Before the. Case No. 115 of In the matter of

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Website: Case No. 115 of 2014 In the matter of Petition of Vidarbha Industries Power Ltd. for determination of Capital Cost and Final Tariff for FY and FY for its Generating Station at Butibori, Distt. Nagpur Smt Chandra Iyengar, Chairperson Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member ORDER Date: 09 March, 2015 M/s. Vidarbha Industries Power Limited (VIPL) filed a Petition on 30 May, 2014 for approval of capital cost and final Tariff of its 2 x 300 MW generating station located at the Maharashtra Industrial Development Corporation (MIDC) s Butibori Industrial Area, Distt. Nagpur, in the second Control Period of the Multi Year Tariff (MYT), i.e. FY and FY The Petition has been filed under the provisions of Section 61, 62, and 86(1) (a) and (b) of the Electricity Act (EA), 2003 and as per Parts A to C, E, F and K of the MERC (MYT) Regulations, The Commission, in exercise of the powers vested in it under Sections 61 and 62 of EA, 2003 and all other powers enabling it in this behalf, and after taking into consideration the submissions of VIPL, issues raised during the Public Hearing and all other relevant material, approves the capital cost and determines the final Tariff for VIPL s 2 x 300 MW generating station at Butibori for FY and FY as follows. MERC Order Case No. 115 of 2014 Page 1 of 99

2 TABLE OF CONTENTS 1. BACKGROUND BACKGROUND OF THE CASE ADMISSION OF THE PETITION AND PUBLIC PROCESS ORGANISATION OF THE ORDER PUBLIC HEARING PUBLIC HEARING AND SUGGESTIONS/OBJECTIONS FROM THE PUBLIC/STAKEHOLDERS APPROVAL OF CAPITAL COST PROJECT COMMISSIONING AND TIME-LINES SUBMISSION OF VIPL ON CAPITAL COST LAND EPC CONTRACT INITIAL SPARES AS PART OF THE CAPITAL COST AS ON COD OUTSIDE BOUNDARY LIMITS (OSBL) OVERHEADS INTEREST DURING CONSTRUCTION (IDC) FOREIGN EXCHANGE RATE VARIATION APPROVED CAPITAL COST MEANS OF FINANCE DETERMINATION OF TARIFF FOR FY AND CAPITAL COST FOR DETERMINATION OF TARIFF ADDITIONAL CAPITALISATION DEPRECIATION INTEREST ON LONG TERM LOAN RETURN ON EQUITY INCOME TAX OPERATION AND MAINTENANCE (O&M) EXPENSES NON- TARIFF INCOME MERC Order Case No. 115 of 2014 Page 2 of 99

3 4.9. INTEREST ON WORKING CAPITAL ANNUAL FIXED CHARGES FUEL SUPPLY AGREEMENT CALORIFIC VALUE AND PRICE OF FUEL OPERATIONAL PARAMETERS ENERGY CHARGES SUMMARY OF TARIFF COMPLIANCE OF DIRECTIVES RISK OF FERV FUEL SUPPLY AGREEMENT PERFORMANCE GUARANTEE TEST AUXILIARY CONSUMPTION APPLICABILITY OF ORDER AND TARIFF RULINGS OF THE COMMISSION APPENDIX-I APPENDIX-II MERC Order Case No. 115 of 2014 Page 3 of 99

4 LIST OF TABLES TABLE 1 - PROJECT TIME-LINES AND SCHEDULE AS SUBMITTED BY VIPL TABLE 2 - CHRONOLOGY OF EVENTS FOR RAILWAY LAND LICENSING FOR SIDING TABLE 3 - CHRONOLOGY OF EVENTS REGARDING SICOM LAND FOR RAILWAY SIDING TABLE 4 - SCHEDULE OF KEY MILESTONES, AS SUBMITTED BY VIPL TABLE 5 - PROJECT COST HAD COD BEEN AS PER MYT NORMS, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 6 - UNIT-WISE ACTUAL PROJECT COST AS ON COD, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 7 - PROJECT COST AS ON COD, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 8 - ADDITIONAL FEATURES OF THE PLANT, AS SUBMITTED BY VIPL TABLE 9 - COST OF LAND, AS SUBMITTED BY VIPL TABLE 10 - DETAILS OF COST OF MIDC LAND, AS SUBMITTED BY VIPL TABLE 11 - BTG AND BOP COST, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 12 - BENCHMARKING OF CAPITAL COST, AS SUBMITTED BY VIPL TABLE 13 - BENCHMARKING OF PER MW COST, AS SUBMITTED BY VIPL TABLE 14 - DETAILS OF OVERHEADS, AS SUBMITTED BY VIPL TABLE 15 OVERHEAD COST APPROVED BY THE COMMISSION (RS. CRORE) TABLE 16 - DETAILS OF IDC AND FINANCING CHARGES AS SUBMITTED BY VIPL (RS. CRORE) 46 TABLE 17 - IDC AND FINANCING CHARGES, AS SUBMITTED BY VIPL TABLE 18 - IDC APPROVED BY THE COMMISSION (RS. CRORE) TABLE 19 - DETAILS OF FERV, AS SUBMITTED BY VIPL TABLE 20 - FERV APPROVED BY THE COMMISSION (RS. CRORE) TABLE 21 - CAPITAL COST APPROVED BY THE COMMISSION (RS. CRORE) TABLE 22 - MEANS OF FINANCE AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 23 - CAPITAL COST FOR DETERMINATION OF TARIFF, AS SUBMITTED BY VIPL TABLE 24 - CAPITAL COST FOR DETERMINATION OF TARIFF APPROVED BY THE COMMISSION (RS. CRORE) TABLE 25 - ADDITIONAL CAPITALISATION, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 26 - ADDITIONAL CAPITALISATION, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 27 - DETAILS OF RAILWAY SIDING COST, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 28 - ADDITIONAL CAPITALISATION AS APPROVED BY THE COMMISSION MERC Order Case No. 115 of 2014 Page 4 of 99

5 TABLE 29 DEPRECIATION, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 30 - DEPRECIATION AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 31 - COMPUTATION OF INTEREST RATE, AS SUBMITTED BY VIPL TABLE 32 - INTEREST EXPENSES, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 33 - SCENARIOS FOR HEDGING COST, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 34 - IMPACT OF HEDGING ON ARR HEADS, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 35 - INTEREST EXPENSES AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 36 - RETURN ON EQUITY, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 37 - TIME SCHEDULE FOR COMMISSIONING COMPUTED BY THE COMMISSION TABLE 38 RETURN ON EQUITY APPROVED BY COMMISSION (RS. CRORE) TABLE 39 - INCOME TAX AS SUBMITTED BY VIPL (RS. CRORE) TABLE 40 - O&M EXPENSES AS SUBMITTED BY VIPL TABLE 41 - O&M EXPENSES AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 42 - INTEREST ON WORKING CAPITAL, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 43 - INTEREST ON WORKING CAPITAL AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 44 - ANNUAL FIXED COST AS SUBMITTED BY VIPL (RS. CRORE) TABLE 45 - ANNUAL FIXED CHARGES AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 46 - CALORIFIC VALUE AND PRICE OF FUEL, AS SUBMITTED BY VIPL TABLE 47 - CALORIFIC VALUE AND PRICE OF FUEL CONSIDERED BY THE COMMISSION TABLE 48 - OPERATIONAL PARAMETERS, AS SUBMITTED BY VIPL TABLE 49 - OPERATIONAL PARAMETERS FOR UNIT 1 FROM COD TILL FY TABLE 50 - STATION HEAT RATE ALLOWED BY THE COMMISSION TABLE 51 OPERATIONAL PARAMETERS APPROVED BY THE COMMISSION TABLE 52 - ANNUAL ENERGY CHARGES, AS SUBMITTED BY VIPL (RS. CRORE) TABLE 53 - FUEL COST AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 54 COST OF WATER AS SUBMITTED BY VIPL (RS. CRORE) TABLE 55 - ENERGY CHARGES AS APPROVED BY THE COMMISSION TABLE 56 - TARIFF APPROVED BY THE COMMISSION FOR FY AND FY MERC Order Case No. 115 of 2014 Page 5 of 99

6 List of Abbreviations ACQ ACW AFC AHP ARR AS ATE BC BoP BFP BTG CA CAPEX/Capex CCEA CCI CEA CERC CFBC CHP CIL COC COD CW CWIP DCS DM EAC ECB EPC ERP ESP FBSM FERV FO FSA Annual Contracted Quantity Auxiliary Cooling Water Annual Fixed Charges Ash Handling Plant Aggregate Revenue Requirement Accounting Standards Appellate Tribunal for Electricity Buyers Credit Balance of Plant Boiler Feed Pump Boiler Turbine Generator Chartered Accountant Capital Expenditure Cabinet Committee on Economic Affairs Competition Commission of India Central Electricity Authority Central Electricity Regulatory Commission Circulating Fluidised Bed Circulation Coal Handling Plant Coal India Limited Cycles of Concentration Commercial Date of Operation Cooling Water Capital Work In Progress Digital Control System De-mineralisation Expert Advisory Committee External Commercial Borrowings Engineering, Procurement and Construction Enterprise Resource Planning Engineering Scale Plan Final Balancing and Settlement Mechanism Foreign Exchange Rate Variation Furnace Oil Fuel Supply Agreement MERC Order Case No. 115 of 2014 Page 6 of 99

7 FY GCPP GCV GFA GoM ICAI IDC IPP Kcal Kcal/kWh Kg kv KW kwh LoA LD LDO LIBOR MAT MERC MIDC MLD MMT MMTPA MoC MoEF MoP MoPNG MPCB MSPGCL MSLDC/SLDC MT MU MW MYT NA NTP Financial Year Group Captive Power Project Gross Calorific Value Gross Fixed Assets Government of Maharashtra Institute of Chartered Accountants of India Interest During Construction Independent Power Producer kilo calories kilo calories per kilowatt hour Kilogram kilo Volt kilo Watt Kilo Watt hour Letter of Assurance Liquidated Damages Light Diesel Oil London Interbank Offered Rate Minimum Alternate Tax Maharashtra Electricity Regulatory Commission Maharashtra Industrial Development Corporation Million Litres per Day Million Metric Tonnes Million Metric Tonnes per Annum Ministry of Coal Ministry of Environment and Forests Ministry of Power Ministry of Petroleum and Natural Gas Maharashtra Pollution Control Board Maharashtra State Power Generation Company Ltd. Maharashtra State Load Despatch Centre Metric Tonnes Million Units Megawatt Multi Year Tariff Non-Agriculture Notice to Proceed MERC Order Case No. 115 of 2014 Page 7 of 99

8 NTI NOC OEM OSBL O&M P&L PLF PPA P&G Test PPM RBI RCC RH RHT RInfra-D RO RoE RPL SBAR SECL SFOC SHR SHT SICOM SLC(LT) TMCR TVS USD VAM VAT WCL Non Tariff Income No Objection Certificate Original Equipment Manufacturer Outside Boundary Limits Operation & Maintenance Profit and Loss account Plant Load Factor Power Purchase Agreement Performance & Guarantee Test Parts per million Reserve Bank of India Roller Compacted Concrete Relative Humidity Re-Heat Temperature Reliance Infrastructure Limited-Mumbai Distribution Reverse Osmosis Return on Equity Reliance Power Limited State Bank Advance Rate South Eastern Coalfields Limited Secondary Fuel Oil Consumption Station Heat Rate Super Heat Temperature State Industrial & Investment Corporation Of Maharashtra Standing Linkage Committee (Long Term) Turbine Maximum Continuous Rating Technical Validation Session United States Dollar Vapour Absorption Machine Value Added Tax Western Coalfields Limited MERC Order Case No. 115 of 2014 Page 8 of 99

9 1. BACKGROUND 1.1. Background of the Case VIPL is a Generating Company which has developed a 600 MW (2 x 300 MW) Power Plant at MIDC Butibori, District Nagpur in Maharashtra. The power from the generating station is being supplied to Reliance Infrastructure Ltd. (Distribution Business) (RInfra-D), which is a Distribution Licensee in parts of Mumbai VIPL has submitted that the Commission, vide Order dated 20 February, 2013 in Case No. 2 of 2013 and Order dated 19 July, 2013 in Case No. 76 of 2013, had accorded in-principle approval to the Power Purchase Agreement (PPA) between RInfra-D and VIPL for procurement of power from the latter s generating Unit 2 and Unit 1 respectively on long term basis, and the Consolidation Agreement dated 4 June, 2013 executed between RInfra-D and VIPL for supply under the two PPAs for Unit 1 and Unit 2 to be treated as supply from the Power Plant as a whole for Tariff and regulatory purposes Vide Order dated 17 January, 2014 in Case No. 91 of 2013, the Commission had approved the provisional Tariff for FY and FY , and directed VIPL to submit the capital cost based on audited accounts post the date of Commercial Operation (COD) VIPL has filed the present Petition for approval of capital cost and final Tariff for its 600 MW (2 x 300 MW) generation station at Butibori for the Second MYT Control period FY and FY under the provisions of the MERC MYT Regulations, VIPL s prayers are as under: (a) Admit the present Petition; (b) Approve the capital cost and final tariff of the station for FY and FY based on the rationale submitted by VIPL. MERC Order Case No. 115 of 2014 Page 9 of 99

10 (c) Approve the performance parameters as submitted in this petition. (d) Provide directives on the identified options for treatment of FERV/hedging. (e) Condone any shortcomings in the petition and allow the Petitioner to submit additional information as may be required by the Commission at a later stage; (f) Allow VIPL to recover the difference in current tariff /provisional tariff vis-àvis the final tariff to be approved in this petition from the date of issue of order. (g)pass any such order as deemed appropriate in the circumstance of this case Admission of the Petition and Public Process Technical Validation Session: Vide Notice dated 11 June, 2014, the Commission scheduled a Technical Validation Session (TVS) on the Petition on 19 June, 2014 in the presence of institutional Consumer Representatives authorised under Section 94(3) of the EA, During the TVS held on 19 June, 2014, VIPL made a presentation focusing on the salient features of the Petition. The list of persons who participated in the TVS is at Appendix-I Admission of the Petition: The Commission admitted the Petition on 13 October, In accordance with Section 64 of the EA, 2003, VIPL was directed to publish a Notice to solicit suggestions and objections from the public. In accordance with Regulation 90 of the MERC (Conduct of Business) Regulations, 2004, the Commission also directed VIPL to publish the Notice in at least two local Marathi and English daily newspapers with wide circulation in Maharashtra, and to reply expeditiously to all the suggestions and objections received Public Notice: VIPL published the Notice on 3 November, 2014 in two English newspapers, viz. Indian Express and Hindustan Times, and two Marathi newspapers, viz. Loksatta and Samana, inviting suggestions and objections. Copies of the Petition and its summary were made available at the Company s offices for inspection/ purchase, and also on VIPL s website A copy of the Public Notice and the executive summary of the Petition were also made available on the website of the Commission ( / in a downloadable format. MERC Order Case No. 115 of 2014 Page 10 of 99

11 Public Hearing: The Public Hearing on the Petition was held on 9 December, 2014 at the office of the Commission at World Trade Centre, Centre No.1, 13 th Floor, Cuffe Parade, Mumbai. The list of objectors, responders and other persons who participated in the Hearing is at Appendix II. The due process contemplated under law was followed by the Commission at every stage to ensure transparency and public participation and to provide adequate opportunity to all those who wanted to express their opinion in this matter Organisation of the Order This Order is organised in the following Sections: Section 1 provides a brief history of the quasi-judicial regulatory process undertaken by the Commission. Section 2 discusses the suggestions raised by the stakeholders/public in writing as well as during the Public Hearing before the Commission. Section 3 deals with the approval of capital cost of VIPL s Butibori generating station. Section 4 deals with the determination of final Tariff of the generating station for FY and FY Section 5 deals with the compliance of directives contained in the provisional Tariff Orders of the Commission Section 6 deals with the applicability of the Order. Section 7 sets out the Rulings of the Commission. MERC Order Case No. 115 of 2014 Page 11 of 99

12 2. PUBLIC HEARING 2.1. Public Hearing and suggestions/objections from the public/stakeholders Neither the Commission nor VIPL received any suggestions/objections from stakeholders or other members of the public on the Petition The Public Hearing was held on 9 December, 2014, at the start of which VIPL made a brief presentation During the hearing, the Commission inquired if any members of the public/stakeholders wished to make any suggestions/comments on the Petition. However, no suggestions/objections/comments were made by any of those present The list of persons who participated in the Public Hearing is at Appendix-II. MERC Order Case No. 115 of 2014 Page 12 of 99

13 3. APPROVAL OF CAPITAL COST 3.1. Project Commissioning and Time-lines VIPL is a Special Purpose Vehicle (SPV) originally established for implementation of a Group Captive Power Project (GCPP) through a Competitive Bidding Process conducted by the MIDC Vide its Order dated 20 February, 2013 in Case No. 2 of 2013, the Commission accorded in-principle approval to the PPA between VIPL and RInfra-D for supply of 300 MW from Unit 2. Vide Order dated 19 July, 2013 in Case No. 76 of 2013, it accorded in-principle approval to the PPA between VIPL and RInfra-D for supply of 300 MW from Unit VIPL submitted that it had awarded three separate Engineering, Procurement & Construction (EPC) contracts to RInfra for Unit 1, Unit 2 and Railway siding works VIPL further submitted that Unit 1 has achieved COD on 4 April, 2013 and Unit 2 on 28 March, Commission s Analysis Based on the Project zero date as submitted by VIPL, the time overrun considering the scheduled COD of Units I & II vis-à-vis their actual COD are as under: Table 1 - Project time-lines and schedule as submitted by VIPL Particulars Start Date Scheduled COD Actual Full Load Test Actual COD Time Overrun Unit days Unit days The Commission asked VIPL to explain the reasons for the delay in COD. In reply, VIPL has cited two major reasons: MERC Order Case No. 115 of 2014 Page 13 of 99

14 (i) Non-availability of land from SICOM and Railways In order to complete the railway siding, a few pockets of land were required to be procured from the State Industrial & Investment Corporation of Maharashtra (SICOM) and Central Railways (CR). In case of SICOM land, an application for transfer of the identified land to VIPL was made in January, Based on the demand note given by SICOM, VIPL paid 50% advance amount in May However, for the final transfer of land, SICOM was required to take clearance from the Industries, Revenue, Law and Judiciary Departments of Govt. of Maharashtra (GoM), and these clearances have taken more time than could be anticipated. In case of Railway land, similar application for transfer was made to Central Railways in August, The detailed Engineering Scale Plan (ESP) was approved by the relevant authorities in June, 2011 enabling the further Railway Land Licensing approval process. Railway Land Licensing has been completed in January, VIPL added that it has made significant efforts to speed up the process of clearances and followed up with more than forty letters. (ii) Delay in execution of Fuel Supply Agreement (FSA) VIPL submitted that Unit 1 was demonstrated by achievement of full load operation on 17 August, 2012, but its COD was delayed on account of non-availability of Carpet Coal required for commissioning purposes from Western Coalfields Limited (WCL). Despite the Central Electricity Authority (CEA) s recommendation and valid Letter of Assurance (LoA) approved by the Standing Linkage Committee - Long Term (SLC (LT)), WCL did not supply it in time. VIPL has followed up with more than 90 letters VIPL has submitted the following chronology of events with regard to Railway Land Licensing for the Railway siding: MERC Order Case No. 115 of 2014 Page 14 of 99

15 Table 2 - Chronology of events for Railway Land Licensing for siding Sr. No. Activity Date 1 Application to railways for land licensing 01-Aug-10 2 CR, Nagpur after verification forwarded the plan to Chief 23-Feb-11 Engineer (CE(G)), CR, Mumbai 3 Engineering Scale Plan (ESP) approved by Railways 04-Jun-11 4 CR (Finance Department) forwarded the land proposal to 14-Jun-11 CE(G), CR Mumbai 5 CE(G), CR Mumbai raised queries to Sr. DEN (Co.) CR 07-Jul-11 Nagpur 6 DEN(HQ) forwarded their reply to CE(G), Mumbai 26-Aug-11 7 CE(G), CR Mumbai sent file back to Nagpur with observation 30-Sep-11 that land licensing has to be done from (-) 800 chainage while Nagpur Division has approved +95 chainage 8 Dy. CE incorporated the additional area and forwarded file to 05-Dec-11 CE(G), CR, Mumbai 9 Follow up letter from VIPL to GM, CR for land licensing 23-Dec VIPL to Sr DOM, CR, Nagpur for alteration of ESP 26-Dec New Railway Board Circular No. 99/TC (FM)/26/1/Pt-II 30-Jan-12 dated 30 January, 2012 in connection with railway siding. The relevant clause is No licence fees will be charged on the common user traffic facilities at the station from the siding owner. 12 VIPL to Chief Transportation Planning Manager, CR, 02-Feb-12 Mumbai modification in approved ESP 13 RCC (Consultant of VIPL) to DEN (HQ) CR, Nagpur 21-Feb-12 Revision of proposal due to change in Railways rules and requesting to send old land licensing drawing to make necessary corrections 14 CE(G), CR, Mumbai sent drawing back to Nagpur division 01-Mar-12 for required alterations in line with New Railway Board Circular 15 VIPL to GM, CR follow up letter 07-Mar Dy. CE to Sr. DEN/CO, Nagpur Communication to obtain requisite documents from VIPL The documents required are; 1) Undertaking that party shall bear the cost of yard remodeling and cost of additional land 2) Undertaking by competent authority to enter into financial commitment 17 VIPL to CE (Genl.) Regarding bearing additional charges of land 20-Nov Nov-12 MERC Order Case No. 115 of 2014 Page 15 of 99

16 Sr. No. Activity Date 18 VIPL to Sr. DEN Acceptance of land licence fees and 20-Dec-12 requesting to process the case to PHOD Committee and GM's approval 19 VIPL to CIPM, CR, Mumbai Acceptance of following 25-Feb-13 additional clause in land licensing agreement In future railway is authorised to take out more routes from the VIPL siding for other siding. 20 VIPL to CIPM, CR, Mumbai Informing about the 25-Feb-13 construction facilities as per ESP 21 File put up for approval before PHOD Committee Apr VIPL to CIPM, CR, Mumbai Follow up letter with for expediting land licensing as plant is already operational 11-Jun File approved by PHOD Committee Sep Meeting of VIPL with General Manager, CR regarding the proposal. It was decided to verify the feasibility of reducing the usage of railway land at site. 25 VIPL to CIPM, CR, Mumbai Informing about the feasibility reducing railway land requirement 20-Sep Oct VIPL to CIPM, CR, Mumbai Follow up letter for approval 21-Nov-13 of land licensing 27 Final Land licensing approval by CR 01-Jan VIPL has submitted the following chronology of events for approval of SICOM land for Railway siding: Table 3 - Chronology of events regarding SICOM land for Railway siding Sr. Activity No. 1. Application to SICOM for purchase of land for Railway siding 2. VIPL s to SICOM for requesting for encumbrance free possession of land at Rs. 8 lakh per acre 3. SICOM s to VIPL- Informing final offer of Rs. 11 Lakh per acre and other charges payable 4. Meeting between SICOM and VIPL on finalisation of way forward 5. VIPL to SICOM - A note has been sent for applying to Industries Department Date 16-Jan Dec Dec Jun Jun-10 MERC Order Case No. 115 of 2014 Page 16 of 99

17 Sr. Activity Date No. 6. SICOM applied to Industries Deptt. (GoM) for NOC 02-Jul NOC from Industries Deptt. GoM. Further, Industries Deptt. 06-Sep-10 GoM suggested that approval of Revenue Department, GoM also be taken for sale of land 8. VIPL made an application for additional land of 450 acre in 21-Sep-10 addition to 47 acres applied earlier 9. Meeting between SICOM and VIPL regarding commitment letter for purchase of land 16-Feb Commitment letter to SICOM for purchase of encumbrance 12-Mar-11 free land of : a) 47 Rs. 11 Lakh per acre and 3% to SICOM Realty Pvt. Ltd. b) Lakh per acre including Rs. 1.6 Lakh per acre to SICOM Realty Pvt. Ltd. 11. SICOM demand for 50% advance payment 30-Mar VIPL acceptance letter to demand of advance 31-Mar SICOM letter to Principal Secretary, Industries Deptt. 12-May-11 requesting assistance in getting NOC from Revenue Deptt. 14. SICOM invoices for payment of 50% advance for 47 acre and 19-May acre of land 15. Payment of professional fees to SICOM (Rs. 3.7 Crore) 19-May-11 (credited on 15 July, 2011) 16. VIPL letter to SICOM requesting to allow start of site 11-Jun-11 enabling work 17. SICOM letter to request Revenue Deptt. GoM for permission 16-Jun-11 for outright sale of 47 acres of land 18. Account statement for payment of 50% advance to SICOM 15-Jul SICOM letter to Collector, Wardha for non attachment of 10-Oct-11 assets and setting aside levy of NA tax on SICOM 20. Petition filed by SICOM against Collector of Wardha 17-Dec-11 regarding recovery of charges 21. Collector, Wardha letter to Pr. Secretary (Revenue) informing 22-Dec-11 about the encumbrances on SICOM land requested by VIPL on conditions : 1) Pending dues (Non Agriculture (NA) Tax assessment of Rs Crore) may be either be deposited or waived by GoM 2) High Court Order in Appeal No. 248/04 filed against Court order by SICOM regarding additional compensation shall be binding on SICOM 22. SICOM to Minister, Revenue for his intervention 23-Jan VIPL letter to Revenue Minister for his intervention 03-Sep High Level Committee called by Revenue Deptt. for fast 29-Oct-12 tracking the case. VIPL, Revenue, and Law & Judiciary Deptts. were present. High Level Committee recommends MERC Order Case No. 115 of 2014 Page 17 of 99

18 Sr. Activity Date No. that: 1) Revenue Deptt. shall make available all relevant documents and terms and conditions applicable while handing over the land to SICOM to Law & Judiciary Deptt. 2) Law & Judiciary Deptt. to give opinion on whether the SICOM can sell the land, which was handed over to it by Government, to VIPL without their permission. 3) Law & Judiciary Deptt. to give opinion on whether the land handed over to SICOM can be further handed over to MIDC with due compensation to SICOM for future use/purpose 25. VIPL to SICOM- follow up letter 06-Mar File forwarded to Revenue Department from Law & Judiciary May-13 Department after giving legal opinion (no documentary evidence provided) 27. SICOM to VIPL - Proposal sent for consent for grant of land 05-Jun-13 on long term lease 28. VIPL to SICOM- follow up letter including chronology of communications from the beginning 29. VIPL to SICOM- Confirmation of land lease instead of outright sale 30. SICOM to Collector, Wardha informing the status of 24 cases for enhanced compensation with no pending case in respect of enhanced compensation in the High Court 31. SICOM to Collector, Wardha requesting removal of encumbrances on SICOM land 32. VIPL to Minister, Revenue for his intervention as land is not handed over yet 33. Collector, Wardha to Revenue Department-Status report of land sought by VIPL 34. VIPL to SICOM- Seeking intervention for getting approval from Revenue/Finance Department 35. VIPL to SICOM- Informing about starting of power plant without railway siding and requesting for execution of lease deed 36. Final approval by GoM for transfer of land on lease to extent of acres for 30 years 37. Collector, Wardha to VIPL-Approval of lease and directing to deposit Rs Lakh pertaining to enhanced compensation 06-Jun Jun Sep Sep Oct Oct Nov Jan Apr May Collector, Wardha to Revenue Deptt. - Suggesting changes in 11-Jun-14 lease agreement, i.e. that the matter is pending before the Hon'ble High Court for acre land and the responsibility for complying with the High Court Order for the said land will lie with VIPL. 39. Lease deed signed 15-Jul-14 MERC Order Case No. 115 of 2014 Page 18 of 99

19 Sr. No. Activity Date 40. SICOM-VIPL-Consent for creation of charge on land 24-Jul Placement of subordinate debt with SICOM 24-Jul For transporting coal from the mines to its power plant at Butibori by rail, VIPL planned a Railway siding off Sindhi Station, which is the nearest railway station on the Wardha-Nagpur line of Central Railways. As per the rail alignment plan, this Railway siding will take off from the Sindhi Station and be connected to the Butibori plant. Considering the proposed rail alignment route, the siding project required 47 acres of SICOM land in some villages of Tehsil Selu Tehsil in Wardha District.The Commission notes that VIPL had started the process of arranging for SICOM land for the Railway siding before the start of work. For Railway Land Licensing also, VIPL had initiated the process early. For obtaining the land from SICOM, clearances were required from the Industries and Revenue Departments, GoM, and legal opinions were also taken within Govt. Clearance from Revenue Department took substantial time because of pending issues of levy of Non Agricultural Tax assessment on land held by SICOM and liability of SICOM to pay for additional compensation for one patch of land. Revenue Department also sought legal opinion as to whether the land could be sold by SICOM to VIPL since it had been handed over to SICOM by GoM. Further, SICOM sent a proposal to VIPL for consent for grant of the land on long term lease, to which VIPL consented. GoM gave the final approval for transfer of land of acre to VIPL on long term lease for 30 years With regard to Railway land, the Commission observes that VIPL had applied in August, 2010 but considerable time was taken in the internal approval process of Railways, including modification in number of chainage from +95 chainage to (-) 800 chainage, change in Railway rules regarding the land licence fee, etc VIPL has asserted that this delay by external agencies was beyond its control, and that the time overrun in completion of Railway siding work by the scheduled date could not be attributed to it. MERC Order Case No. 115 of 2014 Page 19 of 99

20 The Commission asked VIPL how COD of Unit 1 was declared without resolving the issues such as SICOM/Railway land availability, non-supply of linkage coal, etc. VIPL submitted as follows: (i) There was no delay in achieving the readiness of the plant to commence COD as far as construction was concerned. It achieved COD readiness by synchronising the Unit and achieving the full load within the committed EPC contract schedule. The key milestones are as under: Table 4 - Schedule of key milestones, as submitted by VIPL Sr. No. Particulars Unit 1 Unit 2 1 Scheduled COD as per EPC Contract 27 September, January, Synchronisation date 25 June, January, Full load test Completed 17 August, March, Time taken in attaining full load/cod readiness 30 months 36 months 5 COD as per MERC MYT Regulations, months 37 months (ii) VIPL had signed a Medium Term PPA for supply of 134 MW power to RInfra-D through competitive bidding in September, VIPL considered that, by declaring early COD, it could build pressure on the Ministry of Coal (MoC)/CIL/WCL to execute the FSA for meeting its obligation under the PPA. However, CIL/ MoC introduced a condition that, to execute FSAs and commence coal supply, a generating plant should have a Long Term PPA with a Distribution Licensee. (iii) VIPL made arrangements to buy coal from e-auction and obtained the Maharashtra Pollution Control Board (MPCB) permission in March, 2013 for transporting the coal by road in the absence of Railway siding as an interim arrangement. Thereafter, it declared COD immediately to fulfil its Medium Term PPA commitment and maintaining power supply to Mumbai. The early MERC Order Case No. 115 of 2014 Page 20 of 99

21 declaration has helped to reduce the Interest During Contruction (IDC) by Rs Crore, which was transferred to the Profit and Loss account post-cod The Commission observes that full load test of Unit 2 was undertaken on 19 March, 2013 and VIPL declared the COD of Unit 2 on 28 March, 2014 i.e., after nearly a year. The Commission asked VIPL to submit the justification for not declaring the COD of Unit 2 immediately after achieving full load/cod Readiness. In reply, VIPL submitted that the possibility of getting linkage coal for operating Unit 2 diminished for want of assurance from CIL/WCL on commencement of coal supply without a Long Term PPA and WCL s refusal to release initial carpet/ commissioning coal. Further, there was very limited availability of e-auction coal and this small window of opportunity was leveraged to secure coal for Unit 1 only. Moreover, the connectivity of the plant with the State Transmission Utility (STU) made it even more unattractive to offer the power outside Maharashtra as the Wheeling cost plus losses amounted to around Rs 0.50/ kwh. VIPL made several attempts to sell power in the market through short term bidding, but these were unsuccessful. Therefore, in the absence of viable off-take from Unit 2, VIPL could not declare Unit 2 COD immediately after achieving Full Load/ COD readiness As regards Unit 1, the Commission observes that VIPL declared its COD also without resolving the above issues, and asked VIPL to submit the justification. VIPL submitted that it declared the COD of Unit 2 to fulfil its commitment under the Long Term PPA with RInfra-D which required commencement of supply from 1 April, 2014, and securing the FSA with WCL. VIPL declared the COD of Unit 2 only after securing Railway land in January, 2014 and receiving assurance from GoM in March, 2014 on leasing of SICOM land required for completing the Railway siding As regards the impact of delay on Project cost, the Commission asked VIPL for the details of cost overrun from the original estimates to the day of readiness of the Project. VIPL submitted that, as the Project is implemented based on firm price lump sum Turnkey EPC contract without escalation clause, there was no overrun in the hard costs on account of delay in the Project. MERC Order Case No. 115 of 2014 Page 21 of 99

22 The Commission asked VIPL to submit reasons for declaring COD of Unit 1 and Unit 2 18 months and 6 months prior to the commissioning of Railway siding, respectively. VIPL submitted that: (i) Unit 1 was commissioned by considering that coal transportation can be handled by road as a temporary solution, Unit 1 could be made operational to fulfil the Medium term PPA, and to meet debt service obligation and reduce the effective capital cost of the Unit when Long Term PPA takes effect from 1 April, (ii) Unit 2 could not have been commissioned without certainty of Railway siding and based on movement of coal by road transport, which would have involved around 430 truck trips per day, along several highways, village roads, and railway crossings. Hence, Unit 2 was commissioned after there was certainty on availability of pending land parcels for completion of Railway siding just before March, 2014, and considering that a stock of coal of 1.5 Lakh tonnes had been stocked at the plant site to deal with any shortfall in coal movement by road for 3-4 months to meet Long Term PPA obligations The Commission observes that, despite delays and difficulties in obtaining SICOM and Railway land for Railway siding, VIPL was able to achieve the COD, and that it had declared the COD considering its commitment to supply power to RInfra-D under Medium and Long Term agreements. The Commission notes VIPL s submission that it would not have been able to tie up the power supply had the COD been declared based only on the availability of e-auction coal. The Commission observes that, on the day of readiness for declaring COD for Unit 1, VIPL had an existing Medium Term PPA for which it could have supplied energy by declaring COD. Further, VIPL has submitted that the COD was declared to meet its PPA obligation and in order to reduce the effective capital cost. However, had VIPL declared COD on the date of readiness of the Plant, the effective capital cost would have been further reduced, which VIPL had done at a later stage inspite of unresolved issues remaining the same. MERC Order Case No. 115 of 2014 Page 22 of 99

23 The Commission notes that Unit 1 has achieved COD on 4 April, 2013 and Unit 2 on 28 March, There is a delay in the commissioning of the Project with respect to the scheduled dates. With regard to such delay, the Appellate Tribunal for Electricity (ATE), in its Judgement dated 27 April, 2011 in Appeal No. 72 of 2010, has held as under: 7.4. The delay in execution of a generating project could occur due to following reasons: i) due to factors entirely attributable to the generating company, e.g., imprudence in selecting the contractors/suppliers and in executing contractual agreements including terms and conditions of the contract, delay in award of contract, delay in providing inputs like making land available to the contractors, delay in payments to contractors/suppliers as per the terms of contract, mismanagement of finances, slackness in project management like improper co-ordination between the various contractors, etc. ii) due to factors beyond the control of the generating company e.g. delay caused due to force majeure like natural calamity or any other reasons which clearly establish, beyond any doubt, that there has been no imprudence on the part of the generating company in executing the project. iii) situation not covered by (i) & (ii) above. In our opinion in the first case the entire cost due to time overrun has to be borne by the generating company. However, the Liquidated Damages (LDs) and insurance proceeds on account of delay, if any, received by the generating company could be retained by the generating company. In the second case the generating company could be given benefit of the additional cost incurred due to time over-run. However, the consumers should get full benefit of the LDs recovered from the contractors/suppliers of the generating company and the insurance proceeds, if any, to reduce the capital cost. In the third case the additional cost due to time overrun including the LDs and insurance proceeds could be shared between the generating company and the consumer. It would also be prudent to consider the delay with respect to some benchmarks rather than depending on the provisions of the contract between the generating company and its contractors/suppliers. If the time schedule is taken as per the terms of the contract, this may result in imprudent time schedule not in accordance with good industry practices In our opinion, the above principles will be in consonance with the provisions of Section 61(d) of the Act, safeguarding the consumers interest MERC Order Case No. 115 of 2014 Page 23 of 99

24 and at the same time, ensuring recovery of cost of electricity in a reasonable manner The ATE Judgement categorises the reasons for delay as controllable, uncontrollable and neither controllable nor uncontrollable, and specifies the treatment of the impact of such delays while approving the Project cost The Commission observes that the reasons cited by VIPL for the delay in the commissioning of the Project from the scheduled COD were mainly on account of delay in the availability of land from SICOM and Railways for the Railway siding, and delay in execution of FSA The Commission notes that, considering the general uncertainty in availability of fuel in the country, VIPL was not the only party subjected to delay in execution of FSA. However, the responsibility of arranging for fuel lies with the Generating Company, and VIPL must or should have accounted for the risk relating to fuel availability at the outset of the Project. Being aware of issues regarding fuel availability, VIPL declared COD of the Project to meet its Medium Term PPA commitment by using coal obtained from e-auction. VIPL has submitted the difficulties in the sustained operation of the plant as a whole with the transportation of coal by road. Hence, ultimately the commissioning of the Railway siding was essential The Commission notes that VIPL has achieved COD readiness/ completion of full load for Unit 1 on 17 August, 2012 and for Unit 2 on 19 March, There was no delay in the execution of the Project as COD readiness and completion of full load test for Unit 1 were achieved in 30 months and 36 months, respectively, from the date of NTP, i.e. earlier than the MERC MYT Regulations, 2011 norms of 33 months and 37 months, respectively. The Commission observes that the delay was only in the the declaration of COD of the Project because of the reasons set out above The Commission notes that VIPL has declared COD of Unit 1 to fulfil the Medium Term PPA obligations. The supply delivery date in the Medium Term PPA was 1 April, However, VIPL has declared COD of Unit 1 on 4 April, 2013, i.e. with a MERC Order Case No. 115 of 2014 Page 24 of 99

25 delay of more than a year. COD readiness/completion of full load for Unit 1 was achieved on 17 August, 2012 and COD on 4 April, 2013 without commissioning of Railway siding and execution of FSAs. Hence, the decision not to declare the COD of Unit 1 even after completion of the full load test was a decision taken by VIPL in its own interest. According to VIPL, the COD of Unit 1 was declared to meet its PPA obligation and to reduce the effective capital cost. However, had VIPL declared COD on the date of readiness, the effective capital cost would have reduced further. Instead, COD was declared later despite the unresolved issues remaining the same. The Commission also notes that VIPL has been operating Unit 1 by using coal transported by road. It was, therefore, possible to do so even without completion of Railway siding work The Commission observes that the delay in acquisition of SICOM land was because of procedural delays in resolving certain issues between the GoM and SICOM which which were beyond VIPL s control. Inspite of this, VIPL declared the COD of Unit 2 without commissioning of the Railway siding so as to meet its obligation of supply of power to RInfra-D. The Commission notes VIPL s submission that it declared the COD of Unit 2 only when it got clarity on the acquisition of the land for Railway siding (in January, 2014) and after ensuring sufficient stock of coal for running the plant till the commissioning of the siding VIPL-G issued Letter of Intent (LoI) on 6 July, 2010 to the EPC contractor for completion of the Railway siding work by 5 July, 2012 (within 24 months), i.e. before the scheduled COD (27 September, 2012) of Unit-1. However, the work was completed 27 months late (in October, 2014) mainly because of delay in acquisition of land and related clearances from SICOM and Central Railways, the details of which may be seen in the chronology set out earlier. The Commission notes that VIPL initiated the process of acquiring SICOM land in January, 2009, long before issuing the EPC contract LoI. After clearance from the Industries Department, SICOM approached the Revenue Deptt., GoM in June, 2011, but GoM permission was finally received nearly 3 years later, in April, This delay was beyond the control of VIPL, and inspite of its efforts, since matters relating mostly to GoM and SICOM such as additional compensation to erstwhile land owners, liability of Non- MERC Order Case No. 115 of 2014 Page 25 of 99

26 Agriculture tax on SICOM, legal consultations regarding mode of allotment of land, change in mode of land allotment from sale to lease, etc. had to be resolved. The Commission also notes that VIPL initiated the process for land licensing approval from Central Railways in August, 2010, just after issuing the EPC LoI. The delay in obtaining that approval was also beyond VIPL s control, involving issues of revision in assessment of chainage, modifications in assessments of different offices, changes norms for licence fee, additional undertakings required from VIPL, delays in internal approval process, etc Unit-2 COD was declared on 28 March, 2014 after assurance regarding availability of pending land parcels for completion of the Railway siding. From that time till commissioning of the siding in October, 2014, VIPL was running both Units by transporting coal by road. This was possible because VIPL was able to stock 1.5 Lakh tonnes of coal to meet any shortfall in the movement of coal. However, operation of both Units with transport of coal by road is unsustainable because of cost and the fact that the road infrastructure cannot support movement of as many as 430 trucks per day continuously for a long time. Hence, the railway siding was essential for combined operation of both Units As the Project developer, VIPL had a responsibility to declare COD as scheduled, if necessary by making alternative arrangements for transportation of coal. The Commission notes that VIPL was able to run Unit 1 by bringing coal by road, and hence that it was feasible to operate it for some time without the siding. However, the Railway siding was an integral component for sustained operation of the Project and was delayed for reasons beyond VIPL s control. Therefore, the Commission is of the view that the delay in commissioning Unit-1 was neither fully controllable nor fully uncontrollable. In line with the ATE Judgment dated 27 April, 2011 and in order to protect the interests of the consumers, the additional Project cost due to time overrun of Unit 1 should be equally shared by VIPL and the consumers While Unit 1 could be operated for some time in this manner, the Commission notes the genuine difficulty in combined operation of both the Units on the basis of road MERC Order Case No. 115 of 2014 Page 26 of 99

27 transport of coal and without the Railway siding on a sustained basis. The Commission is of the opinion that the reasons for delay, set out in earlier paragraphs, in the commissioning of Unit 2 cannot be attributed to VIPL and must be treated as uncontrollable. Hence, in line with the ATE Judgement dated 27 April, 2011 cited earlier, the Commission allows the additional Project cost due to time overrun of Unit 2 on actual basis The Commission considers it prudent to consider the delay with respect to some benchmarks rather than solely on the time-lines provided in the contract for execution of the Project. VIPL has also referred to the MERC MYT Regulations, 2011 regarding the project completion period. The Commission has considered the benchmark in accordance with those Regulations, which provide as under: A. Thermal Power Projects: Coal/Lignite Power Plant: Unit size 200/210/250/300/330 MW and 125 MW CFBC technologies: (a) 33 months for first Unit of green field projects. Subsequent Units at an interval of 4 months each. (b) 31 months for first Unit of extension projects. Subsequent Units at an interval of 4 months each The Commission directed VIPL to submit the impact of the delay in commissioning on the Overheads, IDC and Foreign Exchange Rate Variation (FERV) as compared to the norms specified under the Regulations. VIPL submitted that, had the project been commissioned as per those norms, Overheads, IDC and FERV would be as under: Table 5 - Project cost had COD been as per MYT Norms, as submitted by VIPL (Rs. crore) Sr. Cost for Cost for Particulars No. Unit 1 Unit 2 Project Cost 1 Hard Cost Pre-operative and commissioning expenses MERC Order Case No. 115 of 2014 Page 27 of 99

28 Sr. Cost for Cost for Particulars No. Unit 1 Unit 2 Project Cost 3 IDC FERV Total Project Cost As directed by the Commission, VIPL submitted details of actual Overheads, IDC and FERV of Units 1 and 2 as under: Table 6 - Unit-wise Actual Project cost as on COD, as submitted by VIPL (Rs. crore) Sr. Cost for Cost for Particulars No. Unit 1 Unit 2 Project Cost 1 Hard Cost Pre-operative and commissioning expenses IDC FERV Total Project Cost In view of the above, the Commission observes that the delay in Commissioning of Unit 1 cannot be categorized either fully controllable or uncontrollable. In light of the forgoing, the Commission, for approving the project cost, has considered equal sharing of impact of delay of Unit 1 on overheads, IDC and FERV (i.e. difference between the actual cost for Unit 1 and estimated cost for Unit 1 considering COD as per MYT norms) between VIPL and consumers. The Commission has considered the actual cost of Unit 2, treating delay in the commissioning of Unit 2 as uncontrollable The Commission has considered the approval of costs under each head in subsequent sections of this Order. MERC Order Case No. 115 of 2014 Page 28 of 99

29 3.2. Submission of VIPL on Capital Cost Regulation 38.5 of the MERC MYT Regulations, 2011 provides that a Generating Company has to approach the Commission for approval of capital cost and determination of final Tariff as follows: 38.5 A Generating Company shall make a fresh Petition in accordance with these Regulations, for determination of final tariff based on actual capital expenditure incurred up to the date of commercial operation of the Generating Station duly certified by the statutory auditors based on Annual Audited Accounts Along with Chartered Accountant (CA) s certificate, VIPL submitted that the overall capital cost of the generating station as on COD of Unit 2 (28 March, 2014) is Rs Crore, based on the audited accounts as on that date The break-up of the capital cost as on COD, as submitted by VIPL, is as under: Table 7 - Project Cost as on COD, as submitted by VIPL (Rs. crore) Sr. No. Particulars Actual Cost as on COD 1 Land BTG * 3 BOP Initial Spares Taxes and duties Overheads OSBL IDC & FC Total Capital Cost Impact of FERV Total Project cost as on COD *BTG Cost in MUSD VIPL submitted that the benchmark capital cost provided by the Central Electricity Regulatory Commission (CERC) in Order dated 4 June, 2012 in Case No. L- MERC Order Case No. 115 of 2014 Page 29 of 99