed capacity allowed is a maximum of 370 MW and even in case the demonstrated capacity is higher than 370 MW, VPGL cannot declare availability at more than 370 MW for APDISCOMs.  Therefore, the question of purchase of power over and above 370 MW by APDISCOMs does not arise.

 

(iv).      As per the proposed amendments, VPGL is permitted to sell excess capacity over and above the installed capacity.  During the period of non-availability / partial availability of natural gas, it cannot declare even the availability equivalent to the installed capacity of 370 MW, as such, during such periods, VPGL will not have excess capacity to sell to third parties as apprehended by the objectors.

 

(v).       As per the PPA dated 18-06-2003, VPGL has to achieve SDOC of the 1st unit by 18-10-2005 and the project by 18-01-2006, respectively.  Liquidated damages are to be levied for non-achieving SDOC of the project by 18-01-2006.  However, SDOC shall be extended day for day for any delay in providing inter- connection facilities 3 months before the SDOC of the 1st unit.  VPGL in its letter dated 12-05-2005 informed that 85% of the project construction had been completed and requested to provide start-up power.  Due to non- availability of natural gas, the Applicants have not provided inter- connection facility and startup power.

 

(vi).      As VPGL has accepted for deletion of Alternate Fuel clause, in the event of non/partial availability of natural gas, it would not be in position to declare availability of up to 80% PLF and would be losing proportionate fixed charges due to non-availability of natural gas.  Levy of disincentives for not declaring required availability would be penalizing it twice for non-availability of natural gas.  For that reason, the request of VPGL for non-levy of disincentives due to non-availability of natural gas is accepted.  

 

(vii).     The request of VPGL for the full reimbursement of fixed monthly transportation charges that will be levied by GAIL during the period of non-supply / partial supply of gas was accepted by the Government and it was decided to pursue with GAIL for levy of transportation charges proportionate to gas supplied.

 

(viii).     The objectors have presumed that VPGL would be recovering the total OFC during the extended period of agreement.  This is not correct as, even with the extension of the PPA period up to 23 years, VPGL would be still losing about Rs.54 crores (NPV).

(ix).      GAIL has laid the gas pipeline for the project.  As per the Gas Supply Agreement entered into by VPGL, the gas drawal date is from July 2005. The Tariff Commission has conducted a study on the high transmission charges being collected by GAIL for the existing projects and furnished detailed report to MoP&NG for implementation of the recommendations.   The Tariff Commission concluded that GAIL is collecting high transmission charges and computed normative tariffs for the period from 2005-06 to 2009-10.  The Tariff Commission recommended that it would be appropriate to charge tariffs based on the actual quantity of gas supplied.

 

(x).       GOAP/ APTRANSCO are constantly bringing to the notice of Hon’ble Prime Minister, Hon’ble Minister for Petroleum & Natural Gas for causing instructions to ONGC and GAIL for augmenting the supply of natural gas to the existing and upcoming gas- based projects in AP, keeping in view the interest of end -consumers.

 

(xi).      The GoI resolution dated 06-11-1995 was not included in the PPAs of upcoming four gas-based projects.  However, the provisions regarding procurement of fuel in the PPAs of upcoming gas based projects are similar to those available in the PPAs with GVK and Spectrum.

 

(xii).     The project is a tariff-based project. Rescheduling of loans by VPGL has no bearing on the tariff, unlike in the case of capital cost- based projects.

 

 

 


CHAPTER IV - PUBLIC HEARING

 

11.       The Commission heard the Applicants and the Objectors who wanted to be heard in person, during the public hearing conducted in the Court Hall of the Commission on 17-07-2006 and again on 27-07-2006.  On 17.07.2006, the representative of the Applicants, Sri. Srinivas, after brief explanation of the background of the need for the proposal to amend the PPA (as outlined in para 1), made the following submissions:

 

Even though at the time of granting consent, the Commission was assured of availability of natural gas for the entire period of PPA, GAIL is unable to meet its commitment.  Therefore, VPGL will be forced to declare availability by use of costly alternative fuel for generation of electricity; even otherwise, it would be burden to the end consumers to pay fixed charges without drawal of energy due to costly fuel. As GAIL is not in a position to supply the allocated quantity of natural gas to VPGL in the near future, APTRANSCO and other Applicants herein filed petitions against 4 gas-based power projects, including VPGL, with prayer to delete the usage of alternate fuel from the definition of Fuel in the PPAs, which are pending with the Commission. In the meanwhile, GoAP negotiated with the 4 gas -based power project developers including VPGL, who accepted not to use alternate fuel till 01.01.2007.  On 02.03.2006, VPGL submitted a proposal to GoAP, - which decided to refer the same to a Committee constituted vide G.o.MS.No.18, Energy (Power-I) Dept. dated 25.02.2006 and to hold discussion with VPGL.  After detailed deliberations, the Committee noted that the proposal of VPGL for deletion of usage of alternative fuel would benefit the end consumers and recommended for supply of available gas to existing projects and new gas to upcoming projects, to permit VPGL to sell excess capacity of 18.5 MW over and above the PPA capacity (370 MW) to third parties, recovery of Foreign Debt Service Charge (FDSC) shortfall in first two years (up to 31.03.2008) by extending the term of the FDSC payment period and extension of PPA term by 8 years i.e., up to 23 years from the existing 15-year period. Based on the above recommendations, which were accepted by the GoAP, it is proposed to incorporate the proposed amendments to the PPA with VPGL and it is prayed that consent may be granted for execution of such amended agreement by the Applicants with VPGL.  It was also stated, among others things, by the said representative that the APDISCOMs have the option to buy back the project at the end of the term of PPA, in the context of O & M expenses.

 

12.       Apart from the representative of the Applicants, two Objectors made oral submissions on 17-07-2006, as follows.

 

      (i)            Sri A.Punna Rao of Vijayawada re-iterated the points mentioned in his written response and pleaded that these projects be taken over by GAIL/NTPC/APGENCO, citing the example of Dabhol Project.

 

    (ii)            Sri. K. Raghu of Hyderabad made a presentation on various issues concerning the proposed amendments, apart from the points raised in the written submissions. He specifically pointed out the impact of word “interalia” used in clause 5.2 A and requested for its deletion. He also made a strong plea to retain the alternate fuel clause on the ground that it can be made use of whenever gas prices exceed the prices of alternate fuels in the long time horizon of the life of PPA.

 

13.       During the hearing on 27-07-2006, the four other Objectors made submissions before the Commission as follows:

 

      (i)            Sri. B.V. Raghavulu, Secretary, AP State Committee CPI (M), while reiterating the written submissions made earlier which, inter-alia, state that the proposed amendments are meant to protect the interests of consumers, took objection to the violation of the GoI Resolution dated 06-11-1995 which relieves the State Electricity Boards from the fuel supply risk. Regarding the O&M expenditure, he requested the Commission to work out a feasible monitoring arrangement to ensure that this additional expenditure is reasonable. He stated that the alternate fuel clause should be deleted without any concessions to the Developer.  He also said that there is no need to extend the period of agreement and also that 3rd party sales are not necessary and gas transportation charges need not be paid when there is no gas supply.

 

    (ii)            Sri. M Thimma Reddy, Convener, Peoples Monitoring Group on Energy Regulation, objected to the very consideration of  the proposed amendments on the ground that the Developer did not comply with the earlier Order dated 14-12-2004 of this Commission.  While alleging that the amendments are aimed at mitigating the risks of developer during the period of non-availability of gas (up to 31-03-2008), he pleaded that SDOC should be postponed to the date when gas would be available to operate the plant at 85% PLF so that the consumers are totally relieved of the fixed charges. He also objected to the proposal for supply of gas to this Developer for 7 days by diverting the gas meant for the existing gas projects.  The starting point should be taken as 01-01-2007 as per order dated 14-12-2004 of the Commission and not 01-04-2006 as proposed in the amendments.  He further stated that the recommendation of the GoAP Committee and the amendments now proposed do not tally fully. The objector additionally raised the issue of availability of alternate fuels in sufficient quantities besides seeking a clarification on whether the project is designed for dual fuel usage or not.

 

   (iii)            Sri. K.P. Rao, a retired IDAS officer and former Member (E&C) of the Central Electricity Authority, while re-iterating the issues raised in his written response, made a specific observation that the Fuel Supply Agreement is totally silent on the crucial issue of supply of gas in future.  He re-iterated the point that the fuel risk has to be borne by the Developer as per the policy of GoI.  He further insisted upon a cap on variable charges.

 

  (iv)            Sri. M. Venugopala Rao, Special Correspondent of the Telugu Daily, Praja Shakti, who also contended in the written submissions made earlier that the proposed amendments are meant to protect the interests of consumers, made elaborate submissions during the hearing on various issues covered in the written response of the Applicants.  One specific point made by him is that the Developer is not entitled for compensation of O&M expenses during the period of non-supply of gas which would not be actually incurred.  He insisted that the gas transportation charges are payable only from the date of synchronization.  He did not agree with the response of the Applicants that levy of dis-incentive as well as proportionate payment of fixed charges to the extent of availability of gas would be resulting in penalizing the developer twice for the same deficiency, on the ground that the APDISCOMS have to procure power at a higher cost to the extent of shortfall on this account. He also filed further written submissions later (on 31-07-2006) contesting some of the responses given by the Applicants on the objections raised earlier in writing.  While suggesting to carefully examine the implications of extending the PPA period beyond 23 years, he pointed out that the Developer would have a surplus of Rs. 81.49 crores as at the end of the 23rd year instead of a deficit of Rs.54 crores, if the additional revenue of Rs.135.49 crores on account of sale of surplus power is taken into account, which is not shown by the Developer.   He also stated that the contention of the Applicants that they have the option of buy-out of the plant is not correct as the existing terms of PPA do not provide for the same.

 

14.       During the public hearing on 17.07.2006 and 27.07.2006, the Commission sought certain clarifications with regard to facility created for alternate fuel. It was stated by the representative of the Applicants that in view of the proposed amendments, the risk of fuel availability is now vested with VPGL and the APDISCOMs have the advantage of mitigating the risk completely.  While the APDISCOMs have got significant advantage of mitigation of risk, VPGL may get small advantage by seeking alternate use of the facilities created for alternate fuel, which are not integral to the main plant.   This advantage may come after assuming the major risk on availability of fuel.  The APDISCOMs, therefore, submit that the Commission may take a view in the matter considering the entire proposition in the proposed amendments. 

 

 

CHAPTER - V 

RESPONSES OF APPLICANTS TO OBJECTIONS RAISED IN

PUBLIC HEARING

 

15.       The Applicants submitted their responses in their letter dt: 03-08-2006 on the oral and written submissions made by objectors during the hearing on 17-07-2006 and 27-07-2006 by the objectors and clarifications sought by the Commission and also filed further replies along with an affidavit filed by the CGM (Comml & RAC) on 23-09-2006, which can be summarized as follows:

(a).       With the deletion of alternate fuel clause, the fuel supply risk is transferred to the Developer.  The proposed amendment facilitates the mitigation of risk of consumers in the beginning and allows the Developer to recover the loss later.  The earlier proposal of not using alternate fuel till 01-01-2007 is only temporary relief, whereas the present amendments will mitigate the fuel risk completely as the liability for payment is limited to the extent of availability of gas.

(b).       Any PPA provides for variable cost as pass-through.  Putting a cap on variable cost is not envisaged in any PPA.  Possible hike in gas prices and the fuel price risk applies to all fuels including coal.  However, as per the provisions of the PPA (Article 3.3) the cost of the natural gas to be paid is limited to the cost of natural gas supplied by GAIL or from alternative supplier, whichever is less.

(c).       Major part of the O&M expenses pertains to long term service agreement for repair and maintenance which contain both fixed and variable components and it is informed by Developer that the O&M organization for the project is fully in place and hence the costs remain un-changed.

(d).       The O&M cost per year during the extended period of 8 years would be the same as that incurred during the original 15-year period of the Agreement.   Even with the same level of O&M charges and 8-year extension, the Developer will incur a loss of Rs.54 crores at 23rd year on NPV basis.

(e).       Having regard to the concerns expressed by some objectors in allowing the extension of agreement period beyond 23 years, the amendment is modified by deleting the words “onwards” after April 2008 in Article 5.2 A.

(f).        Similarly the word “interalia” is also deleted in clause (C) of Article 5.2 A.

(g).       Regarding the payment of gas transportation charges in proportion to the gas supply, the GoAP has taken up the issue with the MOP&NG to ensure implementation of Tariff Commission recommendations. Further, M/s.GAIL informed that after the testing of the plant of M/s.VPGL, transport charges will not be claimed when there is no supply of gas, as in the case of M/s.GVK plant , but the Developer has to give a letter to GAIL to make payments if  MoP&NG insists on payment of these charges.

(h).       The Committee accepted the proposal of the Developer to sell surplus power in excess of 370 MW to third parties and payment of other fixed charges as the entire amendments are considered as ‘composite’ in nature.

(i).        The amendments allowing concessions are part of the amendments, which are ‘composite’ in nature.

(j).        It is true that the option to sell or to retain the plant after the expiry of the agreement period rests with the Developer as per the PPA terms.

(k).       It is not correct to say that the proposed amendments do not tally with the recommendations of the State Government Committee.

(l).        The suggestion for retention of alternative fuel clause cannot be considered as there is immediate risk of payment of full fixed charges.  Further, it is unlikely that in the future, the  price of naphtha would become less than that of natural gas.

(m).      The benefit to the Developer on account of use of the facilities erected for alternate fuel, for alternate purpose, is not significant and hence can be ignored.

(n).       Waiver of disincentive was accepted by the Committee as the availability of gas is beyond the control of the Developer.

 

 

Modifications to the proposed Amendments pursuant to objections raised in public hearings.

 

16.       In view of the concerns expressed by the objectors during the public hearings, the APDISCOMs proposed certain modifications to the proposed amendments in letter dt: 03-08-2006, which are shown with marked-up changes as accepted by VGPL in Annexure – II (A).  APDISCOMs have also filed additional amendments on           23-09-2006 which is also indicated under Annexure – II (B).

 

17.       On 06-11-2006, the CGM (Comml & RAC) on behalf of Applicant No. 4 and the other three APDISCOMs filed an affidavit stating that

(a)                By letter dated 04-10-2006, the APDISCOMs proposed additional amendments to the PPA (as indicated in Annexure – III) and requested VPGL to furnish its acceptance. 

(b)               By its letter dated 24-10-2006, VPGL responded as follows:

 

Proposed modification to Para 1 of Article 2.1:

The existing language (as per the Amendment Agreement, to the Power Purchase Agreement, dated 5th June, 2006 initialed by the Company and APDISCOMs) is totally unambiguous and warrants no further clarification.  As per the existing language, the company agrees to sell and APDISCOMs agree to buy, for the consideration of Capacity Charge, the installed Capacity of the Project. Installed Capacity is a defined term in the PPA, which, inter-alia, mentions the limit of 370 MW. No further modification to the wordings as already agreed and initialed between the parties, is necessary.

 

Proposed modifications to Para 1 and Para 3 of Article 3.2:

The modifications proposed are agreed.

 

Proposed modification to Clause 6.2 of the PPA:

                                                               i.      The Subject clause 6.2 deals with the option of APDISCOMs to buy out the project and the mechanism thereof.  This clause has remained unchanged since 31st March 1997, when the initial PPA was executed.  Further, this cannot be constructed as a consequential change related to deletion of alternate fuel clause etc.

                                                             ii.      We believe that no change to the clause is therefore required.

 

(c)                The Commission may therefore include the proposed modifications in the amendments while issuing consent to the amendments.

 

 

CHAPTER – VI

DETAILED PRESENTATION TO COMMISSION BY APPLICANTS

 

18.       In response to the request of the Commission to make a detailed presentation on proposed amendments with regard to deletion of the alternate fuel provisions in the PPA, a presentation was made by APDISCOMs on 16-11-2006.  During the presentation, the stand of APDISCOMs on the issues raised by Objectors was explained in detail, as follows:

 

(a)        In response to the loss calculation due to non/partial availability of fuel, it was explained that VPGL initially proposed 01-03-2006 as notional COD for calculating the loss.  After the negotiations, it was accepted that for this purpose, 01-04-2006 would be the notional COD.  The PPA will, however, be effective from the actual COD, declared as per the terms of PPA.

(b)        With regard to objection that recovery of fixed charges should be considered by adjusting the total capacity, including the excess capacity and revising the threshold level of PLF proportionately, it is explained that as per the PPA, liability to pay capacity charges (fixed charges) is limited to a maximum capacity of 370 MW only and that the principles of amendment to the PPA are based on “composite scheme”, which captures compensation for the estimated loss incurred due to alterations in the fuel clause till 31-03-2008, by allowing third party sales and extension in term of the PPA.  Thus any amendment needs to be viewed in line with these principles.

(c)        In response to the objection that VPGL should dispose of  its excess capacity only after achieving 100% PLF of its permitted installed capacity of 370 MW and that periodical testing of the installed capacity of the plant should be conducted to ascertain the actual excess capacity, it was submitted that VPGL shall not declare excess capacity to third party without providing an Availability Declaration up to the installed capacity to the APDISCOMs and it shall always inform capacity committed to third party out of the Excess Capacity for such Settlement Period in addition to Availability Declaration.

(d)        In response to the objection that the proposed amendment neither has a limit on sale of excess capacity nor does it place any restriction on sales only to third party and that the impact on APDISCOMs by this third party sale is not analysed, it is explained that as per the clarificatory amendment, VPGL shall be free to dispose off capacity not exceeding 18.5 MW (the “Excess Capacity” over and above the Installed Capacity) to any third party and that relevant charges as per the Commission’s Open Access Regulations would be applicable.

(e)        In response to the apprehension that due to partial availability of fuel, the PPA term has been extended till 23 years and in case 1.64 MMSCMD gas is not available fully or partly from April, 2008 onwards, the period of PPA will have to be further extended, it was submitted that upon supply of such quantity of gas for a full month, for the first time, VPGL shall not make any further claims of loss incurred whether or not there has been a shortfall in gas supply and thereafter, the fuel risk vests with VPGL.  It was further explained that in case the supply of fuel during the period between the Project COD and 31.03.2008 is higher than the projected availability of fuel, agreement is to be amended adjusting the loss by proportionately reducing the term of PPA.

(f)         In response to the apprehension that APDISCOMs will pay the same fixed charge of Re.0.699 per unit even during the extended period of PPA without any financial commitment or factoring the benefit of reduction of loan component in OFC, the response of the APDISCOMs is that amendments to the PPA are “composite” in nature and the computation of the loss to VGPL and additional revenue likely to accrue to it are based on the above tariff, which is equal to the OFC. Still the VGPL, on NPV basis incurs a loss of Rs.54 cr.

(g)        In response to the apprehension about alternate fuel supply in case of non-availability or increase in prices beyond control and minimum fuel off-take, clause 1.1.27 should be appropriately modified instead of deleting it, the response of the APDISCOMs is that during the initial discussion with VPGL, APDISCOMs proposed to use natural gas as fuel or any alternate fuel whichever costs less for generating the same power and VPGL submitted the proposal with complete deletion of alternate fuel clause for whole term of PPA in consultation with lenders of the project.  As per the past data, the cost of generation with Naphtha as a fuel is higher than that with natural gas and therefore, APDISCOMs have not considered the alternate fuel option.  It was also clarified that as against gas price of USD 4.9 / MMBTU, Naphtha prices are at USD 16.15 / MMBTU.

(h)        In response to the apprehension that FSA (Fuel Supply Agreement with GAIL)is not co-terminus with the extended term of PPA and that there is no FSA for third party sale of power for the capacity of 18.5 MW, the response of the APDISCOMs is that the responsibility for extension of FSA beyond 15th year as well as for procurement of gas for 18.5 MW is vested with VPGL and if FSA is not extended, VPGL cannot declare capacity and recover charges during the extended period.

(i)         In response to the apprehension that payment of fixed charges for deemed generation due to abnormal price of gas that may arise at any point of time remains unresolved, the response of the APDISCOMs is that price risk applied to all types of fuels, including coal.  However, GoAP has taken up the issue of a Gas Regulator for pricing of natural gas with the GoI.

(j)         In response to the apprehension that payment of transportation charges to GAIL under partial or non-availability of fuel up to 31.03.2008 is being imposed on the consumers, it is to submit GAIL has informed that once the Plant testing is completed, it will not raise invoice for transportation charges.

(k)        In response to the objection that curtailment of gas supply to the existing plants and diversion of gas to VPGL amounts to breach of understanding, it is submitted that diversion is temporary and it does not breach the understanding.  Further, only variable charges are being paid to VPGL @ Rs.0.9183 / unit.

(l)         APDISCOMs consider that disincentives due to non-availability of natural gas may not be imposed when supply of fuel is beyond the control of VPGL.  APDISCOMs delayed declaration of COD by VPGL to prevent declaration on availability with alternate fuel, thereby mitigating the deemed generation payment. 

(m)       In response to the doubt whether CIE would be treated as deemed generation or incentive would be paid only on actual drawals, the response of the APDISCOMs is that CIE will be effective from and including that tariff year when gas is available for declaring availability of 85% and till such time VPGL would be able to recover fixed cost up to 80% PLF and incentive thereafter.

(n)        As stated by VPGL due to de-rating of the machine after 15 years, it would not be in a position to generate any additional capacity beyond Installed Capacity of 370 MW, and, therefore, the revenue is considered only for 15 years.

 

19.       The CGM (Comml & RAC) of Applicant No.4 submitted an affidavit dated:01-12-2006 on behalf of all APDISCOMs providing further clarifications as required by the Commission during the presentation, which are as follows:

 

(a)                                        As to whether transportation charges are payable even when no gas is supplied by GAIL and whether the proposed arrangement mitigates the position, it was clarified that while the position does not get mitigated in the PPA,GoAP has persuaded with GoI to collect transportation charges in relation to actual supply of natural gas.  It is understood that MOP&NG recently directed GAIL to collect transportation charges on the basis of average gas supply only, against the existing fixed normative value.  This position, if implemented, mitigates the fixed payment of transportation charges and gets linked to the actual supply of gas.

(b)                                       With regard to the validity of O&M cost estimates, the effect of the ‘combined’ scheme of the proposed amendments has been
re-computed on the basis of O&M costs as per CERC (Central Electricity Regulatory Commission) norms.  Even under such a scenario, it is estimated that VGPL would incur a loss of Rs. 14 Cr, on NPV basis. 

(c)                                        With regard to provision of O&M expenses during the extended period of PPA term, specifically towards the end of PPA term, it is submitted that in case the APDISCOMs propose to buy back the project at the end of the term of PPA, APDISCOMs would like to exercise the option on a fully operational plant rather than on a plant which require immediate overhaul. Therefore, besides regular O&M costs, VPGL would need to incur costs towards periodic major overhauls to keep the plant available to APDISCOMs.  In this connection, APDISCOMs have already submitted an affidavit dated 06.11.2006 proposing certain amendment to clause 6.2 of PPA.

(d)                                       With regard to compliance with provisions of Indian Electricity Grid Code (IEGC), as the gross installed capacity of the plant is expected to be 388.5 MW (370 MW to APDISCOMs and 18.5 MW to third party), it is clarified that as per clause 5.2(g) of IEGC, any Generating Unit over 50 MW size operating at or upto 100% of its Maximum Continuous Rating (MCR) should be capable of instantaneously picking up of 5% extra load when frequency falls due to a system contingency.  However, as per clause 1.6(iii) of IEGC, gas-based Combined Cycle Power Plants are exempted from the application of this provision.  As the power plant is a gas- based Combined Cycle Power Plant, it is exempted from meeting the requirements.

(e)                                        With regard to status of sale of excess capacity after the 15th year during the extended term of PPA, it is submitted that VPGL in its letter dated 24.11.2006 has stated that combined cycle plants have a capacity degradation profile, which is much steeper than the coal fired power plants and it apprehends that with revised provisions of clause 2.1 of the PPA, it will not realize even over the 23-year period from sale of surplus capacity, the net revenue which has been projected for the 15-year period.  Thus while VPGL can sell excess capacity to third parties even after 15th year, it may not be in a position to sell excess capacity consistently over the period as has been envisaged in the computations.  However, the Commission may take a view in this regard. 

(f)                                         With regard to creation of dual fuel facility and capital cost saving due to avoidance of creation of facilities for alternate fuel firing capability, it is clarified that VPGL implemented the project with dual-fuel facilities and it is possible that it might have saved certain capital costs on non-integral components of the plant and machinery.  VPGL further states that such costs are not substantial.  The Commission may take appropriate view in this regard.  

 

 

20.       On 14.12.2006 the Chief General Manager (Comml & RAC) of Applicant No.4  filed another affidavit on behalf of the Applicants No. 2 to 5 stating that –

 

      (i)            The proposed amendments submitted to the Commission on 06.06.2006 contemplate VPGL to recover the loss in Capacity Charge up to 31.03.2008 due to non/partial availability of natural gas by way of recovery of FDSC shortfall up to 31.03.2008 by extending the term of FDSC payment period, extension of PPA term by 8 years and permission for sale of excess capacity of 18.5 MW to third parties.

    (ii)            New Clause 5.2 A of the proposed amendments enables VPGL for recovery of additional revenue loss due to non/partial supply of natural gas beyond 31.03.2008 by way of protecting the FDSC payment and extension of PPA term.

 

   (iii)            Subsequent to public hearing on 17.07.2006 and 27.07.2006, the clause 3.2 of the proposed amendment regarding the protection for shortfall in FDSC payment upto 31.03.2008 was modified as “for the period up to 31.03.2008 or till such a later date, when full availability of natural gas of 1.64 MCMD for a full month for the first time”.  This modification was accepted by VPGL and submitted to the Commission on 06.11.2006 along with other modifications.

 

  (iv)            Since FDSC protection for any additional revenue loss for the period beyond 31.03.2008 is already incorporated in the Article 3.2, the FDSC protection under New Clause 5.2 A is repetitive and hence may not be necessary.  Further the “losses” estimated by VPGL is the loss in Capacity Charges due to non/partial availability of the natural gas.  Hence the word “losses/loss” is replaced by “loss in Capacity Charges” in New Clause 5.2 A. 

 

 

21.       In view of the above APDISCOMs submitted the modified New Clause 5.2 A substituting the words “losses/loss” with the words “loss incapacity charges” and deleting the reference to clause 3.2, as indicated as a separate item under Annexure - IV, and requested the Commission to take a view in the matter and include the proposed clarification in the amendments, while issuing consent to the amendments.

 

 


CHAPTER VII – COMMISSION’S ANALYSIS

 

22.       As can be seen from the foregoing, the proposed amendments are broadly aimed at mitigating the risk of payment of fixed charges in the event of gas being not available/partially available and consequently the VPGL declaring the availability of the power plant with costly alternate fuels viz., Naphtha or Low Sulphur Heavy Stock (LSHS) and the like as per the provisions of the PPA dated 18.6.2003.  Accordingly, the amendments centre around deletion of usage of alternate fuel from the definition of ‘Fuel’ in the PPA and making natural gas as the only fuel, besides addressing other issues like recovery of revenue loss likely to be sustained by VPGL (due to shortfall in full fixed charges arising out of shortage of gas leading to lower monthly fixed charges being paid based on the availability declarations till 31.3.2008 or till such time gas is available to the extent of 1.64 MCMD for a full month for the first time beyond 31.3.2008) by way of extension of term of FDSC payment period and of the PPA (with provision for adjustment of the period / term pursuant to changes from the gas availability projections as assumed) with due regard to revenue realization from sale of 18.5 MW of excess capacity, together with the O&M and major overhaul expenses to be incurred by the Company during the extended period of the PPA.  Further, the amendments also cover issues specific to gas as the only fuel but not being available to the required extent to enable the developer to comply with its obligations under the PPA in respect of achieving SDOC with consequent levy of liquidated damages/payment of interest on the cost of interconnection facilities, application of Disincentives, certain conditions of default, providing Committed Incentive Energy (CIE), etc.   Reimbursement of monthly gas transportation charges is also an issue.

 

23.       Against this backdrop and considering the various concerns/objections and suggestions voiced by/received from the objectors and the responses thereto of the Applicants, the Commission lists out the key issues to be dealt with, as under:

(a)                                                                                                    Whether there is sufficient justification for al together deletion of alternate fuel provision;

(b)                                                                                                   Whether the loss recovery arrangements are reasonable;

(c)                                                                                                    Whether the other consequential amendments due to gas being the only fuel and gas not being available to the required extent are in order;

(d)                                                                                                   `Whether reimbursement of monthly transportation charges is acceptable.

(e)                                                                                                    Other significant issues.

 

            In addition, the Applicants have specifically left some of the issues for the Commission to take a view thereon [Paras 19 (e), (f) and 21].  All these issues are dealt with hereinbelow:

 

 

Issue (a):        Whether there is sufficient justification for deletion of the alternate fuel clause:

 

24.       It has been argued time and again that the deletion of usage of alternate fuels from the definition of ‘Fuel’ in the PPA for mitigation of risk of payment of fixed charge in a situation of gas being partially available / not available would be valid only if the alternate fuels like naphtha, LSHS and the like are available in sufficient quantities, duly covered by fuel supply agreements for the life of the projects commensurate with the capacities of the projects to facilitate availability declaration by the developers on the alternate fuels and that there should be dual-fuel capability built into the projects.  Another point of view expressed is that the issue is not that of deletion of alternate fuel but of declaration of availability on alternate fuels resulting in payment of fixed costs for deemed generation and it would make sense to retain the option of using alternate fuels when the usage of alternate fuels becomes cheaper than that of gas at any point of time during the long life-span of the PPA, as it is difficult to predict as to how the prices of natural gas would compare in the long run in market conditions with the prices of naphtha, and other fuels. Added to this is the issue on the deletion of alternate fuel provision of some capital cost saving by VGPL on non-integral components of plant and machinery relating to alternate fuel firing capability, which after stating that is not substantial, the Applicants have left the Commission to take an appropriate view in that regard [paragraph 19(f)].

 

25.       Whether alternate fuels are available in sufficient quantities to facilitate the developer to declare availability and claim for fixed charges:- On this APDISCOMS vide their affidavit dated 23.9.2006, had stated that this is not in their purview.  On this, it is, however, to be appreciated that the alternate fuels that can be used as per the PPA dated 18-06-2003 for declaring availability are not just limited to Naphtha and LSHS alone but also include “like fuels”.  Inasmuch as there is a provision to use “like fuels”, it is difficult to presume that the alternate fuels will not be available to facilitate availability declarations by the Company and consequently prefer claim for full fixed charges.   Accordingly, the objection loses its force.

 

26.       Whether the plant has dual-fuel capability to generate on alternate fuel if required: On this, Chief Engineer (IPC)/APPCC vide letter dated:03.08.2006, had stated inter-alia, that “we have to reiterate that the company has proceeded with creating and constructing the plant with flexibility to operate the plant on alternate fuel(naphtha and LSHS).  This was required under the amended PPA dt: 18.06.2003 entered with consent of Hon’ble Commission.  With the facility, the company was assured for declaring availability of 85% with alternate fuel (in the event of non-availability of gas) to claim the fixed charge tariff and committed incentive”.

 

            In view of the above clarification, the apprehension that VPGL will not be able to declare availability on alternate fuels since the project does not have dual-fuel capability stands effectively addressed.

 

27.      Whether the suggestion to retain the option of using alternate fuel whenever it becomes cheaper merits consideration:  On this, the Applicants vide their Affidavit dated 23-09-2006 have stated that, if alternate fuel clause is retained, the VGPL would be assured of declaration of availability of 85% with alternate fuels (in the event of non-availability of natural gas), resulting in the payment of fixed charges throughout the PPA term from COD.  Under the proposed amendments, however, the fuel risk is entirely with the developer.  Also, it is unlikely that future price of naphtha would be less than that of natural gas. It was also stated that to the existing IPPs (independent power producers), due to alternate fuel provision, the Applicants are paying full fixed charges even though their generation is below threshold PLF.

 

            In view of the above clarifications, while the Commission is of the view that there is sufficient justification for deletion of the alternate fuel provision, the Commission also notes that the cost of the facility for storage and handling of alternate fuel created/required to be created in terms of the amended PPA dt:18.6.2003 has already been factored in the fixed costs of the plants. Since these costs will have to be defrayed by the APDISCOMS and their consumers through the power purchase costs, it would be useful to retain it for use at the Applicants’ instance, as and when (i) the generation cost with alternate fuels becomes lower at any point of time in future, and (ii) in case of other contingencies like shortage of power.  As a corollary to this decision, the Commission is not going into the question of the capital cost saving accruing to VGPL by the deletion of the alternate fuel provision.

 

 

Issue (b):        Whether the loss recovery arrangements are reasonable:

 

28.       As can be seen from the amendments proposed, the loss recovery mechanism broadly relates to compensation for the loss likely to be sustained by the developer during the periods of non-availability / partial availability of gas by way of extension of term of FDSC payment period and extension of agreement from 15 years to 23 years with due regard to the revenue realization from sale of excess capacity of 18.5MW, operation & maintenance (O&M) and major overhaul expenses to be incurred over the extended period of the PPA.  Several issues have been raised on the calculations relating to loss recovery, which are identified and dealt with hereinbelow:

 

29.       Revenue realization from sale of excess capacity of 18.5 MW:  The principal objection on this has been that whether the VGPL is entitled at all to sell the excess capacity inasmuch as the project cost would have included the capital cost of this excess capacity also. It was also pointed out that permitting the developer to dispose of the excess capacity over and above the installed capacity would be a violation of IEG Code clause 5.2 (g), which states that “All generating units operating at / upto 100% of their MCR shall normally be capable of (and shall not in any way be prevented from) instantaneously picking up 5% extra load for at least five minutes or within technical limits prescribed by the manufacturer when frequency falls due to a system contingency”.   It was further stressed that while the amendment proposes that the sale is applicable throughout the PPA period, the revenue realization is calculated only for a period of 15 years, while working out the loss the developer needed to be compensated for and also that a conservative figure for revenue realization of Rs.1.10/unit only is adopted, thereby understating the revenue from this source.  Further, certain discrepancies were also pointed out when compared with the report of the GoAP-appointed Committee viz., (a) capacity of 18.5MW not being indicated, (b) not limiting the sale of this excess capacity only to third parties with loss to APDISCOMS of applicable (cross-subsidy) surcharge, etc.,

 

30.       On the issue of whether, the Company is entitled to sell excess capacity; the Applicants have contended that as per PPA, the installed capacity is fixed at a maximum of 370MW even in case the demonstrated capacity is higher than 370MW.  On this, it is relevant that in terms of the Commission’s Order dt:12.04.2003 in O.P.No.2 of 2003 for the grant of consent to the amendment of original PPA dated:31.03.1997 with M/s.VPGL, too, the installed capacity is limited to 370MWs only. As such there need not be any objection if the excess capacity of 18.5MW is sold by the Company, after fully meeting its commitment of 370 MW to APDISCOMS, especially when the revenue realization from that sale is accounted for towards reducing the estimated revenue loss to be sustained by the Company for which it is to be compensated by way of extension of the PPA, etc.

 

31.       On the other issue of IEG Code coming in the way of disposal of excess capacity, the Applicants in their affidavit dated 01-12-2006 have essentially stated that as per clause 1.6 (iii) of the Code, Gas-based Combined Cycle Power Plants are exempt from the applicability of clause 5.2 (g) of the Code, and the VPGL plant happens to be one such Plant. Further, though this exemption is available only till Central Electricity Regulatory Commission (CERC) reviews the situation, yet in view of the fact that CERC has not yet removed the exemption, the Commission can only be guided by the existing provisions of the Code, which place no restrictions on the disposal of the excess capacity.

 

32.       Coming to the issue of not taking into account the revenues from sale of excess capacity beyond 15 years, the Applicants in their affidavit dated 23.9.2006 have intimated the Commission that the Company has in turn informed them that due to deration of the machines after the 15th year, this surplus power of 18.5 MW would not be available. Later on, the Applicants, through their affidavit dated:1.12.2006, while responding to the same query raised by the Commission during the course of the presentation made to it on 16-11-2006, have brought to the notice of the Commission the reply furnished by M/s.VPGL in their letter dated  24-11-2006 as detailed hereinbelow, that while the Company can sell excess capacity to third parties even after the 15th year, it may not be in a position to sell the said excess capacity consistently, over the 23-year period, as has been envisaged in the computations, and requested the Commission to take a view in this regard:

“Combined Cycle Plants have a capacity degradation profile, which is much steeper than the coal fired power plants.  CERC had issued a draft notification on ‘operational norms for Thermal Generation of Tariff in 2000 and subsequently had constituted an expert group involving CEA, NTPC, NLC and MSEB to review the submission of respondents.  As can be seen from the CERC draft petition and the comments, a minimum capacity degradation margin of 3.5% of the installed capacity was deemed necessary for CCGT plants (i.e for 388.5 MW power project, a deration by 13.6 MW appx.).  The company has entered into a long-term maintenance agreement with General Electric U.S.A (GE) under which GE has guaranteed a degradation profile, which allows for a capacity degradation as high as 4.72%.  The above technical requirements was recognized in the PPA, whereby under clause 9.2 (g) (ii), the company was required to maintain a minimum reliable capacity equal to 97% of the installed capacity, thus allowing for 3% degradation (11.66 MW).  However, post the Public hearing on the captioned subject, APTransco required the company to further amend clause 2.1 of the PPA to incorporate the following ------ The company shall be free to dispose off capacity not exceeding 18.5 MW (the “Excess Capacity”) over and above installed capacity to any third party as it deems fit, ……………….. Provided this disposal of excess capacity shall be subject to:
(a) ………………………..(b) the company shall not declare excess capacity to third party without providing an availability declaration up to installed capacity to the APDISCOMs; and (c) the company shall always inform along with availability declaration the capacity committed to  third party out of the excess capacity for each settlement period.  With the provision (b) as above, the Company can, during the entire PPA term of 23 years, sell surplus capacity on any day only after declaring the installed capacity of 370 MW (in accordance with provisions of schedule D in the PPA).  This effectively means that the capacity degradation (of upto 11 MW) which was earlier allowed to the company under the PPA would now have to be adjusted fully against the surplus capacity.  As is apparent from the above, real surplus capacity which the company would now be able to sell (to recover a part of the losses) over a period of 15 years will be significantly reduced and may not possibly be even 50% of what was assumed and agreed (sale of 18.5 MW at 85% PLF level) between the Company and APTransco.  In other words, we strongly apprehend that with the revised provisions of clause 2.1 of the PPA, the company will not realize, even over the 23 year period from sale of surplus capacity, the net revenue, which had been projected for the 15 year period and based on which the loss recovery proposed was agreed………”. 

 

33.       On this, Commission is of the view that, the conclusion arrived at by the Applicants herein, based on the views of VPGL quoted above, that while the company can sell excess capacity to third parties even after the 15th-year, it may not be in a position to sell the said excess capacity consistently over the 23rd-year period, as has been envisaged in the computations, is acceptable and accordingly, feels that the concerns of the Objectors on this issue have been adequately addressed.

 

34.       On the apprehension of loss of (cross-subsidy) surcharge, etc. the Commission likes to clarify that as the generating plant does not fulfill the essential requirement of having been set up by the developer “to generate electricity primarily for his own use” of a “captive generating plant”, as defined in Section 2(9) of the Electricity Act, 2003, there is no question of the developer being able to divert the electricity towards ‘captive’ consumption, thereby depriving the APDISCOMS of the (cross-subsidy) surcharge, etc., leviable on third party sales.

           

35.       The Commission also finds the revenue realization @ Rs.1.10/unit from sale of excess capacity arrived at after negotiations by a high-powered Committee to be not unreasonable.

 

36.       On the other issue of discrepancies pointed out when compared with the report of the GoAP-appointed Committee, the Applicants vide their letter dated 3.8.2006 has proposed certain modifications to the proposed draft amendment agreement incorporating the following provisions:

(i).        The Company cannot dispose off capacity exceeding 18.5 MW.

(ii).       The excess capacity can be disposed off only to any third party.

(iii).      Disposal of excess capacity is subject to:

(a)    The Company complying with all applicable laws, rules and regulations made thereunder:

(b)   The Company shall not declare excess capacity to third party without providing an availability declaration upto installed capacity to the APDISCOMS; and

(c)    The Company shall always inform along with availability declaration the capacity committed to third party out of the excess capacity for each settlement period.

 

The above amendments are acceptable to the Commission.

 

37.       Whether computation of O&M expenses to be incurred over the extended period of the PPA is accurate: It was pointed out that an amount of Rs.710 Crs is to be expended from the 17th year to 23rd year towards O&M and major maintenance of the plant, working out to about Rs.1.92 Crs per MW in sharp contrast to its capital cost of Rs.2.82 Crs per MW based on the capital cost of Rs.1043 Crs, which is on the high side when compared to renovation and modernization (R&M) of some of the units of APGENCO at only half the above cost while achieving substantial improvements in PLFs, capacity and increase in useful span of the plants by 15 to 20 years. Attention of the Commission was specifically drawn to the magnitude of such expenses in the 22nd year (Rs.180 Crs) in the year immediately preceding the end of the PPA term as against only Rs.65 Crs per annum in the preceding as well as the succeeding year. It was also contended that if the above expenditure is estimated realistically, the supposed loss of Rs.54 Crs to the company after the 23rd year may not be there.

 

38.       On this, the Applicants have stated that the company has not proposed any renovation and modernization and informed that it has to, as per their manufacturer’s recommendations and O&M agreement entered into, carry out major maintenance and overhaul of the plant in every 3rd year of operation incurring expenditure. The Applicants have further mentioned in their affidavit dated 23-09-2006, that the company has stated that (i) the O&M costs need to be incurred so that the plant should be operational to make its maximum capacity available for the APDISCOMs.  Therefore, besides regular O&M costs, major overhaul costs, which fall due periodically, also need to be incurred, (ii) these costs incurred during first 15 years on an average are more or less the same as the O&M costs incurred during the last
8 years and (iii) in case the APDISCOMs propose to buy back the project at the end of the term of PPA, they would like to exercise the option on a fully operational plant rather than on a plant which requires immediate overhaul.  They have further submitted that the company had informed that the major part of the O&M expenses consists of payments towards the long-term service agreements for repair and maintenance of the power plant.   Payments under the said service agreements have two components: Fixed component, payable per month as also linked to specific milestones, and Variable component, linked to fired hours, irrespective of the percentage of loading of the plant.  The above payments under long-term service agreement to a large extent would remain invariant of the fact whether the plant runs under part or full load. Apart from the above, the O&M organization for the plant of the project is fully in place and personnel and related costs, which constitute a major portion of the balance O&M costs, would also remain unchanged.  Subsequently, however, the Applicants while responding to the query about comparison with CERC norms for O&M expenses and major overhauls raised by the Commission during the course of presentation made on 16-11-2006, have essentially stated in their affidavit dated:01-12-2006, while reiterating some of their submissions made earlier, that to examine the veracity of the O&M cost estimates, the effect of the “combined” scheme of the proposed amendments had been recomputed considering O&M cost as per CERC norms and it was noticed that under such a scenario, the company would incur loss of Rs.14 crores on NPV basis, as opposed to Rs.54 crores computed by the company.  Having stated thus, the Applicants have requested the Commission to include an amendment to clause 6.2 of PPA originally proposed by them but not accepted by VPGL as mentioned in para 17(b) above.

 

39.       As can be seen, it is obvious that the O&M and major overhaul expenses adopted by the company are on the high side compared to the CERC norms.  However the company earlier on, while justifying these higher costs, had stated inter-alia, that in case the APDISCOMs propose to buyback the project at the end of the term of the PPA, they would like to exercise the option for a fully operational plant rather than on a plant which requires immediate overhaul.  On the other hand, the Applicants are asking for an amendment to clause 6.2 of PPA as mentioned in para 38 above.

 

40.       The Commission takes the computations of VPGL as to mean that it was willing to make a sacrifice of Rs.54 crs. (on NPV basis) whereas the computations on the basis of CERC norm bring this figure down to only Rs.14 crs. Taking these facts into account and in all fairness to APDISCOMs and their consumers, the Commission is accordingly inclined to accept the plea of APDISCOMs for the amendment to Article 6.2 of the PPA as sought for by them. Considering the high O&M costs taken into account by VPGL, such an amendment would also not be unfair to it. The Commission also notes that if the buy-back option is not available to the Applicants as a matter of right under the terms and conditions specified in Schedule G to the PPA, the very existence of the Schedule is meaningless and a nullity. In conclusion, the Commission is of the considered view that it would be just and proper, and fair to all the parties if the proposed amendment is carried out.

 

Issue (c):         Whether the other consequential amendments due to gas being the only fuel and gas not being available to the required extent are in order: - 

 

41.       It was pointed out that through the proposed amendments, developers of the project have got certain concessions such as (i) non-levy of liquidated damages (LD) for delay in commissioning the project for commercial operations due to non-availability of natural gas till 31.03.2008, (ii) supply of 5% CIE (162.06MU) @Re.0.0699 per unit w.e.f and including the tariff year in which fuel is available for a PLF of 85% or above, (iii) waiver of liability to pay penalty for lower PLFs arising out of non-availability of fuel, (iv) reimbursement of transportation charges by the APDISCOMs for fuel not supplied by the fuel supplier up to 31.03.2008 but if paid by the project, (v) waiver of payment of interest on the actual cost of inter-connection facilities constructed for the purpose of this project, if the first generating unit is not synchronized on or before the scheduled date of completion on account of un-availability of fuel till 31.03.2008, etc.  It is to be noted that, as per the terms in the present PPA, all these payments will have to be made by the project developer to the Applicants or GAIL India Ltd, as the case may be, and though they do not form part of the revenues that should accrue to the project for sale of power generated by it, such savings due to avoidance of all such liabilities should also be treated as accrual of additional revenue to the project.     On this, the Applicants have made certain submissions as follows:

 

42.       Non-levy of LD for delay in commissioning the project due to non-availability of natural gas till 31.03.2008/ waiver of interest on the actual cost of inter-connection facilities, if the first generating unit is not synchronized on or before the SDOC - As per PPA dated:18-06-2003, the VPGL has to achieve SDOC of the first unit by           18-10-2005 and by 18-01-2006 in respect of the project. Liquidated damages are leviable for non-achieving SDOC of the project by 18-01-2006.  Further, as per the PPA, the SDOC shall be extended day for day for any delay in providing inter-connection facilities three months before the SDOC of the first unit.  M/s. VPGL in letter dated 12-05-2005 had informed that 85% of the project construction had been completed and requested for supply of start-up power.  Due to non-availability of natural gas, the Applicants did not provide inter-connection facility and startup power, keeping in view the interests of end consumers. 

 

43.       In view of the above clarifications, the Commission is of the view that till such time the interconnection facilities are provided as per the provision of the existing PPA, the associated extension for achieving SDOC and the consequent waiver of liquidated damages is to be accepted, as proposed by the Applicants.

 

44.       Supply of 5% CIE w.e.f and including the tariff year in which fuel is available for a PLF of 85% or above: - The response of Applicants on this issue essentially is that as per PPA, the initial 5% of the installed capacity of 370MW (162.06MU) is to be supplied by the company @ 6.99 paise per unit (10% of OFC) from COD of the project.  With the alternate fuel provisions, the company could declare availability of 85% and more and be assured of receiving full fixed charges and also payment towards CIE.  As the company has accepted deletion of the alternate fuel clause, it would not be in a position to declare availability up to 85% PLF in the resultant scenario when in the event of short supply of natural gas, it would not be able to resort to the use of alternate fuel to raise the PLF.  Also, in case the gas is not available for achieving 85% PLF, but is available only for achieving PLF of up to 80%, the company will still not be recovering its full fixed charges.  Hence, the request of the company was accepted.  

 

The Commission accepts the above view-point of the Applicants.

 

45.       Removal of liability to pay penalty for lower PLFs arising out of non-availability of fuel: - The reference here is to the disincentives payable as per the PPA by the company if it does not achieve minimum PLF. The response of the Applicants on this issue is similar to that in case of CIE above and is accepted by the Commission.

 

Issue (d):        Whether reimbursement of monthly transportation charges is acceptable: -

 

46.       It has been stated that as per the terms of the present PPA, such payments to GAIL have to be made by the project and since they do not constitute a part of revenue that should accrue to the project for sale of power generated by it, the savings due to avoidance of all such liabilities should also be treated as accrual of additional revenue to the project.  

 

47.       On this, it has been stated by Applicants that the company in their proposals requested for the full reimbursement of fixed monthly transportation charges that will be levied by GAIL during the period of non-supply/partial supply of gas, if GAIL does not agree to levy transportation charges proportionate to gas supplied, since the loss of revenue estimated does not include the above.  The company’s request was accepted and it was decided to pursue with GAIL for levy of transportation charges proportionate to gas supplied. The Applicants made further submissions on this in their affidavit dated 23-09-2006 effectively stating that GAIL had informed that after Vemagiri testing is completed, it would not be raising an invoice for transmission charges. GAIL have not raised any such invoice for transmission charges in case of the project of M/s.GVK Industries Limited also, after testing by the EPC contractor was completed.  GAIL will however, be taking a letter from the VPGL, that in case MOP&NG insists on payment of transmission charges, the same will be paid.  GoAP has taken up the issue with MOP&NG to implement the recommendations of the Tariff Commission including the recommendation that transmission charges will be charged only proportionate to the actual supply of gas.  If the recommendations are implemented, GAIL cannot levy transportation charges on the IPPs when gas is not available.  Subsequently, the Applicants while responding to a query whether transportation charges are payable even when no gas is supplied by GAIL as per the terms of the PPA, raised by the Commission during the course of presentation made on 16-11-2006, have also stated in their affidavit dated 01-12-2006, that under Article 3.3, Case I, “C” is the cost of natural gas, being the primary fuel, delivered at the metering point, and is inclusive of cost of gas, transportation charges and other taxes as per the invoice given by GAIL.  Under the arrangement, even if GAIL supplies no gas, GAIL can raise invoice for the transportation cost only, at the fixed normative value.  The GoAP has pursued with GoI, the issue to collect transportation charges only for actual supply of natural gas.  It is also informed by the Applicants that MOP&NG recently directed GAIL to collect transportation charges on the basis of average gas supply only, against the existing fixed normative value.  This position, mitigates the fixed payment of transportation charge which gets linked to the actual supply of gas.

 

Accordingly, the amendment proposed to Article 3.3 in the applicants’ letter dated 06-06-2006 as modified in affidavit dated 03-08-2006, is consented.

 

Issue (e):        Other significant issues:

48.       Further amendments sought for by Applicants:  As mentioned in paragraph 17, the APDISCOMs had proposed three further amendments to the proposed amendment agreement, as detailed in Annexure III. Of this, one relating to clause 6.2 of the PPA has already been dealt with in paragraph 40 and another relating to
paras 1 and 3 of Article 3.2 has been accepted by M/s.VPGL.  M/s. VPGL has stated that the proposed modification to para 1 of Article 2.1 is not necessary because the amendment agreement dated 05-06-2006 is totally unambiguous.   The reasoning to the proposed amendment, as reproduced at serial number 1 of Annexure – III, essentially seeks unambiguously clarifying that the liability of APDISCOMs to purchase the capacity of the plant shall be “limited to 370 MW”.  The M/s.VPGL in its argument with regard to this amendment also says nothing different: as can be seen from the contents of para 17(b) above, the M/s.VPGL also says the liability of APDISCOMs to buy the capacity of the plant is limited to 370 MW, and therefore, no further modification “is necessary”.

 

49.       The Commission finds no contradiction between the two versions.  Accordingly, therefore, in view of the fact that the amendment proposed by Applicants imparts more clarity to Article 2.1, the Commission is of the view that the modification as proposed by Applicants ought to be carried out.

 

50.       Availability of Gas:  The Applicants have not thrown any light on the future availability of gas.  With the dismantling of the Administered Price Mechanism in regard to petroleum products, it is quite understandable.  On its own, the Commission can only state that as since, as per the Tariff Policy notified by GoI on 06-01-2006, all future purchases of electricity by licensees like the Applicants herein, will be on the basis of competitive bidding.  (With the exception of the State – owned power generating utilities), there is no likelihood of the type of the situation presently being faced to come up again in future.

 

Conclusion:

51.       For the reasons mentioned in the foregoing paras, the Commission finds sufficient justification for, and grants consent to, the amendments proposed by the Applicants with the O.P.(No.19 of 2006) in hand and the subsequent modifications thereto as detailed in Annexures - I to IV.

 

52.       Before departing from the petition, the Commission while placing on record its appreciation of the efforts of GoAP to pursue with GoI, all relevant issues relating to availability of gas, its pricing, the gas transportation charges etc., urges it to continue with these endeavours to ensure a fair deal to the power utilities in the State in general and the consumers in particular.

 

This order is corrected and signed on this 30th day of December, 2006.

 

Sd/-

Sd/-

Sd/-

(R.RADHA KISHEN)

(SURINDER PAL)

(K.SWAMINATHAN)

MEMBER

MEMBER

CHAIRMAN

 

 

CERTIFIED COPY


ANNEXURE – I

Amendments submitted to the Commission on 06.06.2006 as mutually agreed between the parties to the PPA (as referred to in para 7)

 

S.No

PPA clause Reference

Details of amendment proposed (in bold letters)

1

1.1.27 Fuel

Means Natural Gas only.

(a) [Intentionally left blank]

2

1.1.44 Plant Load Factor or PLF

……. with Schedule D less Committed Incentive Energy expressed in KWH to be supplied by the Company in accordance with Article 3.2(A) to the maximum KWH …

3

1.1.54 Scheduled date of Completion (SDOC)

Scheduled Date of Completion:

       

Unit

Scheduled date of Completion (SDOC) from the date of signing of Amendment Agreement dt 18-06-2003

Gas Turbine          

(First Unit)

 

31.03.2006

Combined Cycle

(Last Unit)

31.03.2006

 

 

Note 1 : The COD of the Project shall …..

 

Provided ……(i) a Force Majeure (provided in Article 10.4) (ii) APDISCOMs Default or failure of the APDISCOMs to complete the Inter Connection Facilities three (3) months before the Scheduled Date of Completion of the first Unit (iii) non-availability of Fuel for commercial operation till 31.3.2008 (iv) time required for commissioning as per the construction schedule of the Project due to non-availability of Fuel.

 

Explanation: In case of a delay ……… as liquidated damages to the APDISCOMs, a sum …..

 

 

4

 

2.1 Sale & Purchase of capacity

 

Sale & Purchase of Capacity:

From ………. shall sell, and the APDISCOMs shall purchase, for the consideration of the Capacity Charge, the Installed Capacity of the Project.

 

Note : In case………..from COD of unit 1.

 

Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required to or obligated in any manner whatsoever to sell or otherwise provide to APDISCOMs any capacity over and above the Installed Capacity by the Project at any point of time during the term of this Agreement.  The Company shall be free to dispose off excess capacity over and above the Installed Capacity as it deems fit, without requiring any further approval from APDISCOMs for disposal of excess capacity.

 

5

3.2 Computation of Capacity Charge.

Computation of Capacity Charge

The Capacity …………. to a PLF of 80%.

(i) Foreign Debt …… Generating Unit

Provided that the shortfall, if any, in payment of FDSC per unit on account of unavailability of Fuel till 31.03.2008 shall be paid to the Company in the Tariff Years immediately succeeding the 11th (eleventh) annual anniversary of the COD of the last Generation Unit till such time that a shortfall in FDSC, on account of such unavailability of Fuel, is recovered by the Company. 

 

Such payment shall be made for aggregate of shortfall in Energy Units (KWH) for the period upto 31.03.2008, by which the PLF is lower than 80% on account of unavailability of Fuel.

 

(ii) Other fixed …………this Agreement.

6

3.2(A) (Committed Incentive Energy)

The Company shall supply ...……… the PLF of 80% to the APDISCOMs (hereinafter …. ………..)

 

APDISCOMs shall deem the initial energy …….of the Installed Capacity of ……….. in a Tariff Year (    ) …..

APDISCOMs shall pay the Company …… Rs.0.0699 (rupees zero point zero six nine nine) per Energy Unit ……….

 

Provided however that notwithstanding anything to the contrary stated hereinabove, the obligation to supply Committed Incentive Energy is applicable with effect from and including the Tariff Year in which Fuel is available, for a PLF of 85% or above.  If the Company achieves PLF (I) between 80% to 85% then the incentive would be paid at the Committed Incentive Energy Rate of Rs. 0.0699 per unit.

7

3.3 Energy Charge

Energy Charge

(a) Computation of Energy Charge

The energy charge …….

Eu is the total number of Energy Units …..

 

Provided that

Case-I : “C” is the cost of Fuel delivered at the …….. as per the invoice(s) given by GAIL.

 

Case-II : In the event of purchase of Fuel from sources ….

 

(b) Minimum Fuel Off-take Charges

The APDISCOMs shall reimburse the Company ….. minimum levels of Fuel, but only if …. …. is due to the APDISCOMs issuance of Despatch…… Availability Declaration, or the  APDISCOMs  failure or …………

 

Provide that the APDISCOMs shall reimburse such ……

 

(i) the Company took……… identified by the  APDISCOMs  (such as on-sale of Fuel to the APDISCOMs or other able purchasers identified by the APDISCOMs) to reduce the amount of liability, any added costs of which the APDISCOMs shall ……..

 

(c)  Notwithstanding anything to the contrary contained in this Agreement, if prior to 31.03.2008, the Company is required to pay transportation charges for Fuel even during the periods when Fuel has not been supplied by the Fuel Supplier, APDISCOMs shall pay and/or reimburse such transportation charges which the Company is liable to pay to the Fuel Supplier.

 

8

3.6 Disincentives

Disincentives :

In case the Project …………….  Company will pay to the APDISCOMs a penalty as a percentage ……

 

Explanation : Provided that the Company shall not be liable for any penalty under this clause to the extent it is due to lower PLF arising out of non-availability of Fuel.

 

9

New Clause 5.2(e)

It is agreed that, if as a result of partial availability of Fuel till 31.03.2008, the Company is unable to attain a PLF of 80%, APDISCOMs will be liable to pay monthly Capacity Charge to the extent of Availability Declaration only at the rate per unit calculated on the basis provided in Clause 3.2 (i) and (ii).  This clause shall be in operation only till 31.03.2008. After 31.03.2008, Clause 5.2 (a) to (d) would automatically apply.

10

6.1 Term of the Agreement.

Term of the Agreement

Subject to the terms …………. completion of a period of twenty three (23) years from the Project COD ……..

 

11

7.1(g)

If the Inter Connection Facilities are completed by the date which is three (3) months prior to the Scheduled Date of Completion ……… of the first Generating Unit, otherwise than on account of unavailability of Fuel till 31.3.2008, pay to the APDISCOMs interest on the actual cost of the Inter Connection Facilities constructed only for the purpose of the Project (as established by the APDISCOMs to the reasonable satisfaction of the Company), such……..

12

9.2 (f)

The Project fails ……………. (………., any period of Force Majeure, any act or omission of the APDISCOMs, any period of unavailability of Fuel, or any Emergency directly causing or contributing to the shortfall in the Declared Capacity)

13

Schedule D

3.4 (i)

Despatch Rights

In despatching the Project, the Company shall follow the directives of the APDISCOMs to back down generation ……………….. , this Agreement  and other arrangements between the Company and the APDISCOMs regarding …… (…….). (The APDISCOMs shall not be required …………)

14

New Clause 5.2 A

APDISCOMs hereby acknowledge that the terms of this Agreement have been agreed between the Company and APDISCOMs based on projected availability of Fuel to the Company from new wells of ONGC, the details of which are set forth.

Fuel supply projected for the Company,

May 2006 – 0.5222 MMSCMD

Jun 2006 – 0.4910 MMSCMD

July 2006 – 0.4632 MMSCMD

August 2006 – 0.6577 MMSCMD

September 2006 to

October 2006 – 0.3904 MMSCMD

November 2006 to

February 2008 – 0.5206 MMSCMD

March 2008 – 1.0687 MMSCMD

April 2008 onwards – 1.64 MMSCMD

 

If the supply of Fuel is less than the projected supply as set forth above, APDISCOMs agrees that the Company may claim from APDISCOMs for losses incurred by the Company on account of such shortfall of Fuel.  In order to compensate the Company for such losses, the parties shall within ninety (90) days of the claim being made by the Company amend the Agreement, inter-alia, by way of (i) increasing the term of the Agreement beyond twenty three (23) years and (ii) amending clause 3.2 hereof to enable the Company to recover the shortfall in the payment of FDSC for the aggregate shortfall in Energy Units (KWH) on account of such shortfall in supply of Fuel.  If the supply of Fuel is less than the projected supply as set forth above, the Company shall not be deemed to be in default or breach of this Agreement for any shortfall in generation.

It is agreed by the parties that in case the supply of Fuel during the period between the project COD and 31.03.2008 is higher than the projected figures for such period as mentioned above the parties shall amend this Agreement by adjusting the term of the PPA.

15

Schedule-I      Fuel Supply Committee

Schedule I – Fuel Supply Committee

 

[Intentionally left blank]

 

16

New clause

Schedule I shall stand deleted and all references to Schedule or any other matter contained in Schedule I and referred to in the Agreement shall stand deleted.

 

17

New clause

This Amendment Agreement and the PPA shall together constitute one and the same agreement and the provisions of this Amendment Agreement shall form an integral part of the PPA.  However, notwithstanding the foregoing, should any provisions of this Amendment Agreement be at variance or in conflict with any of the provisions of the PPA, the provisions of this Amendment Agreement shall prevail.

 


ANNEXURE – II (A)

 

Brief details of modifications to the amendments proposed and submitted to the Commission on 03-08-2006 (as referred to in para 16)

S.No

PPA clause Reference

Details of modifications to the amendments proposed

(in bold letters) on 03.08.06 on behalf of APDISCOMs

4

2.1 Sale & Purchase of capacity

…………Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required to or obligated in any manner whatsoever to sell or otherwise provide to APDISCOMs any capacity over and above the Installed Capacity by the Project at any point of time during the term of this Agreement.  The Company shall be free to dispose off excess capacity not exceeding 18.5 MW (the “Excess Capacity”) over and above the Installed Capacity to any third party as it deems fit, without requiring any further approval from APDISCOMs for disposal of excess capacity.

 

Provided this disposal of Excess Capacity shall be subject to a).   The Company complying with all applicable laws, rules and regulations made thereunder;

 

b).  The Company shall not declare Excess Capacity to third party without providing an Availability Declaration upto Installed Capacity to the APDISCOMS; and

 

c). The Company shall always inform along with Availability Declaration the capacity committed to third party out of the Excess Capacity for each Settlement Period.

7

3.3 Energy Charge

………(c)  Notwithstanding anything to the contrary contained in this Agreement, if prior to 31.03.2008, for the period from the date of synchronisation of the Project to 31.3.2008, if the Company is required to pay transportation charges for Fuel even during the periods when Fuel has not been supplied by the Fuel Supplier, APDISCOMs shall pay and/or reimburse such transportation charges which the Company is liable to pay to the Fuel Supplier.

 

14

New Clause 5.2 A

APDISCOMs The Parties hereby acknowledge that the terms of this Agreement have been agreed between the Company and APDISCOMs based on projected availability of Fuel to the Company from new wells of ONGC by GAIL upto the end of March 2008 (and assuming availability of 1.64 MMSCMD of gas during April 2008).

The details of Fuel supply projected for by the Company which are set forth.

 

May 2006                          0.5222 MMSCMD

Jun 2006                            0.4910 MMSCMD

July 2006                           0.4632 MMSCMD

August 2006                      0.6577 MMSCMD

September 2006 to

October 2006                     0.3904 MMSCMD

November 2006 to

February 2008                    0.5206 MMSCMD

March 2008                        1.0687 MMSCMD

April 2008 onwards            1.64 MMSCMD

 

If the supply of Fuel is less than the projected supply till March 2008 and/or shortfall in supply of 1.64 MMSCMD of gas in April 2008,  as set forth above, APDISCOMs agrees that the Company may claim compensation from APDISCOMs for losses incurred by the Company on account of such shortfall of Fuel.  In order to compensate the Company for such losses, the following shall apply.

 

a). The compensation shall be limited to the losses incurred by the Company till such date the supply of 1.64 MMSCMD of gas is delayed beyond 1st April 2008.  Upon supply of 1.64 MMSCMD gas for a full month, for the first time, the Company shall not make any further claims of loss incurred whether there has been a shortfall in gas supply or not.

 

b). This claim for loss shall include the loss incurred upto the month in which 1.64 MMSCMD gas is received.  The claim shall also include variations in supply of gas till end of March 2008.

 

c). The Parties shall within ninety (90) days of the claim being made by the Company amend the Agreement, inter alia, only   by way of (i) increasing the term of the Agreement beyond twenty three (23) years and (ii) amending clause 3.2 hereof by extending the term of FDSC recovery to enable the Company to recover the shortfall in the payment of FDSC for the aggregate shortfall in Energy Units (KWH) on account of such shortfall in supply of Fuel.  If the supply of Fuel is less than the projected supply as set forth above,  Till such time the Company receives 1.64 MMSCMD of gas for a full month, for the first time, the Company shall not be deemed to be in default or breach of this Agreement for any shortfall in generation.

 

        It is agreed by the parties that in case the supply of Fuel during the period between the project COD and 31.03.2008 is higher than the projected availability of fuel figures for such period as mentioned above, the following shall apply.

 

d). The Parties shall, within ninety (90) days of the submissions made by the Company or claims made by the APDISCOMs for reduced loss incurred by the Company, amend the Agreement by adjusting reducing the term of the PPA.


ANNEXURE – II (B)

Additional Amendments proposed and submitted to Commission

on 23-09-2006 (As referred to in Para 16)

 

Sl.

No.

PPA Clause

Ref.

Additional Amendments proposed and submitted to the Commission on 23-09-2006 (in bold letters)

 

9.

New Clause

to be added

as 5.2(e)

It is agreed that, if as a result of partial availability of Fuel (availability of natural gas less than 1.64 MMSCMD for a full month for the first time) till 31.03.2008, the Company is unable to attain a PLF of 80%, APDISCOMs will be liable to pay monthly Capacity Charge to the extent of Availability Declaration only at the rate per unit calculated on the basis provided in Clause 3.2(i) and (ii).  This Clause shall be in operation only till 31.3.2008 or till such a later date, when full availability of natural gas of 1.64 MMSCMD is available for a full month for the first time.  After 31.3.2008, Clause 5.2(a) to (d) would automatically apply. 

 


ANNEXURE – III

 

[Details of additional amendments proposed by APDISCOMs vide their letter dated 04-10-2006 to VPGL requesting their acceptance]

(As referred to in paras 17(a), 41, 48 and 49)

 

Sl.

No.

PPA Clause Ref.

Clarificatory Amendment proposed by APDISCOMs

(in bold Letters)

1.

2.1

Para 1 of Article 2.1 may be modified as follows:

“Sale & Purchase of Capacity:

From and after the Commercial Operation Date of the first Generating Unit, subject to the provisions of this Agreement, the Company shall sell, and the APDISCOMs shall purchase, for the consideration of the Capacity Charge, all the available capacity of the Project limited to 370 MW.”

2.

3.2

Para 1 of Article 3.2 may be modified as follows:

 

“The Capacity Charge will be the sum of the following amounts, in Rupees, estimated in accordance with Article 5.2(b) and 5.2(e) for purposes of monthly billing and adjusted pursuant to Article 5.2(c) for each Tariff Year, and subject in either case to the limitation that the total of such amounts shall not exceed an amount corresponding to a PLF of 80%.”

3.

3.2

Para 3 of Article 3.2 may be modified as follows:

 

“Provided that the shortfall, if any, in payment of FDSC per unit on account of unavailability of Fuel till 31.03.2008 or till such a later date, when full availability of natural gas of 1.64 MMSCMD is available for a full month for the first time shall be paid to the Company in the Tariff Years immediately succeeding the 11th (eleventh) annual anniversary of the COD of the last Generating Unit till such time that a shortfall in FDSC, on account of such unavailability of Fuel, is recovered by the Company.

Such payment shall be made for aggregate of shortfall in Energy Units (KWH) for the period upto 31.03.2008, or till such a later date, when full availability of natural gas of 1.64 MMSCMD is available for a full month for the first time, by which the PLF is lower than 80% on account of unavailability of Fuel.

4.

6.2

This Article shall survive any Termination of this Agreement.  If the Parties do not mutually agree to renew this Agreement or otherwise upon the expiry of the initial term of this Agreement, the Board APDISCOMs shall have the first option to purchase the project at the Terminal Value plus any transfer Costs and Transfer Taxes (as defined in Schedule G) and as determined by the Independent Appraiser defined in Schedule C.

 

      Such option shall be exercisable by the APDISCOMs at least during the sixty (60) day period immediately preceding prior to the expiration of the initial term of this Agreement in writing as per Article 13.  In the event the APDISCOMs exercises the option in writing, the company shall be obliged to sell the project at Terminal Value plus Transfer Costs & Transfer Taxes (as defined in Schedule G) and as determined by the Independent Appraiser defined in Schedule C.  and the company shall notify the Board of its acceptance or rejection of the option within such sixty (60) day period or fifteen (15) days after the date of Board’s offer whichever is later.  If the Board’s offer is not accepted by the company within such period, the company may solicit offers of purchase from third parties or sell power from the Project to third parties as per applicable Law; provided that the Board shall have the first right of refusal with respect to any bonafide offer received by the Company which the company wishes to accept, exercisable within thirty (30) days of receipt by the company of such offer (which shall within five days of such receipt be provided to the Board by the company) upon mutually satisfactory terms of payment.  If the Board does not exercise such right or the Parties cannot agree to the terms of payment, If the APDISCOMs elects not to exercise the option by not providing written notice, the company may dispose of the Project as it thinks fit subject to prevailing Law.

 

 

 

 

 

ANNEXURE – IV

 

[Modifications to the proposed new clause 5.2 A]

(As referred to in para 21)

 

Sl.

No.

PPA Clause

Reference

Draft Submitted on 3.8.2006

Modifications to the proposed clause

(in bold letters)

14

New Clause 5.2 A

The Parties hereby acknow-ledge that the terms of this Agreement have been agreed between the Company and APDISCOMs based on projected availability of Fuel to the Company by GAIL upto the end of March 2008 (and assuming availability of 1.64 MMSCMD of gas during April 2008).

 

The details of Fuel supply projected by the Company are set forth below:

 

May 2006         -   0.5222 MMSCMD

Jun 2006           -   0.4910 MMSCMD

July 2006          -   0.4632 MMSCMD

August 2006     -   0.6577 MMSCMD

 

September 2006 to

October 2006    -  0.3904 MMSCMD

 

November 2006 to

February 2008   -  0.5206 MMSCMD

 

March 2008       -  1.0687 MMSCMD

April 2008         -   1.64 MMSCMD

 

(a) If the supply of Fuel is less than the projected supply till March 2008 and/or shortfall in supply of 1.64 MMSCMD of gas in April 2008,  as set forth above, APDISCOMs agree that the Company may claim compensation from AP-DISCOMs for losses incurred by the Company on account of such shortfall of Fuel.  In order to compensate the Company for such losses, the following shall apply.

 

 

 

a) The compensation shall be limited to the losses incurred by the Company till such date the supply of 1.64 MMSCMD of gas is delayed beyond 1st April 2008.  Upon supply of 1.64 MMSCMD gas for a full month, for the first time, the Company shall not make any further claims of loss incurred whether there has been a shortfall in gas supply or not.

 

 

 

(b)  This claim for loss shall include the loss incurred upto the month in which 1.64 MMSCMD gas is received.  The claim shall also include variations in supply of gas till end of March, 2008.

 

 

 

(c) The Parties shall within ninety (90) days of the claim being made by the Company amend the Agreement,  only

by way of (i) increasing the term of the Agreement beyond twenty three (23) years and (ii) amending clause 3.2 hereof by extending the term of FDSC recovery to enable the Company to recover the shortfall in the payment of FDSC for the aggregate shortfall in Energy Units (KWH) on account of such shortfall in supply of Fuel. Till such time the Company receives 1.64 MMSCMD of gas for a full month, for the first time, the Company shall not be deemed to be in default or breach of this Agreement for any shortfall in generation.

 

 

It is agreed by the parties that in case the supply of Fuel during the period between the project COD and 31.03.2008 is higher than the projected availability of fuel as mentioned above, the following  shall apply.

 

The Parties shall, within ninety (90) days of the submissions made by the Company or claims made by the APDISCOMS for reduced loss incurred by the Company, amend the Agreement by reducing the term of the PPA.

 

 The Parties hereby acknow-ledge that the terms of this Agreement have been agreed between the Company and APDISCOMs based on projected availability of Fuel to the Company by GAIL upto the end of March 2008 (and assuming availability of 1.64 MMSCMD of gas during April 2008).

 

The details of Fuel supply projected by the Company  are set forth below:

 

May 2006         -  0.5222 MMSCMD

Jun 2006           -  0.4910 MMSCMD

July 2006          -  0.4632 MMSCMD

August 2006     -  0.6577 MMSCMD

 

September 2006 to

October 2006    - 0.3904 MMSCMD

 

November 2006 to

February 2008   - 0.5206 MMSCMD

 

March 2008       - 1.0687 MMSCMD

April 2008         - 1.64 MMSCMD

 

If the supply of Fuel is less than the projected supply till March 2008 and/or shortfall in supply of 1.64 MMSCMD of gas in April 2008,  as set forth above, APDISCOMs agree that the Company may claim compensation from APDISCOMs for losses loss in Capacity Charges incurred by the Company on account of such shortfall of Fuel.  In order to compensate the Company for such losses, loss in capacity Charges, the following shall apply.

 

(a) The compensation shall be limited to the losses loss in Capacity Charges   incurred by the Company till such date the supply of 1.64 MMSCMD of gas is delayed beyond 1st April 2008.  Upon supply of 1.64 MMSCMD gas for a full month, for the first time, the Company shall not make any further claims of loss in Capacity Charges incurred whether there has been a shortfall in gas supply or not.

 

(b) This claim for loss in Capacity Charges shall include the loss in Capacity Charge incurred upto the month in which 1.64 MMSCMD gas is received.  The claim shall also include variations in supply of gas till end of March 2008.

 

     (i) The Parties shall within ninety (90) days of the claim being made by the Company amend the Agreement,  only by way of (i) increasing the term of the Agreement beyond twenty three (23) years and (ii) amending clause 3.2 hereof by extending the term of FDSC recovery to enable the Company to recover the shortfall in the payment of FDSC for the aggregate shortfall in Energy Units (KWH) on account of such shortfall in supply of Fuel. Till such time the Company receives 1.64 MMSCMD of gas for a full month, for the first time, the Company shall not be deemed to be in default or breach of this Agreement for any shortfall in generation.

 

It is agreed by the parties that in case the supply of Fuel during the period between the project COD and 31.03.2008 is higher than the projected availability of fuel as mentioned above, the follow-ing shall apply.

 

(a)                            The Parties shall, within ninety (90) days of the submissions made by the Company or claims made by the APDISCOMS for reduced loss in Capacity Charges incurred by the Company, amend the Agreement by reducing the term of the PPA.