Power ministry directs regulator to pass on changes in duties to consumer tariffs

In a rare move, the government has issued a direction to power regulator Central Electricity Regulatory Commission (CERC) to allow changes in any central or state government duties to be passed in electricity tariffs to consumers post bidding.

The industry welcomed the government’s move and said it will expedite procedures, helping a big chunk of power projects stuck due to such regulatory issues.

Association of Power Producers director general Ashok Khurana said, “APP welcomes the directions issued by power ministry today. 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 also said adding this will also lead to reduced litigations.

This is one of the rare cases where the government has invoked its powers under section (107) of the Electricity Act to issue direction of such magnitude to the independent power regulator.

“Para 6.2 ($) of Tariff Policy 2016 provides that after the award of bids, if there is any change in domestic duties, levies, cess and taxes imposed by central government, state government or by any government instrumentality leading to corresponding changes in the cost, the same may be treated as ‘change in law’ and may unless provided otherwise in the PPA, be allowed as pass through subject to approval of appropriate commission,” the direction said

The power ministry said the delay in decision making was affecting the power sector and was one of the factors causing stress.

“It has been brought to the notice of the ministry that generating companies are facing difficulties in getting pass through of changes in cost due to any change in domestic duties, levies, cess and taxes imposed by central government, state government or any government instrumentality under “change in law” by appropriate commission. The difficulty is mainly because of 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 has ordered that the central commission will only determine the per unit impact of such change in taxes, which will be passed on. State power distribution companies may submit objections in 21 days. The order on tariff pass through will be effective from the date of change in taxes. In cases where CERC has already passed an order, that order will apply to all cases and no additional petition should be filed.

“This will 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/ SERCs of multiple petitions on the same issue,” Khurana said.

The 40th Standing Parliamentary Committee has sad total outstanding loans of scheduled commercial banks to the power sector (including renewables) stood at Rs 5.65 lakh crore at the end of March. Nearly 80% of this is accounted for by public sector banks and almost a fifth of this exposure is stressed on various counts, the committee report said.

The government on July 29 set up a high level empowered committee headed by cabinet secretary P K Sinha and representation from the ministries of railways, finance, power, coal and banks having major exposure to the power sector to revive stressed thermal power projects.

The committee would look into various issues with a view to resolve them and maximise the efficiency of investment including changes required to be made in the fuel allocation policy and regulatory framework.

It will also look into mechanisms to facilitate sale of power, ensure timely payments, payment security mechanism, changes required in the provisioning norms/Insolvency and Bankruptcy Code (IBC), Asset Restructuring Company regulations and other proposals for revival of stressed assets so as to avoid such investments becoming NPA.