Relief for stressed power sector? Centre looks to give helping hand

In a bid to address stress in the power sector, the central government on Monday issued directives to the Central Electricity Regulatory Commission (CERC) to treat change in domestic duties, levies, cess and taxes by Centre, states and Union territories as "Change in Law'' unless it is specifically negated in the power purchase agreement.

The Centre has allowed the pass through of the addition or reduction in the cost of the impact of taxes, duties, cess and levies applied post bidding. Some of the Change in Law items comprise levy of clean energy cess on coal, central excise duty on domestic coal and increase in royalty on coal.

The Centre under Section 107 of the Electricity Act, 2003, issued the directive after it received the power ministry's representation. The ministry argued that generating companies are facing difficulties in getting pass through of changes in cost due to various taxes and duties. ''The difficulty is due to considerable time being consumed in the approval process resulting into severe cash flow problems to the generating companies. This has also resulted in stress in the power sector,'' the power ministry added.

Ashok Khurana, director general, Association of Power Producers, told DNA Money, ''This will expedite the cases relating to pass-through of additional cost due to Change in Law events, and help in early resolution of regulatory dues of about Rs 18,000 crore. On an average, the necessary orders for Change in Law pass-through took 3-4 years.'' He said it will also obviate the need for all aggrieved parties filing separate petitions as an order, once given by CERC, would be applicable for other cases. This will reduce the burden on CERC and state electricity regulatory commissions of multiple petitions on the same issue.

CERC will only determine the per unit impact of such change in domestic duties, levies, cess and taxes, which will be passed on. The central regulator will circulate a draft order for the determination of per unit impact under Change in Law to all the states and beneficiaries on 14th day of petition and any objection and representation will be submitted by them within 21 days of filing of petition.

The order for pass through giving the circulation for per unit impact will be issued within 30 days of filing petition and the impact of such change in law to be effective from the date of change in law.

Watch this Zee Business video here:

Kameswara Rao, partner (grid), PwC, said the pass through of new levies post-bid is clearly allowed in the tariff policy, but regulators have been slow to reflect this in the PPAs.

''It makes sense for the central government to provide a single escalation factor that all regulators can readily adopt. This may not help the already distressed assets much, but certainly improves outlook for new investments that are being increasingly held back due to a likely loss of returns from regulatory delays,'' he said.

Deloitte Touche Tohmatsu leader energy Debasis Mishra said timebound regulatory resolution of change in law cases would certainly help in working capital management of independent power producers. ''But much of the stress in this sector is due to overcapacity and lack of procurement by discoms,'' he said.

Centre in its directive clarified that no conditional petition would be required where CERC has already passed an order allowing pass through and this will apply to all cases ipso facto.

Source: DNA Money