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Tata, Adani seek to raise power tariff in Gujarat; Modi govt may seek Deepak Parekh's help

MUMBAI: The fate of giant power stations owned by the Tatas, Adani Group and many others that are seeking to raise tariffs to be viable is delicately poised as the Gujarat government wants a fair and amicableresolution to the pricing dispute, but a section of the bureaucracy is taking a hard line.

Industry is cautiously optimistic as the state government plans to involve eminent banker HDFC Chairman 
Deepak Parekh, a renowned troubleshooter who has resolved many vexed problems, including the seamless transition of Satyam Computers from a huge corporate scam, to thrash out the issue.

Parekh has also chaired panels on the power sector in the past, including the committee that opened the bids for the ultra mega power projects (UMPP) at Mundra and Sasan, which were awarded to 
Tata PowerBSE 0.00 % and Reliance PowerBSE -0.64 %, respectively. The dispute over tariff revision for plants that depend on imported coal erupted after state utilities that had signed contracts to buy electricity refused to renegotiate tariffs. Last month, the central electricity regulator ruled that power companies should be paid higher tariffs. It said the "compensatory tariff" should be determined by a committee comprising top officials, company executives, a financial analyst and an eminent banker. Government and industry sources said the authorities had already approached Parekh to head the committee. Parekh remained unavailable for comment.

Industry officials say the tariff that Tata Power needs to become viable would be much lower than other alternatives for the utilities. "They will have to pay at least Rs 4.50 per unit for power from other sources. Tata Power would need much less than that," an industry official said. For the Narendra Modi government, which wants to be business friendly but does not want to be seen as offering sweetheart deals to top industrialists, it is a ticklish situation.

A section of the bureaucracy wants to approach the appellate authority against the regulatory order, but others in the state do not want the power firm to go bankrupt by insisting on the old tariff.

Power utilities believe the formation of the committee and appointment of Parekh as the head would help expedite the process to implement the compensatory package, but experts cautioned that the state's power distribution companies may still challenge the potential tariff hike.

"This gives us the comfort that things are moving in the right direction and there is an acceptance from the state government that the increase in tariff is inevitable," said Ashok Khurana, director-general of the Association of Power Producers. The regulator had allowed
Adani PowerBSE 0.00 % and Tata Power to increase the price of power from their respective imported-coal-based projects in Gujarat to factor in the steep hike in Indonesian coal prices after that country linked price of exported coal to an international price benchmark, making it almost 150% more expensive than earlier.

The committee would have to balance various interests, said Amit Kapur, partner at 
J Sagar Associates. He has represented Adani Power and Tata Power at CERC. "The committee would now work on how to implement the compensatory package and try to find a solution which addresses a delicate balance between affordability (consumer interest) and viability (lender and investor concern)," he said.

However, he cautioned, "The formation of the committee does not mean that the 
CERCorder cannot be challenged. The discoms have accepted the direction given by CERC, but it is work in progress and we cannot rule out that they may challenge it at the appellate level at the some time."