Sh. Vinod Pandya, Member - rerc.rajasthan.gov.inrerc.rajasthan.gov.in/TariffOrders/Order209.pdf ·...

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RAJASTHAN ELECTRICITY REGULATORY COMMISSION

Petition No. RERC/462/14 In the matter of determination of Aggregate Revenue Requirement (ARR) & Provisional Tariff for Unit-1(1x600 MW) of Kalisindh Thermal Power Project for FY 2014-15 from COD of Unit-1 to 31.03.2015.

Coram: Sh. Vishvanath Hiremath, Chairman Sh. Vinod Pandya, Member Sh. Raghuvendra Singh, Member

Petitioner: Rajasthan Rajya Vidyut Utpadan Nigam Ltd. (RVUN) Respondent:

1. Jaipur Vidyut Vitran Nigam Ltd (JVVNL) 2. Ajmer Vidyut Vitran Nigam Ltd (AVVNL) 3. Jodhpur Vidyut Vitran Nigam Ltd (JdVVNL)

Date of hearing: 19.03.2015 Present:

1. Sh. P.S. Arya, Chief Engineer, RVUN 2. Sh. M. K. Khandelwal, CAO, RVUN 3. Sh. Ankit Sharma, Consultant, RVUN 4. Sh. S. T. Husain, Executive Engineer, Discoms 5. Sh. D. S. Agarwal, Rudraksh Energy 6. Sh. G. L. Sharma 7. Sh. B. M. Sanadhya, Samta Power

Date of Order: 14.05.2015

ORDER 1.1 Rajasthan Rajya Vidyut Utpadan Nigam Ltd. (in short ‘RVUN’), a

Generating Company under the provisions of the Electricity Act 2003, filed a petition for determination of Aggregate Revenue Requirement (ARR) & Provisional Tariff of KaTPP Unit-1 (1x600 MW) for FY 2014-15 from COD i.e. 07.05.2014 to 31.03.2015 (329 days).

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1.2 In exercise of the powers conferred under Sections 62, 64 and other provisions of the Electricity Act, 2003, read with RERC (Terms and Conditions for Determination of Tariff) Regulations, 2009, RERC (Terms and Conditions for Determination of Tariff) Regulations, 2014 and other enabling Regulations, the Commission has carefully considered the submissions of the Petitioner and the suggestions/objections submitted by the various stakeholders. The Commission has passed the following Order.

1.3 This Order has been structured in 5 sections, as given under:

(1) Section 1: General

(2) Section 2: Summary of filing of Aggregate Revenue Requirement (ARR) & Provisional Tariff and Tariff determination process.

(3) Section 3: Summary of objections/ comments/ suggestions received from stakeholders and RVUN’s response on the instant petition.

(4) Section 4: Determination of provisional Capital Cost of Kalisindh Thermal Power Station-Unit-1 (600 MW) as on COD i.e. 07.05.2014.

(5) Section 5: Determination of ARR and provisional Tariff for KaTPP Unit -1 (1x600 MW) for FY 2014-15 (329 days)

(6) Annexure-1 to Annexure-2

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SECTION 2 Summary of filing of ARR & Provisional Tariff and Tariff determination process.

Summary of Filing 2.1 In accordance with Regulation 6 and Regulation 11 of RERC (Terms &

Conditions for determination of tariff) Regulations, 2014 hereinafter referred to as “RERC Tariff Regulations, 2014”, Rajasthan Rajya Vidyut Utpadan Nigam Ltd. (RVUN) filed a petition for approval of ARR and Provisional Tariff for FY 2014-15 (329 days) of Kalisindh Thermal Power Station-Unit-1 (600 MW) on 19.06.2014.

2.2 The Commission vide letter dated 26.06.2014 communicated data gaps and deficiencies in the ARR and Tariff petition for FY 2014-15. The Petitioner furnished the requisite information vide its letter dated 29.09.2014.

2.3 The matter was heard on 01.07.2014. Sh. A.K. Patni, Addl. Chief Engineer appeared for Petitioner and prayed to admit the petition and allow interim tariff for Kalisindh Unit-I as petitioned till final tariff is determined by the Commission.

2.4 Accordingly, Commission vide its order dt. 04.07.2014 admitted the petition and allowed 80% of proposed tariff as an interim tariff for Kalisindh Unit-I till the final tariff is determined for FY 2014-15 subject to adjustment of final tariff.

2.5 RVUN vide its letter dated 10.10.2014 filed additional submissions claiming Return on Equity and Tax on Return on Equity (RoE) in the ARR and Provisional Tariff for FY 2014-15.

2.6 The Commission vide letter dated 24.11.2014 communicated additional data gaps in the petition. The Petitioner furnished the requisite information vide its letter dated 19.02.2015.

2.7 As required under Section 64(2) of the Electricity Act, 2003, public notice with salient features of the petition inviting objections/ comments/ suggestions from any desirous person was published in the following newspapers on the dates mentioned against each.

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Sr. No. Name of News Paper Date of publishing (i) Rajasthan Patrika 07.12.2014 (ii) Times of India 11.12.2014

2.8 The petition was also placed on RVUN and RERC website. The objections/comments/ suggestions were received from following stakeholders: • Sh. G. L. Sharma • Sh. B. M. Sanadhya representing Samta Power • Sh. D.S. Agarwal representing Rudraksh Energy

2.9 The Commission forwarded the objections/ comments/ suggestions of objectors to RVUN for its replies. The Petitioner replied to the objections/ comments /suggestions made by the objectors vide its letter dated 19.02.2015.

2.10 The Public hearing in the matter was held on 19.03.2015

2.11 To facilitate reference, the abbreviations used in this Order and an index of the issues and points dealt with are placed at Annexure-1 and Annexure-2 respectively.

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SECTION 3 Summary of Objections/Comments/Suggestions received from stakeholders and RVUN’s Response on petition filed by RVUN for ARR and Provisional Tariff for FY 2014-15. Capital cost: Stakeholder’s Suggestions/Comments 3.1 Rudraksh Energy submitted that against the original Project Cost of Rs. 4.6

Crore/MW, the cost had been revised to Rs. 7.9 Crore/MW, which appears to be very high. They requested for information on the actual expenditure incurred up to the COD.

3.2 Sh. G.L. Sharma submitted that RVUN in its reply to data gaps at page 10 has provided the following reasons for delay in commissioning of the Project/Unit: • Inordinate delay in payments leading to delay in supplies by the

vendors and site works by the Contractors. • Non-realization of money had affected the cash flow for the project. • Delay in approval of Railway Siding clearance. • Delay in construction of Kalisindh Dam by Water Resources Deptt. Of

the Govt. of Rajasthan.

3.3 It was further submitted that the above reasons of delay show the mismanagement of finances, slackness in project management like improper coordination between various contractors/agencies. Further, it was submitted that in accordance with APTEL’s order dated April 27, 2011 in Appeal No. 72 of 2010 in the case of Maharashtra State Power Generation Company Ltd. v/s Maharashtra Electricity Regulatory Commission, the cost due to time overrun due to delay in payments to contractors/suppliers, mismanagement of finances, slackness in project management like improper coordination between various contractors should be borne by the generating company. Therefore, he has requested to disallow Interest during Construction (IDC) increase of Rs. 1872 Crore and reduce the capital cost accordingly.

3.4 Sh. G.L. Sharma submitted that as per table available at page 7 of reply to data gaps, the off shore supply cost as per Contract awarded has been Rs. 1603.40 Crore and now as per 187th meeting of BOD dated

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4.5.2011 it has been stated as Rs. 1863 Crore on account of variation in the exchange rate of Dollar. It was further submitted that in the Contract awarded, the rates were firm but for off-shore supplies it was in Dollars. Hence, the cost of off-shore supplies has increased due to variation in exchange rate. Accordingly, applying exchange rate variation on the total contract price does not appear to be correct. In this regard, he further submitted that Clause/Para 7 of the detailed Order dated 13.10.08 provides the details of Terms of Payment (at page 21 of data gap reply) which states as follows:

(i) First initial advance @5% of the Contract Price against LoI. (ii) Second initial advance @ 5% of the contract price on execution of

contract agreement (iii) Third 5% of contract value after approval of design & drawings (iv) 75% payment against receipt of material at site, and, (v) Final 10% payment including the following

a) 3 % payment to be released on completion of trial run of 1st Unit b) 2% payment to be released on final taking over of 1st Unit c) 3 % payment to be released on completion of trial run of 2nd Unit d) 2% payment to be released on final taking over of 2nd Unit

3.5 In this regard, he submitted that with the above percentages of payment, the incidence of variance of exchange rates should be put along with the dates on which such payments have been made. He further requested RVUN to provide the details of payment along with date of such payment to suppliers, so that actual increase in cost due to variation in exchange rate could be computed. Accordingly, the Commission should determine the capital cost of the Unit.

3.6 Sh. G.L. Sharma submitted that the evaluation of contract prices of bidders has not been correctly done. From the statement available at page 16 of the replies to the objectors, the Petitioner has not provided the details of (i) Guaranteed PLF., (ii) Guaranteed Design Heat Rate of the Unit, (iii) Guaranteed Boiler Efficiency with percentage moisture. In absence of such parameters, the evaluation may not be correct.

3.7 Sh. G.L. Sharma submitted that at page 15 of the replies to the objector, the prices of BHEL were firm in ‘INR’, whereas, in case of M/S BGRESL, the prices of off shore supplies portion was in terms of ‘Dollar’ which has the

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effect of variation in exchange rate and thus cannot be said to be firm. This aspect should be carefully taken into consideration.

3.8 Sh. G.L. Sharma submitted that M/S BGRESL has not given any break-up of taxes and duties and it may lead to financial burdening of consumers. Further, BHEL has given the detailed breakup of prices, amount of taxes and duties, freight & insurance, details of mandatory spares (quantity, rate, amount, taxes & duties, etc.). However, M/S BGRESL has not given any such information except for off-shore components. M/S BGRESL has not even mentioned the details of amount of taxes and duties (for indigenous as well as off-shore portion), details of mandatory spares (quantity and amount). In this regard, clarification should be provided.

3.9 Sh. G.L. Sharma submitted that RVUN has placed an Order with M/s Lloyd’s Register Asia, New Delhi for Third Party Inspection of steam generator (boilers), steam turbine generators and auxiliaries during manufacturing at M/s DEC & its vendors in China at a lump sum price of Rs. 3.00 Crore. RVUN has stated that it has appointed Third Party Inspector to take care of quality of the equipment. However, Third Party Inspection was not required as there was provision of Performance Guarantee and Contractor Guarantee in the Order placed with M/s Lloyd’s Register Asia. Further, para 20 of this Order covered the Control Quality Assurance Programme as a part of the Contract. Thus, an amount of Rs. 3.00 Crore should be disallowed and reduced from the Capital Cost.

3.10 Sh. G.L. Sharma submitted that RVUN has placed an Order for 4 nos. of bulldozers at a total cost of Rs. 6.40 Crore. This includes a sum of Rs. 7.94 lacks for Annual Maintenance Charges for 3 years. Annual Maintenance Charges are part of normative O&M expenses and as such inclusion of such amount is not correct and should be reduced from capital cost. Further, RVUN has placed an Order for erection, testing & commissioning including all civil, structural & mechanical works including operation & maintenance of the existing & new system of River Water System for 5 years. Such O&M amount in this capital cost is Rs. 3.08 Crore and this should be reduced from the Capital Cost. It was further submitted that RVUN has placed an Order with M/s IVRCL Infrastructures & Projects (page 100 of data gap) for Rs. 47.72 Crore for River Water System of 2x600 MW Project. In the Scope of Work, para/clause 5, of the

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Order operation & maintenance of water conveying system from Kalisindh River to plant site for period of five years is included. Such amount of O&M should also be reduced from the Capital Cost of the Project.

3.11 Sh. G.L. Sharma submitted that cost of Dam which was originally estimated as Rs. 50 Crore has been increased to Rs. 799 Crore. This amount is being capitalized as a part of Kalisindh Power Project. However, this Dam is for the use of two towns of Jhalawar & Jhalrapatan and 107 villages for drinking purpose. Further, as per the data gap reply, share cost of Kalisindh Major Irrigation Project will be paid by RVUNL in the ratio of water utilization at 90% dependability which works out to be 12:18 for energy & WRD respectively. Hence, in all circumstances, cost of Dam cannot be fully capitalized as a part of this project and has to be shared in the ratio of 12:18, as mentioned above. Similarly, additional cost of Rs. 15.69 Crore in respect of marshalling yard is also not admissible and should be reduced from the Capital Cost. Also, cost of Rs. 77 Crore in respect of Permanent Township is also not admissible and should be reduced from the Capital Cost.

3.12 Rudraksh Energy and Sh. G.L. Sharma have submitted that the capital cost for Unit-1 as per Form 6.9 is indicated as Rs. 5083 Crore whereas as per the petition, the capital cost as on 07.05.14 (COD) is submitted as Rs. 5555.18 Crore. They requested for clarification on this discrepancy.

3.13 Referring to the proposed cost of Unit- 1 as Rs. 5555.18 Crore which is 59% of the total project cost of Rs. 9479.51 Crore, Rudraksh Energy requested that the capital cost of Unit-1 & 2 be divided equally as against the proposed higher cost for Unit-1 as compared to Unit-2. Sh. G L Sharma also submitted that the ratio of Capital Cost for Unit-1 and Unit-2 works out to 58.60:41.40.

3.14 Referring to the capitalisation certificate of CA as available at Page 13 of reply to data gap, Sh. G.L. Sharma submitted that the last Para of the certificate does not clearly say whether the cost of Rs. 5555.18 Crore incurred up to 07.05.2014 is exclusively for Unit-1 or Unit-1 & 2 both, therefore, clarifications should be sought on the same.

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RVUN’s Response

3.15 RVUN submitted that the detailed reasons for increase in Capital Cost have been provided in the Petition. RVUN also provided the copy of certificate from the Chartered Accountant of actual expenditure incurred.

3.16 RVUN further submitted that initially, at the time of filing of the petition, the capital cost of Unit-1 was considered as Rs. 5555 Crore, however, the Statutory Auditors on due verification of the cost had certified that the actual expenditure till the date of COD is Rs. 5082 Crore and the balance amount of Rs. 472 Crore is to be booked as an additional liability. RVUN also provided the head wise details to be booked as additional liability.

3.17 RVUN further submitted that as per the various clauses of EPC contracts awarded to M/s BGRSEL, the expenditure had been bifurcated for Unit -1 & 2 in the ratio 60:40 and other expenses such as on Railways, Dam, River Water System, residential colonies etc have been bifurcated in the ratio of 50:50.Therefore, capital cost of Unit-1is higher than that of Unit -2.

BTG Price: Stakeholder’s Suggestions/Comments

3.18 Sh. G. L. Sharma, referring to the Table at Page 7 of data gap reply, had sought clarification on the increase in prices of Rs. 401 Crore for supply of BTG and Rs. 90 crore for EPC. He also referred to the order for BTG which states that the prices are ‘firm in all respect’. He had also requested for the details of the bid process and bid evaluation statement for award of contract for BTG.

3.19 Referring to the Clause 6 of the contract / order no. 2354 dated 16.7.2009 awarded in favour of M/S. Lloyd’s Register Asia for third party inspection at DEC works during manufacturing of BTG that mentions about the guarantee on operation and performance by the manufacturer for a period of 12 months, Sh. G.L. Sharma submitted that the additional cost of Rs. 3.00 Cr on account of third party inspection be disallowed.

3.20 Rudraksh Energy requested to provide copy of the purchase order of the main BTG Unit stating that, it constitutes the major part of the project cost.

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RVUN’s Response:

3.21 RVUN submitted that there were two bidders namely M/s BHEL and M/s BGRSEL and provided the details of bid evaluation. Further, the order was placed for EPC contract to M/s BGRSEL at an evaluated price of Rs. 4900.06 Crore (USD 450 million + INR 3296.665 Crore) based on the dollar rate @Rs. 39.59 (as on date 10.09.2008). The prices were firm, but the cost increased from Rs. 4900.06 Cr due to upward revision of dollar rate from Rs. 39.59/USD during execution of contract and further increase of Rs. 91 Cr is due to increase in entry tax and labour cess.

3.22 RVUN submitted that the copy of the purchase order of BTG is already provided to RERC with the data gap reply.

3.23 As regard the appointment of third party inspection agency, RVUN submitted that 600 MW Unit BTG package was purchased for the first time by RVUN for which order had been placed on M/s BGR and 600 MW BTG package was being supplied by M/s Dong Fang Electric Corporation, China through M/s BGRSEL. Hence, to take care of quality of the equipment, RVUN had appointed third party inspection agency M/s Lloyd’s Register, Asia.

Return on Equity: Stakeholder’s Suggestions/Comments

3.24 Rudraksh Energy had requested that in order to avoid tariff shock, the Commission may consider allowing RoE @ 8% instead of 15.5% RoE as the same is resulting in tariff increase of 36 paisa/unit.

3.25 Sh. G.L. Sharma had submitted that in the letter dated 10.10.2014 of the Petitioner, equity had been shown as Rs. 1017 Crore. It was further submitted that total equity sanctioned for the project, is Rs. 1544.60 Crore (Rs. 920 Crore as per Govt. Letter dated 6.6.2007 -Page 37 of the petition and Rs. 624 Crore as per Govt letter dated 7.9.2012-Page 43 of the petition). Further, in the statement at page 198 of data gap reply, the equity had been shown as Rs. 472 Crore only. He had requested for clarification of these three different positions.

3.26 Sh. G.L. Sharma submitted that the Petitioner in their letter dated 10.10.14 had stated for having equity as 30% and during the last hearing in respect

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of tariff petition for FY 2014-15, this point was raised and clarified by Petitioner that 30% equity shall be in respect of newly commissioned projects. Now that KaTPP is a new project, therefore Petitioner may clarify the reason for not claiming 30% equity in its petition.

RVUN’s Response:

3.27 RVUN has submitted that the Commission may allow RoE as per the RERC Tariff regulations, 2014.

3.28 RVUN submitted that the funds have been arranged at initial stage of plant being envisaged. Further as per the statement, the total loan drawn was Rs. 8626 Cr for Unit -1 &2. The equity considered for Unit -1 for work completed till date of COD is Rs. 1017 Cr & Rs. 94 Cr for work to be completed. The 20 % of actual capital expenditure incurred up to the date of COD has been funded by the equity capital.

COD (Commercial Operation Date) Stakeholder’s Suggestions/Comments

3.29 Sh. G.L. Sharma submitted that in Para 1.4 of the petition it had been mentioned that KaTPP Unit-1 had achieved the COD on 07.05.2014 whereas, in Para 2.8 it had been stated that notice for trial run commencement was given to Discoms on 27.4.2014 and declaration certificate about COD was sent to Discoms on 8.5.2014. Further it was submitted that RVUN has not submitted any document with regard to the COD on 07.05.2014.

3.30 Sh. G.L. Sharma submitted that at page 208 of the Petition it is mentioned that the Petitioner prior to commencement of trial run of 72 hours issued Fax intimation on 27.4.2014 to CE (RDPPC) of Discoms. In this fax intimation it was stated that “....after rectification of the Boiler Tube leakage, the boiler and factory inspector has cleared the boiler of 600 MW KaTPP Unit-1. The boiler will be lighted up shortly for subsequent synchronization of the Unit with grid and for continuous running of the Unit, the 72 hrs trial run for demonstrating the Maximum Continuous Rating (MCR) of 600 MW Unit-1is likely to be commenced from dt. 03.05.2014.” Such fax message cannot be termed as a notice in accordance with the Regulation 2(19) of Tariff Regulations, 2014. In this regard, he suggested that the notice should be given to the distribution licensees with whom RVUN has tied up for selling of power. This has clearly been mentioned in the Agreement

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entered into by RVUN with the Discoms (at page 171 of the Petition). Hence, the Fax message stated as a notice is not valid and an appropriate Notice should be sent to the Discoms.

3.31 Sh. G.L. Sharma also submitted that it would be perused from the readings available at page 233 of the petition, starting from 20 Hrs. On 03/05/2014, that just after 20.30 Hrs. of this day, the Unit has not been able to take the full load of its installed capacity of 600 MW till 16.40 Hrs. of 04/05/2014. These readings are ranging between 530 MW to 580 MW. Such readings cannot be said as satisfactory for declaration of COD.

3.32 Sh. G.L. Sharma further submitted that the above Fax intimation clearly states that there was leakage in the boiler tube and after rectification of the same Boiler & Factory Inspector cleared the boiler for work. In this regard, he suggested that the boiler was to be lighted up and accordingly this Unit would have been synchronized with the grid for continuous running. Synchronization of the Unit with grid cannot be considered as a notice for 72 hours running to demonstrate the MCR and declaration of COD.

3.33 Further, Sh. G.L. Sharma has requested the perusal of the certificate dated 7.5.2014 of three officers, viz., ACE (Opr) KaTPP, SE (O&M) JVVNL, Jhalawar and XEN (M&P), Jhalawar as available at page 210 of the petition. According to which these three officers have certified that they have witnessed the trial run commencing from 20:00 hrs dated 03.05.2014. In this regard, Sh. G.L. Sharma opined that how these officers have been able to witness the trial run commencing from 20:00 hrs on 03.05.2014 specifically when they were advised to witness the trial run on 07.05.2014, i.e. four days later of the date of commencement and further the trial run also completed on 06.05.2014, i.e. prior to the formation of the Committee. Accordingly, Sh. G.L. Sharma has contended that the above reasons prove that there has been no satisfactory trial run and the certificate issued by the officers was just to fulfil the requirements and cannot be relied upon.

3.34 Sh. G.L. Sharma submitted that as per DPR (page 388 of the Petition) the time schedule for commercial operation of Unit-1 has been 40th month from zero date, i.e. date for placement of Order for main equipment. Further, Order for main equipment was placed on 13.10.2008 (page 16 of

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data gap reply). Thus, as per DPR the 1st Unit was to be commenced on 13.02.2012. In the detailed Order of the equipment, such period has been mentioned as 39 months and accordingly COD of the 1st Unit should have been 13.01.2012. But as per Petition, the COD is given as 7.5.2014, i.e. delayed by 2 yrs 2 months and 20 days. He further submitted that as per Agreement dated 07.06.2007 executed by RVUN with Discoms, the COD of Unit-1 was August 2011 and later as per Agreement dated 18.5.2010 it was revised as December 2011 and even as per Agreement dated 15.12.2010, the COD was also as December 2011. However, as per Petition, the COD is given as 7.5.2014, i.e. delayed by 2 yrs 4 months and 7 days.

3.35 Sh. G.L. Sharma had stated that in the detailed order, commissioning schedule for Unit-1 had been mentioned as 39 months (up to 08.10.2011) (Page 23 of data Gap reply) whereas, the actual COD stated by Petitioner is 07.05.2014. He also referred to the agreement dated 18.5.2010 between the Petitioner & the Discoms wherein COD had been mentioned as Dec 2011, therefore stating that the COD is delayed by 2 yrs and 7 months.

3.36 Sh. G. L. Sharma stated that the Petitioner may provide information about the necessary liquidated damages recovered (if any) and payment of additional charges (if any) on account of variation in the various charges occurred during the period of delay. He also submitted that the amount of excess IDC for such delayed period works out to about 1693.96 Crore.

3.37 Sh. G.L. Sharma also requested information on the following: • The readings of each block of the period 3.5.2014 to 7.5.2014 with the

certificate of completion of successful full load operation. The reading chart of the period 3.5.2014 to 7.5.2014 during which the trial run had been carried out.

• Documents (or copy of such documents) where under the manufacturer of the Unit had guaranteed the maximum continuous output at generator terminals with water or steam injection and corrected to 50 Hz grid frequency and specified site conditions.

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• Whether the boiler feed pumps are steam driven or electrically driven and further whether these Units are with induced draft cooling towers or with natural draft cooling towers or without cooling towers.

RVUN’s Response:

3.38 RVUN submitted that the details of trial run of 72 hrs had already been provided at Page 211 to 225 of the petition. The trial run of 72 hrs starts from 00:00 hrs of 05.05.2014 to 23:50 hrs of 07.05.2014. The meter shows dates in MM/DD/YY pattern. Further, it has provided the details of the guaranteed maximum continuous output at generator terminals.

3.39 RVUN further submitted that the plant had both steam driven and electrical driven boiler feed pumps. At the time of low load ( about 350 MW) , electrical driven feed pumps remain in operation and after increase in load (from 350 MW to upper) the electrical driven feed pumps change over to steam driven boiler feed pumps. The plant had natural draft cooling tower.

3.40 RVUN submitted that the initial delay (about 8-9 months) in construction was due to time taken in environmental clearance and other reasons for delay were delay in construction of water dam & railway siding. Further, the matter related to liquidate damages is still under process and yet to be finalised.

Interest during Construction (IDC) : Stakeholder’s Suggestions/Comments

3.41 Sh. G.L. Sharma citing the reasons for delay, as submitted by the Petitioner, submitted that all the reasons for the delay are due to factors attributable to the Generating Company and in accordance with the judgment of Hon’ble APTEL in Appeal No. 72 of 2010, the entire cost due to time over run had to be borne by the Generating Company. Hence, the total increased IDC of Rs. 1693.96 Cr (approx), as worked out for 2.5 years delay should be disallowed and the capital cost should be reduced to that extent.

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RVUN’s response:

3.42 RVUN submitted that the reasons for delay have been explained in the Petition and requested the Commission to take considered view towards RVUN.

Interest on term loans & finance charges and interest on Working Capital Stakeholder’s Suggestions/Comments

3.43 Sh. G L Sharma submitted that 13 % Interest on term loan & finance charges seems to be on the higher side and Interest on working capital should be allowed on a normative basis.

RVUN’s response:

3.44 RVUN submitted that interest on working capital and Interest on term loan & finance charges have been claimed as per RERC Tariff Regulations, 2014.

O& M Expenses: Stakeholder’s Suggestions/Comments

3.45 Sh. G.L. Sharma submitted that Repair & Maintenance expenses of 4 nos. of bulldozers (referring to the purchase cost for bulldozers of Rs. 6,40,00,260 and an amount of Rs. 7,94,160 for annual maintenance for 3 yrs after the warranty period, as mentioned in the purchase order) and the river water system (referring to order no. 737 dated 30.12.2010 placed with M/s IVRCL Infrastructure & Projects, Jaipur for erection, testing & commissioning) should not be included in the capital expenses stating that the same have already been covered under O & M expenses.

RVUN’s Response:

3.46 RVUN submitted that the annual maintenance of 3 years in respect of bulldozer is a part of work order. RVUN also submitted that the work order for erection, testing and commissioning was not a separate order. It was part of the main civil works, which was divided into two parts – i) supply & ii) erection, testing & commissioning.

Fuel Sale Agreement & GCV of Fuel: Stakeholder’s Suggestions/Comments

3.47 Sh. G. L. Sharma requested for information on the following:

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• Whether the Joint Venture Agreement between the Petitioner & Adani Enterprises Ltd. (AEL) dated 03.08.2007 for coal mining is in line with the GoI letter dated 19/25 June 2007 which states that exploration and coal mining shall be carried out by Petitioner or a separate company to be created out by the Petitioner provided that separately created company is a Govt. Company. Samta Power had also raised the same concern.

• Information on the authority determining transfer price of coal. • Rate of the coal received at pit mouth and the rate components being

added on to the pit mouth rate. • Price list of SECL. • The ceiling rates of coal and the percentage of transit loss. • Grades & GCV of the coal recovered from the mines and whether the

coal is washed coal or unwashed coal.

3.48 In additional written submission, Sh. G. L. Sharma submitted that the Petitioner is using coal from the allotted coal mines “Parsa East and Kanta Basan” coal blocks. As per Regulation 11(8) of Tariff Regulations, 2014, any person who owns or is allotted captive mine for fuel supply to thermal power plant is to file petition to the Commission for determination of fuel transfer price at mine mouth if it is not determinable by the Govt. or government approved mechanism. However, RVUN has neither filed any petition for determination of fuel transfer price nor has supplied any document where under fuel transfer price has been determined by the Govt. or under Government approved mechanism. In this regard, RVUN has replied that selection of JV partner has been with the approval of the Govt. and that price of coal has been through transparent bidding process and as such it is considered to be determined by the Govt. or Government approved mechanism. Such reply of RVUN is not satisfactory and not in accordance with the Regulations.

3.49 He further submitted that the Petitioner at page 94 of the Petition has provided a copy of Order dated 25.7.2008 placed with M/s Aryan Coal Beneficiary Pvt. Ltd. for beneficiation/washing of raw coal grade ‘F’. In this order, transportation charges of Rs. 45.27/MT (=Rs. 20.38 + Rs. 24.89) are also included as mentioned at page 95 of the Petition. Further, in accordance with the DPR para 4.4 (page 255 of the Petition), washery is to be installed at mine head by the JV Partner and Clause 2.1 of the JV

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Agreement clearly states that it is the responsibility of JV Company to undertake all necessary activities for mining, beneficiation, transportation and delivery of coal from the coal blocks to RVUNL TPS in terms of Coal Mining and Delivery Agreement and any other activity incidental or complimentary to the primary objective and permitted by law. Accordingly, there was no necessity to take any help of the Order dated 25.7.2008 placed with M/s Aryan Coal Beneficiary Pvt. Ltd. This washery was to be installed at mine mouth and would have saved the transportation charges of Rs. 45.27 per MT. Therefore, he has requested the Commission to disallow such unnecessary charges and reduce the coal cost.

3.50 Further, Sh. G. L. Sharma submitted that Coal Mining and Delivery Agreement (CMDA) at Clause 5.3d at page 75 of the Petition also states that notwithstanding anything to the contrary herein, in respect of any quantities supplied, the contract price excluding railway freight charges shall never be allowed to exceed the ceiling price. The ceiling price is to be calculated in the performa as given at page 92 of the Petition. However, RVUN has not provided any such calculation. Further, the Petitioner has not furnished the grade of coal mined from the mines, comparison of rates of similar coal with that of SECL, etc. In this regard, he has requested the Commission to determine the coal price considering all the terms and conditions of CMDA and JV Agreement.

RVUN’s Response:

3.51 RVUN made the following submissions in its response: • The State Government has accorded the approval for 26% stake in

Joint Venture Company. RVUN also submitted the details of the same. • The price of the coal at mine mouth had been determined /approved

by the Govt. and also by Govt. Approved mechanism, i.e. through transparent bidding process by inviting wide publicity tenders and ‘No Objection’ of the State Govt. was also obtained for issuance of “Letter of Intent” for selection of JV partner as approved by BOD of RVUN for developing and operating the mine in the coal blocks and undertaking all necessary activities for mining, beneficiation, transportation and delivery of coal blocks to RVUN TPS. Thus, the procedure adopted to determine fuel transfer price is covered under sub regulation 7 of Regulation 12 ‘Petition for determination of transfer prices or landed

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price of fuel’ of RERC tariff Regulations, 2009 and therefore petition for determination of transfer price or landed price of fuel is not applicable in case of coal being mined & supplied to CTPP Unit -1&2 and KaTPP Units 1&2 from Parsa East & Kanta Basan coal blocks.

• The coal being received is washed coal with calorific value of 4500 kcal/kg.

• The applicable contract price dated 16.09.2014 (excluding Railway freight) is Rs. 1236.20 per MT and this price includes all the taxes, cess, royalty, duties etc (details as in Annexure J & K).

• KaTPP is not using SECL coal. • Actual rate of coal vary from rack to rack. RVUN submitted the details

in support of GCV & price of coal. • As per the agreement, the payment of coal received from coal mines

is being made for the quantity received at TPS and hence, there is no transit loss.

• As per the agreement, the contract price will always be within the limit of the ceiling price.

Station Heat Rate (SHR): Stakeholder’s Suggestions/Comments

3.52 Sh. G.L. Sharma requested for information on the following: • Method of arriving at the SHR value of 2320.63 kcal/kWh. • Pressure and temperature rating of the Unit. • Actual turbine cycle heat rate • Design heat rate guaranteed by the supplier with copy of documents

RVUN’s Response:

3.53 RVUN submitted as follows: • The SHR had been taken as 2320.63 kCal/kWh based on 2220.7 (Design

Heat Rate) X 1.045, as per RERC norms. • Main stream pressure 16.67 mpa & Temp 538 degree C. • Turbine cycle heat rate 8074 kJ/kWh (on 100% TMCR ,0%make up),

turbine cycle heat rate 8032 kJ/kWh (on 100% TMCR,3% make up), turbine cycle heat rate 8241 kJ/kWh (80% TMCR,0% make up), turbine cycle heat rate 8202 kJ/kWh (on *0% TMCR, 3% make up)

• Boiler efficiency 86.84% • Design heat rate - 2220.7 kCal/kWh. • Station heat rate 2320.63 kCal/kWh

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RVUN also submitted the supporting documents for the above parameters.

Unit Size: Stakeholder’s Suggestions/Comments

3.54 Rudraksh Energy requested to provide the reason as to why the Unit size of 600MW was selected against the normal size of a super critical Unit as 660 MW.

RVUN’s Response:

3.55 At the time of approval of DPR, there was no concept of super critical power plant and it was a sub critical plant of capacity 500 MW. Further, the design of boiler was 500 MW + or – 20% and DPR was also approved of 500 MW + or – 20%. Therefore, RVUN considered the capacity of the plant as 600 MW i.e. the maximum capacity as approved in the DPR.

Water Utilisation: Stakeholder’s Suggestions/Comments

3.56 Sh. G.L. Sharma submitted that copy of 187th meeting of BOD dated 04.05.2011 had not been provided with the letter dated 31.07.2014 (Page 205) of SE (PP) RVUN addressed to SE (Commercial) RVUN. Further, the letter does not throw any light on the quantum of water to be utilised by KaTPP and the ratio of utilisation of water between KaTPP and other agencies, if any. He further requested the Petitioner to provide reasons for the increase in the cost of dam from Rs. 50 Crore to Rs. 799 Crore.

RVUN’s Response:

3.57 RVUN in reply submitted that it has provided the copy of the 187th BOD meeting. RVUN further submitted that the water shall be utilised for plant and drinking water system for nearby villages. In this regard, the reasons of increase in dam cost had been mentioned in the 235th BOD meeting attached with the petition, in which the cost had been estimated by the Water Resources Department. RVUN provided the detailed justification towards increase of cost of water dam from Rs. 50 Crore to Rs. 760 Crore along with the cost estimation by the Water Resources Department.

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Insurance Charges: Stakeholder’s Suggestions/Comments

3.58 Rudraksh energy asked RVUN to provide information on the amount and date of insurance premium payment and the name of insurance company referring to the revised insurance charges of Rs. 9.95 Cr against Rs. 10.86 Cr as shown in the original petition. Sh. G.L.Sharma had requested for relevant documents for claiming the insurance charges.

RVUN’s Response:

3.59 RVUN submitted that the insurance charges have been taken in the original petition as Rs. 10.86 Crore, considering the capital cost as Rs. 5555.18 Crore. It was further revised to Rs.9.95 Crore on the basis of the capex incurred up to COD as Rs. 5082.88 Crore as per RERC Tariff regulations, 2014. However, no expenditure had been incurred so far against the insurance charges by RVUN, as the same was borne by M/s BGRSEL till the date of final takeover of the plant.

Miscellaneous: Stakeholder’s Suggestions/Comments

3.60 Sh. G.L. Sharma submitted that expenses on account of CSR should not be admissible.

3.61 Samta Power suggested for implementation of TQM (Total Quality Management), TPM (Total Productive Management) and TAP (Transparency Accountability Participatory) as management tools for improving efficiency and productivity.

3.62 Further, Samta Power requested the Commission to get the details examined from CBI/CAG as well as also get the aspects of socio economic and socio psychological examined.

3.63 Samta Power submitted that the reasons for importing some equipment from China may be clarified and whether the provisions for spare parts and repair services for such equipment have been made.

3.64 Samta Power had sought reasons for forming Joint Venture Company for coal mining.

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3.65 Samta Power submitted that the reasons for delay in submission of replies to data gaps by the Petitioner and not having audio/visual presentation for public may be explained. Further, the list of stakeholders and Respondents be made available.

RVUN’s Response:

3.66 RVUN submitted that as the Commission has already decided the matter in its order date 9th October, 2014, it has no objection on the issues of CSR.

3.67 Further, RVUN appreciates the concern of the stakeholders regarding implementation of management tools and shall try to implement them in future.

3.68 RVUN submitted that the plant had been ordered on the basis of International Bidding. Further, the decision was taken on the basis of lower bid. The necessary steps/arrangements shall be made for procurement of spare as per the requirement of the plant by the plant authority.

3.69 RVUN submitted that the joint venture company has been formed as per direction of the State Government which has accorded the approval for 26% stake in JV Company.

3.70 RVUN submitted that for preparation of petition, various information and data have to be collected from various plants and offices of RVUN. RVUN also provided the details to the stakeholders.

Normative Expenses Stakeholder’s Suggestions/Comments

3.71 Sh. G.L. Sharma submitted that normative expenses such as O&M expenses, depreciation, interest on term loans (after deducting the equity to be applied on the debt amount), WCL, etc. should be allowed as per Regulations and based on Capital Cost determined and admitted for purpose of determining the tariff.

Commission’s Views on Issues Raised by Stakeholders

3.72 The Commission has taken note of all the comments/suggestions/ observations of the stakeholders raised in writing as well as during the course of hearing and RVUN’s responses to them. The Commission has attempted to capture all the comments/suggestions/observations.

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However, in case any comment/suggestion/observation is not specifically elaborated, it does not mean that the same has not been considered. The Commission has considered all the issues raised by the stakeholders and RVUN’s response on these issues while carrying out the detailed analysis of the ARR and provisional Tariff for FY 2014-15 in accordance with RERC Tariff Regulations, 2014 as detailed in the next Section of the Order.

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SECTION 4

Determination of provisional Capital Cost of Unit-1 (600 MW) Kalisindh Thermal Power Project- (2X600 MW) as on COD i.e. 07.05.2014.

In the subject petition, the Petitioner has submitted the following:-

4.1 Kalisindh Thermal power project is coal based power project of the Petitioner located in Nimodha, Devri, Karmakheda, Undel & Narayanpura villages of Jhalawar district. The site is 12 Km away from National Highway-12 and about 4 km. to 5 km. away from State Highway-19.

4.2 The proposal for setting up 2x500 MW Kalisindh Unit-1 and Unit-2 was approved by the Board of Directors in its 117th meeting held on January 06, 2007. The State Govt. accorded “Administrative & Financial” approval vide its letter dated 06.06.2007 at an estimated project cost of Rs. 4600 Crore comprising of equity support of Rs. 920 Crore from the State Govt. and debt portion (borrowings from PFC/Commercial Banks) of Rs. 3680 Crore.

4.3 The State Government vide its letter dated 25th and 26th of June, 2007 accorded approval for revising the Unit sizes of Kalisindh Thermal Power Project from 2X500 MW to 2X600 MW. Further, the Board of Directors in its 187th meeting held on dated May 04, 2011 increased the estimated capital cost from Rs. 4600 Crore to Rs. 7723 Crore. The Government of Rajasthan vide its letter dated 09.08.2011 and 07.09.2012 accorded approval of enhanced capital cost and additional equity support respectively.

4.4 Out of the total project cost of Rs. 7723 Crore for Kalisindh Unit-1&2, equity support from GoR was approved as Rs.1544.60 Crore and balance amount of Rs. 6178.40 Crore was to be arranged as borrowings from FIs / Commercial Banks. Power Finance Corporation (PFC) vide its letters dated March 31, 2008 and November 14, 2011 sanctioned term loan of Rs. 3680 Core and Rs. 2498.4 Crore respectively, totalling to Rs. 6178.4 Crore.

4.5 The Board of Directors of the Petitioner, in its 235th meeting held on dated 27th March, 2014 accorded approval for increase in the estimated project cost from Rs. 7723 Crore to Rs. 9479.51 Crore. The increase was necessitated mainly due to increase in the cost on account of “Interest

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During Construction and financing charges” from Rs. 907 Crore to Rs. 2502 Crore due to delay in completion of the project.

4.6 The State Govt., vide its letter dated 11.08.2014 accorded approval for increase in the estimated project cost from Rs. 7723 Crore to Rs. 9479.51 Crore with the condition that the additional equity will be provided by the State Govt. taking into consideration the actual cost of the project to be determined by the RERC.

4.7 The Petitioner submitted that the Unit-1 (1X600 MW) of Kalisindh Thermal Power project (2X600 MW) has achieved COD on dated 07.05.2014.

4.8 The Petitioner submitted the detailed breakup of original estimated project cost and revised project cost, as shown in the table below:

Table 1: Breakup of Capital Cost of project (2x600 MW) (Rs. Crore)

Sr. No. Description

Original Sanctioned Project Cost

Revised Project cost (187th BoD meeting dated. May 04, 2011)

Revised Estimated Project Cost as on anticipated COD of Unit-2

1 Land & Site Development 12 20.5 18.47 2 Access 3 3 11.40

3 Temporary Construction & Enabling works 3 6

4.75

4 Water Storage System 50 760 799

5 Water Transportation System 75 86 86

6 Railway System 75 228 243.69

7 Steam turbine generator island including taxes, duties & ETC

2010

5301 Crore (Total EPC Contract)

5391 Crore (Total EPC Contract)

8 Balance of Plant (Incl. in EPC Contract) 1453

9 Control & Instrumentation (Incl. in EPC Contract) 54

10 Operators Training 2 11 Start up fuel 5 12 Construction Insurance 5

12(a) Special T&P 10

Sub Total of 7 to 12(a) 3539

13(a) Other Works (EPC exclusion)

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Sr. No. Description

Original Sanctioned Project Cost

Revised Project cost (187th BoD meeting dated. May 04, 2011)

Revised Estimated Project Cost as on anticipated COD of Unit-2

i Construction of permanent township

Included in 8 77

156 (Total for Other

Works)

ii Construction of Store & Colony boundary wall and fencing 6

iii Construction of store shed/field hostel 5

iv Fire tender & Dozer 8

v Additional raw water reservoir for 20 days storage (2 million m3) 70

vi Third party inspection agency 3

14 Total cost of works ( sum of 1 to 13) 3757 6573.5 6710.31

15 Overheads 15.1 Development Expenses 4 4 4 15.2 Legal Expenses 4 4 4

15.3 Establishment/Construction supervision @ 2% 75 75

75

15.4 Consultancy & Engineering 10 10 10 15.5 Audit and Accounts @ 1% 38 38 38 15.6 Contingency @ 3% 112.2 112.2 112.2

Total (15) 243.2 243.2 15.7 CSR 0.00 0.00 24.00

16 Project cost excl. financial cost & IDC ( Total of 1 of 15)

4000.2 6816.7 6977.51

17 Financing & IDC

17.1 Financial expenses @ 1% 36.8 57 57

17.2 Interest during Construction 564 (20:80) 850 2445

Total (17) 600.8 907 2502

Total Project cost incl. financial cost & IDC (Total of 16& 17)

4601 7723 9479.51

Commission’s Analysis

Regulation 16(3) of RERC Tariff Regulations, 2014 states as follows:

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“The capital cost shall be admitted by the Commission after prudence check and shall form the basis for determination of tariff. Provided that the actual capital expenditure as on COD for the original scope of work based on audited accounts of the company may be considered subject to prudence check by the Commission. If sufficient justification is provided for any escalation in the capital cost beyond the original scope of works, the same may be considered by the Commission during prudence check.”

4.9 The Commission observes that the project comprises of two Units of 600 MW each and only one of the two Units has achieved COD on 07.05.2014. The Unit-2 of the project is yet to achieve the COD. The DPR and the original as well as subsequent sanctioned estimated project cost are combined for both the Units. The booking of actual capital expenditure in the books of accounts of the Petitioner is also combined for both the Units. The Petitioner has filed the petition for determination of the provisional capital cost of Unit-1 based on allocation of actual capital expenditure on certain assumption basis. Since the complete project has not achieved COD, the completed project cost is not available and the Petitioner in its Petition has only submitted revised estimates of the Capital Cost for the entire Project. The Commission also observes that the combined orders have also been placed for both the Units. The Commission is, therefore, of the view that as the actual capital expenditure incurred for the entire Project is not available at this stage and the capital cost of Unit -1 depends upon the capital cost of the entire project, the Commission at this stage can only provisionally approve the capital cost. Therefore, the Commission, in this Order, has carried out the preliminary prudence check based on the information provided by the Petitioner and has provisionally approved the estimated capital cost of the Project for the purpose of approving the provisional tariff for Unit -1 for FY 2014-15 i.e. from COD i.e. 07.05.2014 to 31.03.2015 with certain directions to be complied with at the time of filing the petition for final approval of the capital cost of the project. The Commission shall undertake final determination of capital cost based on detailed prudence check after the project has achieved COD and the capital cost as on COD is audited and made available by the Petitioner. The Commission directs RVUN to file the Petition for approval of final capital cost and Tariff for Unit-1 along with the petition for approval of the final capital cost and tariff of the entire project i.e. Unit-1 & Unit-2 based on completed actual Capital Cost as on COD of Project. The Commission

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also directs RVUN to get the completed Capital cost of the entire project audited by the Statutory Auditors after COD of Unit-2 and submit the Statutory Auditor’s certificate of actual capital cost based on audited accounts along with the petition for determination of the final capital cost and approval of final tariff of the entire project.

4.10 The Commission for carrying out the preliminary prudence check of the Capital Cost asked RVUN to submit the detailed package wise reasons for increase in the revised estimated Capital Cost with respect to the original estimated Capital Cost. RVUN in its reply, submitted the reasons for increase in capital cost, as discussed hereunder:-

Land and Site Development:

4.11 RVUN submitted that the revised project cost estimate in respect of land and site development is Rs. 18.47 Crore as against the original project cost estimate of Rs. 12.00 Crore.

Access:

4.12 RVUN submitted that the revised project cost estimate under the head “Access” increased to Rs. 11.40 Crore against the original project cost estimate of Rs. 3.00 Crore which has resulted in increase of estimated project cost under the head by Rs. 8.40 Crore. The revised project cost estimate includes works of Road from plant gate to SH-19A, security barrack and balance roads outside plant boundary.

Temporary Construction and Enabling Works:

4.13 RVUN submitted that the original estimated project cost provision under the head was Rs. 3.00 Crore which was revised to Rs. 6.00 Crore in BoD meeting dated May 4, 2011 and the same is now revised / estimated as Rs. 4.75 Crore.

Water Storage System:

4.14 RVUN submitted that the Water Resources Department (WRD), Government of Rajasthan, is constructing dam on Kalisindh River as Deposit work of RVUN. RVUN further submitted that the original project cost estimate for Water Storage System was Rs. 50.00 Crore. However, after considering the revised estimate furnished by WRD, estimated project cost was revised to Rs. 760 Crore. RVUN submitted that WRD has

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again revised the estimated cost and increased it to Rs. 799 Crore resulting in a further increase in capital cost by Rs. 39 Crore.

Water Transportation System:

4.15 RVUN submitted that against the original project cost estimate of Rs. 75 Crore under the head “Water Transportation System”, the estimated cost has been revised to Rs. 86 Crore.

Railway siding:

4.16 RVUN submitted that the revised cost estimates were considered as per DPR submitted by M/S IRCON to WCR, Jabalpur, being done as deposit work. The original project cost was estimated as Rs. 75 Crore, which was subsequently revised to Rs. 228 Crore and now revised to Rs. 243.69 Crore.

EPC Contract

4.17 RVUN submitted that the provision for EPC contract as per original estimated project cost was Rs. 3539 Crore. However, the contract / award for EPC contract was finalized at an evaluated price of Rs. 4900.80 crore which includes foreign component of 405 Million USD, evaluated at Rs.39.59 per USD. The estimated cost was revised by the BoD as Rs. 5301 Crore in its 187th meeting held on dated May 4, 2011. The EPC contract was placed on M/S BGRESL, Chennai, as detailed here under;

Table 2: Breakup of Cost of EPC Contract (Rs. Crore)

Sr. No.

Item As per contract awarded Approved project cost as per 187th meeting held on 04.05.2011

1 Off shore supplies

405 million USD ( Rs. 1603.40 Crore @ Rs. 39.59 per USD)

405 million USD ( Rs. 1863 Crore @ Rs. 46 per USD)

2 T&D off shore supplies

Rs. 431.29 Crore Rs. 502.29 Crore

3 On shore Supplies


4 Civil work and ETC


5 Entry tax to be paid as per contract Rs. 19.00 Crore 6 Labour cess Additional liability Rs. 51.00 Crore

Grand Total Rs. 4900.06 Crore Rs. 5301.00 Crore

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4.18 RVUN further submitted that due to the currency exchange rate variation, the value of the contract has further been increased by Rs. 90 Crore to Rs. 5391 Crore.

Other Works & Third party Inspection

4.19 RVUN submitted that the cost of other civil and mechanical works which were not included in the scope of EPC contract and third party inspection are as under:

Table 3: Breakup of Cost of Other Works and Third Party Inspection (Rs. Crore)

Sr. No. Description

Original Project

Cost

Earlier revised

project cost

Now revised project

cost

Increase in

project cost

A Construction of permanent township 0.00 77.00 77.00 0.00

B Construction of plant, and colony, boundary wall and fencing 0.00 6.00 2.28 -3.72

C Construction of store shed/field hostel 0.00 5.00 12.97 7.97

D Fire tender and dozer 0.00 8.00 8.00 0.00

E Additional raw water reservoir for 20 days storage 0.00 70.00 52.00 -18.00

F Third party inspection agency 0.00 3.00 3.75 0.75

Total 0.00 169.00 156.00 -13.00

Overheads:

4.20 RVUN submitted that the Corporate Social Responsibility Policy adopted by RVUN was approved by Government of Rajasthan on May 20, 2011. RVUN further submitted that CSR works of Rs. 24.00 Crore have been identified by CSR Implementation Committee of the project site and proposed to be carried out for upliftment of project affected persons and project affected area as per provision laid down in the policy, i.e. @ Rs. 2.00 Lakh per MW of installed capacity. RVUN accordingly submitted that the project cost has been increased by Rs. 24.00 Crore on account of one time implementation of CSR.

IDC & Financial Cost:

4.21 RVUN submitted that in the original estimated project cost, there was a provision for “IDC & financing cost” of Rs. 600.80 Crore including Rs. 564 Crore on a/c of IDC and Rs. 36.80 Crore on a/c of financing cost. This was

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subsequently revised to Rs. 907 Crore including of Rs. 850 Crore on a/c of IDC and Rs. 57 Crore on a/c of financing cost. Due to delay in commissioning of the project, the estimated project cost under the head “IDC & financing cost” has been further revised to Rs. 2502 Crore including Rs. 2445 Crore of IDC and Rs. 57 Crore on a/c of financing cost. The Petitioner accordingly submitted that this has led to an increase in estimated project cost by Rs. 1901 Crore, in comparison to original estimated project cost

4.22 RVUN also submitted the cost allocation of total expenditure of KaTPP in Unit-1 and Unit-2 up to COD 07.05.2014 which is as shown in the table below:

Table 4: Capital Cost of KaTPP Unit -1&2 as on 07.05.2014 (Rs. Crore)

S.No Particular Unit-1 Unit-2 Total

1 Land & land rights 10.49 10.49 20.99

2 Building & Civil works of Power

plant 767.38 504.05 1271.44 3 Hydraulic works 703.85 660.66 1364.51 4 Other Civil works 182.31 171.22 353.53 5 Plant & machinery 3889.99 2577.91 6467.89 6 Lines and Cable Networks 0.00 0.00 7 Vehicles 0.07 0.07 8 Furniture & fixtures 0.86 0.86 9 Office Equipments 0.24 0.24

10 Capital spares 0.00 0.00 Total 5555.18 3924.33 9479.51

• The figures in above heading are subject to change with finalization & audit of Accounts

4.23 The Petitioner submitted that the total estimated cost of the project as on anticipated COD of Unit -2 is Rs. 9479.51 Crore. The Petitioner further submitted that out of the total project cost, Rs. 5555.18 Crore (including IDC of Rs. 1432.82 crore) has been allocated to Unit-1 and Rs. 3924.33 crore has been allocated to Unit-2.

4.24 The Commission in its data gaps further asked the Petitioner to provide the statement of actual capital expenditure incurred up to the Commercial Operation Date of Unit-1, duly certified by the Statutory Auditors. Further, the Commission also asked for the copies of the orders placed for Unit-1 for main plant equipment, BOP, Civil Works and all other packages.

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4.25 The Petitioner vide its letter no. RVUN/CE (PPMC&IT.)/F.D.1462 dated September 29, 2014 provided statement of actual capital expenditure, duly certified by the Statutory Auditors. Further, the Petitioner also submitted the copies of the purchase orders/work orders, as detailed below: • Purchase Order for off shore supplies – M/s BGR Energy Systems Ltd. • Purchase Order for on shore supplies – M/s BGR Energy Systems Ltd. • Work Order for Civil, Erection, Testing and Commissioning Works – M/s

BGR Energy Systems Ltd. • Quality Assurance (QA)/Quality Surveillance (QS)/Third Party Inspection

(TPI) of Steam Generators (Boilers), Steam Turbine Generators and Auxiliaries during manufacturing – M/s Lloyd’s Register Asia, New Delhi

• Design, Engineering, Manufacture, Assembly, Testing at Works, Supply, Erection, Testing & Commissioning of all Electrical System including 33 kV overhead transmission line and Instrumentation & Control System on turnkey basis for River Water System – M/s SPML Infra Limited.

• Consultancy Engineering Services – M/s TCE Consulting Engineers Ltd., Bangalore

• Outside Electrification of colony – M/s Ishwar Metal Industries • Design, Manufacture, Supply & Commissioning of 4 nos. 2x600 HP, Twin

Power Pack Diesel Hydraulic Shunting Locomotives with all accessories, tools & tackles and mandatory spares – M/s SAN Engg. & Locomotive Co. Ltd.

• Design, Manufacture, Supply, Delivery, Testing & Commissioning of 4 nos. BEML model 155 bulldozers – M/s BEML Ltd.

4.26 The Commission has gone through the submissions made by the Petitioner and observes that the Petitioner has merely stated the facts without giving appropriate justification for the increase in the Capital Cost. The Petitioner has not submitted the detailed reasons for increase in the estimated capital cost for some of the works / packages. The Petitioner is directed to submit the detailed individual package wise reasons for increase in the actual project cost as compared to the original project cost estimates in its petition for approval of the capital cost of both the Units i.e. project. The reasons should elaborate the basis on which the original cost estimates were considered vis-à-vis the actual project cost. In case, some of the works / packages were not considered in the original project cost estimates and the same are now considered in revised

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project cost, the reasons should elaborate the basis on which the same were not considered in the original project cost estimates and the basis on which the same are now being considered in the revised project cost, alongwith the supporting documents.

4.27 The Commission has gone through the responses submitted by the Petitioner and has provisionally approved the capital cost of Unit -1, as discussed below:-

Scheduled Completion Period

4.28 The Commission observes that as per the EPC contract, the Unit -1 and 2 were scheduled to be commissioned within 39 months and 42 months respectively from the date of Letter of Award (LOA) issued to the EPC Contractor. The LOA was issued to the EPC Contractor on dated 09.07.2008. Accordingly as per the schedule, Unit -1 was scheduled to be commissioned by October 08, 2011 and Unit -2 was scheduled to be commissioned by January 08, 2012. As per DPR, the Unit-1 was scheduled to be commissioned within 40 months and Unit-2 within 6 months thereafter from the zero date i.e. the date of the placement of order for the main equipment, which was 09.07.2008. According to DPR, the scheduled completion date for Unit -1 was 8 Nov. 2011. After taking into consideration the submission made by the Petitioner, the Commission considers the scheduled commissioning date as October 08, 2011.

Date of Commercial Operation (COD)

4.29 Some of the objectors have objected on the procedure followed by RVUN for declaring COD of Unit -1. The Commission has gone through the submission of RVUN, including the certificate declaring successful trail run for Unit -1 and has accordingly considered the actual COD of Unit -1 as 07.05.2014.

Delay in commissioning of the Unit

4.30 The Petitioner submitted that the Unit-1 of Kalisindh Thermal power project has achieved COD on dated 07.05.2014. Thus, there is delay of around 31 months in commissioning of the Unit-1. The COD of Unit -2 is yet to be achieved.

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4.31 The Commission, vide its data gap letter dated 26.06.2014 directed the Petitioner to submit the detailed package wise reasons for such delay in achieving COD of Unit-1.

4.32 The Petitioner in its response submitted that earlier the Units-1&2 of KaTPP Project were planned to be commissioned in 11th Plan period. However, commissioning of Units got delayed due to the following reasons: • Inordinate delay in payments, leading to delay in supplies by vendors

and site works by contractors. • Non-realization of money had affected the cash flow for the projects • Delay in approval of Railway Siding clearance – The environment

clearance/forest clearance for Railway Siding was issued on 19.06.2012 by the MoEF, Regional Office, Lucknow. However, subsequent clearance by the DFO, Jhalawar was issued on 11.09.2012 and after that the work on Railway Siding was started on 16.09.2012.

• Long spell of rains in the year 2011 and 2012 in the region having black cotton soil, has badly hampered the progress at site. The local soil characteristics further limited the progress of erection work at site during rainfall. Further, during the rainfall, the condition of roads worsened, which made it difficult to deliver material and heavy machinery.

• Delay in construction of Kalisindh Dam by Water Resources Department.

4.33 The Commission, vide its letter dated 24.11.2014, further asked the Petitioner to submit the detailed package wise reasons for delay bifurcating the same into those attributable to the contractor / the Petitioner and those beyond control of the Petitioner. The Petitioner did not submit the desired information and replied that the reasons for delay have already been submitted. The Petitioner also submitted that all activities are interlinked and therefore it is hard to identify whether the delay caused is attributable to the Contractor or the Petitioner.

4.34 After considering the replies / submission made by the Petitioner, the Commission is of the view that reasons like delay in payments and non realisation of money are controllable factors and is entirely attributable to the Petitioner. However, delay on account of getting Railway Siding clearance, construction of dam and long spell of rains is concerned, the

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Commission is of the view that prima facie such factors appear to be uncontrollable in nature.

4.35 Hon’ble APTEL in its Judgment in Appeal No. 72 of 2011 while allowing the impact of increase in costs due to delay in achieving COD has categorically stated as follows: “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 contracts, delay in award of contracts, 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 over run 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.”

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4.36 Hon’ble APTEL in its Judgment with regards to sharing of impact on account of increase in cost due to mix of controllable and uncontrollable factors has ruled as follows:

“7.12. In view of above, we feel that this case falls under category (iii) described in para 7.4. Accordingly, following the principles of prudence check laid down by us, the cost of time over run has to be shared equally between the generating company and the consumers. Admittedly, there is no enhancement in cost of the contract price of the equipment as no price variation escalation was permissible to BHEL beyond the schedule date of completion of the Project according to the terms of the agreement. The impact of time over run beyond the contractual schedule is only on IDC and overhead costs. Accordingly, the same have to be shared between the generating company and the consumers. Excess IDC and overhead costs for time overrun from scheduled date of commissioning to actual date of commissioning has to be worked out on prorate basis with respect to total actual time taken in commissioning of the Unit. 50% of the excess IDC and overhead costs will have to be disallowed. Deduction on account of 50% of the Liquidity Damages received by the Appellant from its suppliers/contractors has also to be allowed from the capital cost, to give due credit for LDs to the consumers. This issue is answered accordingly.”

4.37 Considering the facts and documents submitted by the Petitioner at this stage, it is observed that part of the delay is on account of reasons attributable to RVUN. However, some of the delay in achieving COD was due to factors not in the control of RVUN. Therefore, it is not established that the entire delay was due to reasons beyond RVUN’s control. The Commission is of the view that the present case falls under the category (iii) described in the APTEL ruling cited above.

4.38 The Commission further observes that there is no price escalation clause in EPC contract of M/S BGRES Ltd. for completing the project beyond scheduled completion period. However, there is an impact on account of exchange rate variation in respect of foreign currency payment to the EPC contractor. Thus, there is impact of delay in completion period beyond scheduled completion period only on account of “Interest During Construction” and impact of exchange rate variation for foreign currency payment to EPC contractor.

4.39 Accordingly, the Commission at this stage has provisionally allowed an amount equal to 50% of extra IDC due to delay in completion of the Project for the purpose of approval of provisional capital cost of Unit -1. The Commission will carry out the detailed prudence check of the reasons for delay in completion of the project as on COD of Unit -2 at the

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time of approval of final tariff based on actual Capital Cost as on COD of project. The Commission directs the Petitioner to submit the following information along with its Petition for approval of final tariff based on actual audited capital cost till COD of Project. • Activity wise Original L2 level Schedule agreed with EPC Contractor • Activity wise Actual L2 level schedule • Steps taken by the Petitioner to mitigate the delay with supporting

documents. • Complete detailed reasons for package wise delay in completion

clearly identifying the impact of delay in completion of the project on account of each reason.

• Bifurcation of the impact of each reason whether the same is attributable to the contractor or the Petitioner or due to uncontrollable factor. Whether each reason for delay was within or beyond control of the Petitioner with supporting documents.

• The Petitioner should also furnish the copies of the correspondence exchanged between the contractor / agency and the Petitioner in support of the reasons for delay.

Approval of Hard Cost

4.40 The Commission observes that initially the project cost was estimated as Rs. 4601 Cr including IDC and financing cost amounting to Rs. 600.80 Crore. The project cost was revised to Rs. 7723 Crore including IDC and financing cost amounting to Rs. 907 Crore. Again, the capital cost was revised to Rs. 9479.51 Crore including IDC and financing cost of Rs. 2502 Crore. Accordingly, the hard cost (without IDC & financing cost )of the project was originally estimated as Rs. 4000 Crore which was revised to Rs. 6816.70 Crore and then again to Rs. 6977.51 Crore.

4.41 The Commission observes that some of the works were not anticipated in original project cost estimates. However, the same have been considered in subsequent revisions. Further, in respect of some of the works/packages, the estimated cost has been increased abnormally as compared to the cost as per original project cost estimates. The Commission vide its data gap letter dated 26.06.2014 and 24.11.2014 directed the Petitioner to furnish the detailed package wise reasons for increase in estimated cost with supporting documents. The Petitioner was also directed to furnish the detailed justification for inclusion of some of

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the works/packages in subsequent revisions which were not considered in original cost estimates. In case, these works/packages were essential, the reasons for not considering the same in original cost estimates should be elaborated. The Petitioner has submitted its replies for certain components of the hard cost, but for certain components of the hard cost, the Petitioner has not submitted the complete details.

4.42 The Regulation No. 16(3) of RERC Tariff Regulations, 2014, provides as under:-

“The capital cost shall be admitted by the Commission after prudence check and shall form the basis for determination of tariff. Provided that the actual capital expenditure as on COD for the original scope of work based on audited accounts of the company may be considered subject to prudence check by the Commission. If sufficient justification is provided for any escalation in the capital cost beyond the original scope of work, the same may be considered by the Commission during prudence check.”

4.43 The Commission is of the view that the revised estimated capital cost of Rs. 7723 Crore was on the basis of fairly actual data and has also factored the actual award of EPC contract price and therefore the Commission has considered the estimate of Rs. 7723 Crore as the base case capital cost and has examined the variation in expenses with regards to the base case capital cost which is as discussed below. However, in cases where significant variation in revised estimated expenses is observed vis-à-vis the original estimated cost in the DPR, the Commission has issued suitable directions to RVUN for submission of detailed justification along with the petition for determination of final capital cost of the project.

4.44 The Commission at this stage for the purpose of approval of provisional tariff for Unit-1 has considered the allocation of the total cost for Unit-1 in the same proportion as allocated by the Petitioner. The Commission for the purpose of approval of provisional tariff for Unit-1 has considered the minimum of cost allocated to the Unit-1 and the actual cost incurred by the Petitioner till COD of Unit-1 under each head. The Commission will once again examine this issue of allocation of costs amongst Unit-1 and Unit-2 at the time of approval of completed Capital Cost as on COD of project and final tariff for Unit-1 and 2.

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Land and Site Development:

4.45 The Petitioner has submitted that the revised estimated cost under the head “land and site development” is Rs. 18.47 Crore as against the original estimated cost of Rs. 12.00 Crore.

4.46 The Petitioner did not submit the due justification for increase in the estimated cost under the head. In absence of the complete justification, the Commission has provisionally considered 80 % of Rs.18.47 Crore i.e. Rs. 14.78 Crore only under the head “land and site development”. Further, as discussed earlier, the Commission has allocated the cost on Unit -1 in the same proportion as allocated by the Petitioner which works out to be Rs. 7.39 Crore. The Petitioner has, however, submitted that the actual cost incurred as on COD of Unit-1 is Rs. 8.54 Crore.

4.47 The Commission has provisionally allowed minimum of cost allocated to the Unit-1 and the actual cost incurred till COD of Unit-1. The Commission has accordingly considered the cost of Rs. 7.39 Crore for Unit-1 under the head “land and site development”. However, the Petitioner is directed to submit detailed justification for increase in the revised estimated cost from the original estimated cost of Rs. 12 Crore under this head in its Petition for approval of final tariff based on actual completed cost of the Project as on COD of Unit-2. The Petitioner should submit the following details towards cost of the land towards justification for increase in cost:

• Total Land area with rate per hectare/bigha considered in the original

estimate. • The details of the actual land area acquired with rate per hectare /

bigha for payment of the land with reasons for variation. • Detailed break-up of the expenditure under the head with justification. • Details of expenditure for site development other than land.

Access:

4.48 The Petitioner submitted that the revised estimated cost under the head is Rs. 11.40 Crore against the original estimated cost of Rs. 3.00 Crore. The Petitioner has not submitted the proper justification for increase in the cost estimates.

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4.49 In absence of the due justification, the Commission has provisionally considered an amount equal to 80% of Rs. 11.40 Crore i.e. Rs. 9.12 Crore under the head. Further the Commission has allocated the cost on Unit -1 in the same proportion as allocated by the Petitioner which works out to be Rs. 4.56 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 0.61 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred in the Unit. The Commission has accordingly considered the cost of Rs. 0.61 Crore for Unit-1. However, the Petitioner is directed to submit detailed justification for increase in the estimated cost under this head in its Petition for approval of final tariff based on actual completed cost of the Project as on COD of Project.

Temporary Construction and Enabling Works:

4.50 The Petitioner submitted that the original estimated cost under the head was Rs. 3.00 Crore which has been revised to Rs. 4.75 Crore in the revised cost estimate.

4.51 The Petitioner has not provided the detailed justification for increase in the cost estimate. In absence of the same, the Commission has provisionally considered an amount equal to 80% of the revised cost estimate of Rs. 4.75 Crore i.e. an amount of Rs. 3.80 Crore under the head “Temporary Construction and enabling works”. Further the Commission has allocated the cost on Unit-1 in the same proportion as allocated by the Petitioner which works out to Rs. 1.90 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 2.22 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred in the Unit. The Commission has accordingly considered an amount of Rs. 1.90 Crore for Unit-1 under the head “Temporary Construction and enabling works”. However, the Petitioner is directed to submit detailed justification for increase in the revised cost based on actual completed cost of the Project as on COD of Project from the original cost estimate of Rs. 3 Crore under this head in its Petition for approval of final tariff. The Petitioner is also directed to furnish the complete break-up of the actual cost into cost of works carried out, cost of material & labour, if any along with copies of the orders.

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Water Storage System:

4.52 The Petitioner submitted that the Water Resources Department (WRD), Government of Rajasthan, is constructing dam on Kalisindh River as Deposit work of RVUN. The Petitioner submitted that the original project cost estimate for Water Storage System was Rs. 50.00 Crore. However, after considering revised estimates furnished by WRD, project cost was revised to Rs. 760 Crore. The Petitioner submitted that WRD has again revised the estimates and accordingly, the revised cost estimate has been increased to Rs. 799 Crore.

4.53 The Commission observed that original estimate towards water storage system was Rs. 50 Crore which has now been revised to Rs. 799 Crore. The Commission asked the Petitioner to submit detailed justification for such increase towards water storage system.

4.54 The Petitioner in its reply dated 19.02.2015 submitted that initially when the power plant was conceived in FY 2005-06, water requirement to the tune of 1000-2000 mcft was to be met from the proposed Bhawarsa Dam to be built by the Water Resources Department, GoR and accordingly in the initial DPR prepared by RVUN, a provision of Rs. 50 Cr only was considered for water storage system for the power project. Further, Bhawsara dam was planned as major irrigation project with storage capacity of 5200 mcft, however, when the WRD submitted its proposal of Bhawsara Major Irrigation project for issuance of Environmental/Forest Clearance, the proposal was not approved by the Expert Appraisal Committee (EAC) for the river valley and hydroelectric projects under Ministry of Environment and Forest (MoEF), Government of India (GoI) which led to delay in water availability for the power project and therefore in the interest of the KaTPP project it was decided to construct a smaller dam of 16 m height as an integral part of the power project with storage capacity of around 1200 mcft. RVUN submitted that it was also decided that RVUN would bear the full cost of the Dam and WRD would construct the dam as deposit work. RVUN submitted that the construction work of the dam has been awarded to M/s SPML, Gurgaon and WRD has submitted a proposal of likely expenditure of Rs. 756 Crore on this account which has been further revised to Rs. 799 Crore.

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4.55 The Commission observes that the Petitioner has not furnished due justification for such an abnormal increase in the project cost estimate except that the estimate was revised by WRD department. The Petitioner has not clarified the basis & justification of the estimate of Rs. 760 Crore, as furnished by the WRD department and the basis for further revision of the estimate to Rs. 799 Crore. In absence of the due justification, the Commission has provisionally considered an amount equal to 80% of the revised cost estimate of an amount of Rs. 799 Crore i.e. an amount of Rs. 639.20 Crore under the head “Water Storage System”.

4.56 Some of the objectors have stated that the Dam is for the use of two towns of Jhalawar & Jhalrapatan and 107 villages for drinking purpose and in accordance with the data gap reply, share cost of Kalisindh Major Irrigation Project will be paid by RVUNL in the ratio of water utilization at 90% dependability which works out to be 12:18 for energy & WRD respectively. The Commission sought information on the sharing of the dam cost from RVUN. In response to the same, RVUN through its reply dated 24.04.2015 submitted a letter dated 11.05.2012 from the WRD stating that Kalisindh Dam Phase-I (1200 mcft capacity) is fully dedicated to RVUN Power Project and the cost of dam is to be borne by RVUN.

4.57 The Commission has provisionally allocated the cost of Rs. 639.20 Crore on Unit -1 in the same proportion as allocated by the Petitioner which works out to be Rs. 319.60 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 308.42 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred in the Unit. The Commission has accordingly considered an amount of Rs. 308.42 Crore for Unit-1 under the head “Water Storage System”. The Commission however would like to clarify that in case there is any change in the end use of the dam water for other purposes other than that required by KaTPP Unit-1 and 2, the Commission shall review its allocation principle adopted in this Order.

4.58 The Petitioner is directed to submit detailed justification for increase in the revised actual cost from the original cost estimate of Rs. 50 Crore under this head in its Petition for approval of final tariff based on actual completed cost of the Project as on COD of Project. The Petitioner is also directed to furnish the complete details of the amount claimed giving

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details of the scope of work, items of the work with their rates along with copy of the estimate submitted by the WRD department and terms & conditions on which the work is being carried out.

Water Transportation System:

4.59 The Commission observes that the original cost estimate under the head “Water Transportation System” was Rs. 75 Crore which has now been increased to Rs. 86 Crore in revised cost estimate. The Petitioner has not submitted any justification for such increase.

4.60 In absence of the detailed justification, the Commission has provisionally considered an amount equal to the maximum of the original estimate of Rs. 75 Crore and 80% of Rs. 86 Crore i.e. an amount of Rs. 68.80 Crore under the head “Water Transportation System” which works out as Rs. 75 Crore. Further, the Commission has allocated the cost on Unit-1 in the same proportion as allocated by the Petitioner which works out to be Rs. 37.50 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 41.75 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred on the Unit. The Commission has accordingly considered the cost of Rs. 37.50 Crore for Unit-1 towards water transportation system. However, the Petitioner is directed to submit detailed justification for increase in the revised cost vis-a-vis the original cost estimate of Rs. 75 Crore under this head in its Petition for determination of final capital cost based on actual completed cost of the Project as on COD of Unit- 2.

Railway siding:

4.61 The Petitioner submitted that the original estimated cost under the head “Railway siding’ was considered as Rs. 75 Crore only. The Petitioner further submitted that the cost estimate was revised to Rs. 228.00 Crore on the basis of DPR submitted by M/S IRCON, i.e. the contractor for the Railway siding work. The cost estimate was further revised to Rs.243.69 Crore on account of work of railway siding and marshalling yard being carried out by M/S IRCON. The Petitioner has not provided due justification for increase in the revised cost estimate. The Petitioner did not submit the basis for awarding the contract in favour of M/S IRCON, whether it was on open tender basis or it was on single offer/negotiation basis. If the

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contract was on single offer / negotiation basis, whether the contract was on firm price basis / “Cost Plus Contract” basis or on deposit work basis. The Petitioner has also not submitted as to how it has ensured the competitiveness of the contract price and reasonability of the cost claimed in the estimate / DPR.

4.62 In absence of the detailed justification for increase in the revised cost estimate, the Commission has provisionally considered an amount equal to 80% of the revised cost estimate i.e. Rs. 194.95 Crore under the head “Railway Siding”. Further, the Commission has allocated the cost on Unit -1 in the same proportion as allocated by the Petitioner which works out to be Rs. 97.48 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 70.44 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred on the Unit. The Commission has accordingly considered the cost of Rs. 70.44 Crore for Unit-1 under the head “Railway Siding”. However, the Petitioner is directed to submit detailed justification for increase in the revised cost based on actual completed cost of the Project as on COD of Unit- 2 vis-à-vis the original cost estimate of Rs. 75 Crore under this head in its Petition for determination of final capital cost. The Petitioner is also directed to submit the basis for awarding the contract in favour of M/S IRCON along with basis of ensuring the competitiveness of the offer and reasonability of the cost claimed in the estimate / DPR.

EPC Contract

4.63 The Petitioner has submitted that the EPC Contract was awarded in favour of M/S BGR Energy Systems Ltd., Chennai at a contract price of Rs. 4900 Crore. This contract price of Rs. 4900 Crore included payment of 405 million USD for off Shore supplies, which was evaluated at fixed exchange price of Rs. 39.59 per USD for an amount equal to Rs. 1603.40 Crore. The Petitioner has further submitted that the estimated contract price has been revised to Rs. 5301 Crore, as per 187th meeting of BoD held on dated 04.05.2011, due to the following reasons: a) Depreciation of Indian Rupee against the US Dollar. The payment of

405 million USD has now been evaluated at an amount equal to Rs. 1863 Crore @ fixed exchange price of Rs. 46/- per USD, thus increasing the impact by Rs. 260 Crore.

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b) Impact of an amount of Rs. 71 Crore due to increase in cost towards Taxes & Duties on off shore supplies.

c) Impact of an amount of Rs. 70 Crore due to Introduction of Entry Tax and Labour Cess.

4.64 The Petitioner submitted that due to the currency exchange rate variation, the value of award has been further increased by Rs. 90 Crore to Rs. 5391 Crore.

4.65 The Commission has gone through the submissions of the Petitioner and has provisionally accepted the increase in cost on account of increase in taxes & Duties on off-shore supplies and introduction of entry tax and labour cess.

4.66 The Commission observes that the Petitioner has claimed increase of an amount equal to Rs. 350 Crore on account of foreign exchange rate variation. The Petitioner has not submitted the basis / detailed statement showing the date wise payment along with applicable exchange rate as on the date of such payments. Further, some of the objectors have stated that at the time of bid evaluation, the bids were evaluated without anticipating the impact on account of any FERV and hedging cost and had RVUN considered FERV or hedging cost, the outcome of the evaluation process would have been different. The Petitioner has not furnished the satisfactory reply of the comment of the stakeholders/ objectors. The Petitioner has also not submitted the basis for evaluating the revised cost estimate on account of FERV at the fixed rate of Rs. 46/- per USD, the basis for further increase of Rs. 90 Crore on account of FERV & the basis for the increase on cost on account of Taxes & Duties on Offshore supplies. Further, the project has been delayed significantly; it may be most likely that few payments in USD has been made after the scheduled completion date. The Petitioner has not furnished the bifurcation of the impact of FERV along with the impact of Taxes & Duties on Offshore supplies between within & beyond the scheduled completion date.

4.67 In absence of the complete details, the Commission has provisionally considered an amount equal to 50% of total additional claim of Rs. 350 Crore i.e. an amount of Rs. 175 crore for EPC contract. The impact of additional claim of Rs. 71 Crore on account of Taxes & duties on Offshore

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supplies shall be reviewed at the time of approval of final capital cost of both Units of KaTPP, after receipt of the complete details from the Petitioner, as desired above.

4.68 The Commission has accordingly provisionally considered revised estimated cost of EPC contract equal to amount of Rs 5216.00 Crore and has allocated it to Unit-1 in the ratio of 60:40, as allocated by the Petitioner which works out to Rs. 3149.86 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 3111.12 Crore. The Commission has therefore considered provisionally the minimum of the two as Rs. 3111.12 Crore.

4.69 However, in order to determine the actual impact of FERV, the Commission directs the Petitioner to submit following information along with the Petition for determination of final cost of the project. 1) Payment Schedule with phasing agreed as per Contract along with

exchange rate for each bill to be raised as per Schedule. 2) Date wise Bills/Invoices raised by the EPC Contractor along with

exchange rate for each bill. 3) Date of payments made by the Petitioner against invoices raised along

with exchange rate for each invoice paid by the Petitioner. 4) Bifurcation of the impact of FERV and Taxes & Duties on offshore

supplies between, within & beyond the scheduled completion date. 5) Satisfactory reply of the observations / comments of the stakeholders/

objectors. Other Works & Third party Inspection

4.70 The Petitioner has claimed in the revised project cost, the following works / packages at an estimated cost of Rs. 156 Crore:- 1) Construction of Permanent Township. - 77 Crore 2) Construction of plant & colony Boundary - 2.28 Crore 3) Construction of Store sheds/ field hostel - 12.97 Crore 4) Fire Tenders & Dozers - 08 Crore 5) Additional Raw Water reservoir - 52 Crore 6) Third party inspection - 3.75 Crore

4.71 The Petitioner has not given the due justification for considering these works in revised cost estimates whereas the same were not considered in original cost estimates. In case these works are necessary, the

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reasons/basis under which the same could not be considered in original cost estimates are required to be elaborated. The Petitioner is directed to submit detailed justification for the above works being not a part of original cost estimates and the rationale behind considering such cost now in its Petition for determination of final capital cost based on actual completed cost of the Project as on COD of Unit- 2.

4.72 In absence of the due justification, the Commission has provisionally considered 80% of the amount claimed as Rs. 124.80 Crore under the head “Other works and third party inspection”. Further, the Commission has allocated the cost on Unit-1 in the same proportion as allocated by the Petitioner which works out to be Rs. 62.40 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit-1 is Rs. 42.80 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred on the Unit. The Commission has accordingly considered the cost of Rs. 42.80 Crore for Unit-1 towards such works.

4.73 The Commission further observed that such works includes estimated cost under the head “Construction of new township” amounting to Rs. 77 Crore. The Petitioner has not submitted any justification for including township as additional scope of work as the same was not envisaged earlier. The Commission further observes that as per DPR, the work for Construction of Permanent Township is included in the scope of Balance of plant / EPC contract. The Petitioner has not clarified the reasons for carrying out this work separately from the Balance of plant / EPC contract, as against the provision in DPR.

4.74 The Commission directs the Petitioner to submit the detailed justification for carrying out the work of “Construction of new township” separately from the scope of Balance of plant / EPC contract as against the provision in DPR The Petitioner is further directed to submit the following details with respect to the construction of township with the petition for final capital cost determination for KaTPP Unit -1 and 2. 1) Nos. of site employees currently working in the plant 2) Nos. of dwelling Units constructed 3) The process followed for award of such works

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4) Participating entities in the tendering and basis of awarding the contract to the selected Bidder

Overheads:

4.75 The Petitioner submitted that overhead expenses were originally estimated as Rs. 243.20 Crore however it has been revised to Rs. 267.20 Crore on account of expenses to be incurred for complying with the “Corporate Social Responsibility” Policy approved by Government of Rajasthan on May 20, 2011. The Petitioner has claimed an additional expense of Rs. 24 Crore on account of CSR activities.

4.76 The Commission observes that RVUN has submitted that it has framed a CSR policy and got it approved by the GoR and has accordingly claimed CSR expenditure as a part of capital expenditure. Further, RVUN has not submitted the cost incurred on account of CSR activities. The Commission prima-facie is of the view that no information has been submitted by RVUN which substantiates that such obligation is in discharge of any statutory responsibility. The Commission has accordingly provisionally disallowed such expenses. RVUN is directed to submit necessary documents to support its claim for allowing such expenses under the capital cost with the petition for final determination of capital cost of the project along with the actual expenses incurred by RVUN. RVUN should also submit the copy of policy framed by it in this regard and clarify whether such policy has been framed under any statutory obligation.

4.77 The Commission has provisionally considered Rs. 243.20 Crore towards

overhead which is within the acceptable range of 3%-5% of capital cost. Further, the Commission has allocated the cost on Unit-1 in the same proportion as allocated by the Petitioner which works out to be Rs. 121.60 Crore. The Petitioner has however submitted that the actual cost incurred as on COD of Unit -1 is Rs. 64.17 Crore. The Commission has provisionally allowed minimum of cost allocated to the Unit and the actual cost incurred on the Unit. The Commission has accordingly considered the cost of Rs. 64.17 Crore for Unit-1 towards such works.

Sale of Infirm power:

4.78 The Regulation No. 44 (2) of the “RERC Tariff Regulations, 2014” provides as under:

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“ The Charges for sale of infirm power from the thermal power generating station to the distribution licensee shall be based on the actual fuel cost, including the stone cost, as the case may be, incurred during that period: Provided that any revenue other than the recovery of fuel cost earned by the generating company from sale of infirm power shall be taken for reduction in capital cost and shall not be treated as revenue.”

4.79 The Petitioner is directed to furnish the details of the actual revenue

realized from sale of infirm power vis-à-vis actual fuel cost incurred on the generation of infirm power along with the treatment in the books of accounts in the petition for true up for tariff of KaTPP Unit-1 for FY 2014-15.

Total Hard Cost:

4.80 Based on the above discussions, the Commission provisionally approves the estimated total hard cost for the project and the hard cost as on COD of Unit -1 which is as shown in the table below:-

Table 5: Hard Cost of KaTPP Project and Unit -1 as on COD of Unit -1 (Rs Crore)

Particulars Total Hard Cost of project

as submitted by RVUN

Total Hard Cost of the

project Provisionally

approved by the

Commission

Unit-1 Hard Cost (Allocated

Cost)

Hard Cost

Claimed as on

COD of Unit-1

Provisionally Approved Hard Cost as on COD

of Unit-1

A B C D Min(C,D) Land and Site Development 18.47 14.78 7.39 8.54 7.39 Access 11.40 9.12 4.56 0.61 0.61 Temporary Construction and Enabling Works 4.75 3.80 1.90 2.22 1.90 Water Storage System 799 639.20 319.60 308.42 308.42 Water Transportation System 86 75.00 37.50 41.75 37.50 Railway Siding 243.69 194.95 97.48 70.44 70.44 EPC Contractor 5391 5216.00 3149.86 3111.12 3111.12 Other Works & Third Party Inspection 156 124.80 62.40 42.8 42.80 Overheads (including CSR activities) 267.2 243.20 121.60 64.17 64.17 Total Hard Cost 6977.51 6520.85 3802.28 3650.07 3644.35

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Source of Funding:-

4.81 The Petitioner has furnished the details / information regarding source of funding for total estimated cost of Rs.9479.51 Crore, as detailed here under:- 1. DEBT a)Loan from PFC 6583.61 Crore b) Bonds 1000.00 Crore Total 7583.61 Crore 2. Equity from State Govt. 1896.00 Crore

4.82 The ratio of source of funding between Debt & Equity works out to be 80:20. The Commission hereby provisionally approves the Debt: Equity ratio for arriving at the amount of debt & equity for provisional capital cost and tariff of Unit-1 for FY 2014-15. The State Govt., while according approval for the increase in the cost estimate from Rs. 7783 Crore to Rs. 9479.51 Crore has put a condition that the additional equity will be provided by the State Govt. taking into consideration the actual cost of the project to be determined by the RERC. The Commission directs the Petitioner to submit the details about receipt of actual debt and actual equity along with all supporting documents in the Petition for approval of tariff based on actual audited cost as on COD of the Project.

IDC and Financing Charges

4.83 The Petitioner in its Petition has submitted that in the original cost estimates, there was a provision of Rs. 600.80 Crore on account of IDC and financing charges. However, the same was revised to Rs 907 Crore by the Board of Directors in its meeting dated 04.05.2011. The Petitioner has further increased the estimated expenditure on account of IDC and financing charges as Rs 2502 Crore in the revised project cost estimates of Rs.9479.51 Crore.

4.84 As discussed earlier, the Commission asked the Petitioner to submit the detailed package wise reasons for delay of around 31 months in achieving COD of Unit-1. Based on the response submitted by the Petitioner, the Commission has already concluded that the reasons submitted by the Petitioner are a mix of controllable and uncontrollable factors.

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4.85 As per Hon’ble APTEL’s Judgment, excess IDC and overhead costs for time overrun from scheduled date of commissioning to actual date of commissioning has to be worked out on prorate basis with respect to total actual time taken in commissioning of the unit.

4.86 To determine the excess IDC, the Commission asked the Petitioner to submit the quarter wise actual phasing of expenditure along with the funding of such expenditure. The Petitioner in response submitted the quarter wise actual drawal of loan and yearly equity infused in the project. The Petitioner however did not submit the actual quarter wise phasing of expenditure and equity infusion. The Commission has derived quarter wise equity infusion from the annual equity infused in the ratio of quarterly debt drawal during the year.

4.87 The Commission has assumed the phasing of expenditure as the sum of quarter wise loan drawals and equity infused as derived above.

4.88 Hon’ble APTEL has ruled the treatment of extra IDC on account of the delay under three scenarios. In such a case, the extra IDC needs to be computed considering the impact of the delay in the commissioning of the Project only (i.e., period of construction under Base Case and in the actual Case).

4.89 The Commission observes that the purpose of Base Case IDC is to determine the impact of time overrun on IDC, i.e., to determine the difference in IDC had the Project had been completed in the stipulated time, and the actual IDC incurred for the actual time taken for completion.

4.90 Hence, the Commission has re-computed the Base Case IDC considering the approved Hard Cost as on COD. As regards the Debt Equity ratio for computation of Base Case IDC, the Commission has considered 80:20 as approved by GoR, while according approval to the Project. The Commission has considered the actual interest rates and proportion of loan amount drawn as submitted by the Petitioner.

4.91 As regards the delay in the Project due to which the actual IDC has increased, the Commission has already concluded that the delay was on account of mix of both controllable and uncontrollable factors and

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therefore the Commission is of the view that the present case falls under the category (iii) described in the Hon’ble APTEL’s ruling.

4.92 As there is no enhancement in cost of the contract price of the equipment since no price variation escalation was permissible, the impact of time overrun beyond the contractual schedule is only on IDC, FERV and Taxes & Duties on Offshore supplies.

4.93 Hon’ble APTEL in its Judgment has also ruled that Liquidated Damages (LD) amount should also be shared equally among the generating company and the consumer. RVUN further submitted that as of now LD amounts have not been finalised and the total provisional amount retained against LD is Rs 158.76 Crore (Rs.109 Crore in INR and 1.07 Crore USD @ Rs.46/- per USD.). The Commission has provisionally considered the 50% of the provisionally retained LD amount to be reduced in provisional cost estimate and 50% of the LD amount to be retained by the Petitioner and has worked out financing charges at 1% of the loan amount. The Commission directs the Petitioner to get the LD amount finalised with the approval of the competent authority and submit the same along with the Petition for determination of the final capital cost based on the actual audited accounts as on COD of Project.

4.94 In light of the foregoing, the Commission allows the cost of time overrun to be shared equally between the Petitioner and the consumers. The Commission provisionally approves total IDC and financing charges as on COD of the Project, as per details given in Table below:-

Table 6: IDC and Financing Charges provisionally approved (Rs Crore)

Particulars Amount Actual/Estimated IDC A 2445.00 Base Case IDC B 869.48 Excess IDC C=A-B 1576.42

Excess IDC to be allowed D = 50% of

C 788.21 Total IDC to be allowed E = B +D 1656.79 LD Amount retained to be considered

F 79.38

Total IDC to be allowed G = E-F 1577.41 Financing Charges to be allowed H 57.00 Total IDC and Financing Charges to be allowed provisionally

I=G+H 1634.41

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4.95 The Commission has further provisionally allocated IDC and financing charges Rs. 857.72 Crore to Unit -1 in the proportion of total hard cost considered by the Commission for Unit-1 with respect to total hard cost and duly adjusting the same of Unit-1 COD achieved much before Unit - 2 COD.

4.96 The Commission however directs that in order to assess the actual base case IDC, and cost of time overrun on IDC, the Petitioner should submit the following information along with the Petition for final determination of capital cost. 1) Actual quarter wise phasing of capital expenditure incurred till COD of

the Complete Project 2) Actual quarter wise funding of capital expenditure incurred till COD of

the Complete Project. The Petitioner should submit the desired information separately for debt funding and equity infused.

3) Detailed computations of revised estimated IDC of Rs 850 Crore with phasing of expenditure.

4.97 The Commission accordingly provisionally approves the following capital cost of the project and Capital Cost as on COD of Unit-1.

Table 7: Provisionally Approved Capital Cost for the Project and as on COD of Unit-1(Rs Crore)

Particulars

Total Project Cost as submitted by RVUN

Total Project Cost Provisionally approved by the Commission

Unit-1 (Allocated Cost)

Cost Claimed as on COD of Unit-1

Provisionally Approved Cost as on COD of Unit-1

Hard Cost

6977.51 6520.85 3802.28 3650.07 3644.35

IDC and Financing Charges

2502.00 1634.41 857.72 1432.82 857.72

Total Cost 9479.51 8155.26 4660.00 5082.89 4502.07

4.98 The Commission has further allocated the total cost of Unit-1 as provisionally approved to class wise assets for the purpose of computing depreciation in the proportion of asset class wise cost as percentage of total cost submitted by the Petitioner. Accordingly, the asset class wise Capital Cost provisionally considered by the Commission is given in Table below:

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Table 8: Asset wise Break up Capital Cost of KaTPP Unit-1 as on COD of

Unit-1(Rs. Crore)

Particulars Claimed Provisionally Approved

Land and Rights 10.39 9.20 Building and Civil Works 763.93 676.64 Hydraulic Works 83.25 73.74 Other Civil Works 565.33 500.73 Plant and Machinery 3644.43 3227.98 Lines and Cable Network 4.32 3.83 Vehicles 0.10 0.09 Furniture and Fixtures 0.68 0.60 Office Equipment 0.12 0.10 Capital Spares 10.33 9.15 Total Cost Capitalised 5082.89 4502.07

4.99 The Commission also directs the Petitioner to clarify the admissibility of “Mega power project Status” for availing the benefit of exemption in Excise duty & Custom Duty as per Mega power policy of the Ministry of Power, Govt. of India along with efforts made by the Petitioner for obtaining the same. The Petitioner should also furnish the photo copies of the relevant correspondence.

4.100 The Commission also directs the Petitioner to submit the comparison of the total and package wise capital cost with the similar size projects executed by other Generating Companies in the country in support of the capital cost claimed by the Petitioner.

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SECTION 5

Determination of ARR and provisional Tariff for FY 2014-15 (From the COD to 31.03.15) in respect of Unit-1 of KaTPP-(2x600MW)

Annual Fixed Charges:-

5.1 Regulation 43(3) of RERC Tariff Regulations, 2014 stipulates that the Annual Fixed Charges comprise of the following elements: (i) Operation and Maintenance (O&M) Expenses (ii) Interest on Term Loans and Finance Charges (iii) Depreciation (iv) Interest on Working Capital (IoWC) (v) Return on Equity (vi) Less: Non-tariff Income

5.2 As already discussed, the Petitioner filed additional submissions dated 10.10.2014 claiming RoE and Tax thereon. The Petitioner further revised its claims against Interest and finance charges, Depreciation, Interest on Working capital, Insurance charges and accordingly revised its claim for ARR for FY 2014-15.

5.3 Each of these elements has been dealt with in the following paragraphs. Operation and Maintenance Expenses

Petitioner’s Submission

5.4 RVUN submitted that the Operation & Maintenance Expenses for FY 2014-15 have been computed on the basis of norms prescribed under Regulation 47 of RERC Tariff Regulations, 2014.

5.5 Accordingly, RVUN has claimed the O&M Expenses of Rs. 78.31 Crore for FY 2014-15 i.e. from COD to 31.03.2015 (329 days)


5.6 The Commission has verified RVUN’s computations of O&M expenses and found the same to be in accordance with the norms prescribed under Regulation 47 of RERC Tariff Regulations, 2014 and accordingly, same has been approved by the Commission.

5.7 The O&M expenses as approved by the Commission for FY 2014-15 have been provided in the table below:

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Table 9: O&M Expenses Approved for FY 2014-15 (Rs. Crore)

Particular As claimed in Petition

Provisionally approved by the Commission

Operation & Maintenance Expenses 78.31 78.31

Interest on Term Loans & Finance Charges


5.8 RVUN in its petition for ARR and provisional Tariff for FY 2014-15 (329 days) has estimated interest on term loans and finance charges of Rs. 506.27 Crore. RVUN however, in its additional submission dated 10.10.2014 revised its claim as Rs 468.71 Crore.

Commission’s Analysis:

5.9 RVUN in its petition has submitted the computation of interest on term loans for FY 2014-15 considering the average rate of interest. As per Regulation 21 (5) of RERC Tariff Regulations, 2014, the rate of interest to be considered is weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of each year for the generating company. In accordance with this Regulation, the Commission vide its data gaps asked RVUN to submit the details of the actual loan and rate of interest thereon with the supporting computations / documents

5.10 The Commission observed that RVUN has not submitted the details of actual interest on term loans and computations of weighted average rate of interest for FY 2014-15. The Petitioner while computing the charges for Interest on term loans, has considered the rate of interest @ 13% P.A. The Commission, for computing interest on Term loans has provisionally considered the rate of interest @ 13% P.A., as claimed by the Petitioner. The Commission will consider the weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of FY 2014-15 while carrying out the truing up for FY 2014-15.

5.11 The interest charges on term loans approved by the Commission for FY 2014-15 have been provided in the table below.

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Table 10: Interest on Term Loans and Finance Charges as approved by the Commission for FY 2014-15 (Rs. Crore)


Provisionally approved by the

Commission Interest on term Loans and Finance Charges 468.71 415.72

Depreciation Petitioner’s Submission

5.12 RVUN submitted that the depreciation for FY 2014-15 has been computed on the basis of norms prescribed under Regulation 22 of RERC Tariff Regulations, 2014.

5.13 RVUN in its Petition has computed depreciation of Rs. 247.29 Crore on the basis of the Capital Cost as on COD, i.e. on May 07, 2014. RVUN, however, in its additional submission dated 10.10.2014 revised its claim as Rs. 217.97 Crore.


5.14 The Commission, for computing depreciation has considered provisionally approved capital cost of Unit -1. The Commission has considered asset class wise rates of depreciation in accordance with the RERC Tariff Regulations, 2014.

5.15 Accordingly, the depreciation approved by the Commission for FY 2014-15 is as shown in the Table below:

Table 11: Depreciation approved for FY 2014-15 (Rs. Crore)



Depreciation 217.97 193.06

Interest on Working Capital


5.16 RVUN submitted that the requirement for working capital loan has been computed as per norms prescribed under Regulation 27 of RERC Tariff Regulations, 2014 and the rate of interest on Working Capital Loan has been taken equal to 250 basis points higher than the average Base Rate of State Bank of India prevalent during first six months of the previous year.

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5.17 Accordingly, the Petitioner has claimed the interest on working capital loans as Rs. 37.33 Crore for FY 2014-15 (329 days). RVUN however, in its additional submission dated 10.10.2014 revised its claim as Rs. 39.37 Crore. Further, RVUN subsequently revised the fuel cost and GCV which has resulted in increase in Interest on Working Capital to Rs. 43.49 Crore.


5.18 Regulation 27(2) of the RERC Tariff Regulations, 2014 specify that the rate of interest on working capital to be computed shall be on normative basis and shall be 250 basis points higher from SBI base rate prevalent during first six months of the year previous to the relevant year. Accordingly, for working out interest on working capital, weighted rate of interest has been considered as per rates during the first six months of the previous year. The same works out to 12.20% p.a. which has been used for calculating interest on working capital.

5.19 Further, the Commission has worked out the working capital requirement in accordance with Regulation 27 of the RERC Tariff Regulations, 2014. The interest on working capital as approved by the Commission for FY 2014-15 (329 days) has been provided in the table below.

Table 12: Interest on Working Capital approved for FY 2014-15 (Rs. Crore)



Interest on Working Capital 43.49 39.10

Recovery of ARR & Tariff Petition Fees


5.20 The Commission vide Order dated March 10, 2008 had allowed to pass through the fees levied for filing up of ARR & Tariff Petition, as expenses in the ARR. Accordingly, RVUN has claimed the fee of Rs. 0.30 Crore for FY 2014-15.

Commission’s Analysis:

5.21 The Commission has approved the recovery of ARR and Tariff Petition fees as claimed by RVUN for FY 2014-15, as shown in Table below:

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Table 13: Recovery of ARR & Tariff Petition Fees approved for FY 2014-15 (Rs. Crore)



Recovery of ARR & Tariff Petition Fees 0.30 0.30

Corporate Social Responsibility (CSR) Activity


5.22 The Corporate Social Responsibility Policy of RVUN was approved by State Government vide Energy Department letter No. F.16 (4) Energy/2009 dated 20.5.2011. In this regard, RVUN has estimated an amount of Rs. 0.20 Crore (0.25% of O&M expenses) for KaTPP Unit -1 for FY 2014-15.


5.23 The Commission is of the view that the CSR activities are an initiative of RVUN and have to be carried out from their internal funds and cannot be allowed to be passed in tariff. In this regard, the Commission vide its Order dated 06.06.2013 for determination of ARR and Tariff for RVUN for FY 2012-13 had observed as under:

“Commission’s Analysis:

8.29 CSR activities are an initiative of RVUN and have to be carried out from their internal funds and cannot be allowed to be passed through ARR.”

5.24 The Commission observes that the Hon’ble APTEL in its Judgment dated 28.11.2013 in the matter of APPEAL No. 104, 105 and 106 of 2012 in the case of the Tata Power Company Limited (Generation, Transmission and Distribution) and Maharashtra Electricity Regulatory State Commission has also observed that Corporate Social Responsibility is the responsibility of the company. The relevant extract of the Judgment is reproduced below:

“63. In reply to above submissions, the learned Counsel for the State Commission submits the following:

(a) The expenses towards community welfare/Corporate Social Responsibility (CSR) cannot be passed on to the consumers, since it is the social obligation of the corporate entity and the same cannot be passed on to the consumers. The Appellant is free to undertake such activities by funding the same from its returns, based on how it desires to utilize its profits/returns from the business.

... (c) The State Commission has never discussed CSR expenses as part of

A&G expenses in its previous Orders and has never knowingly

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allowed this expense to be recovered as a part of the ARR. Merely because the State Commission has not raised a query in this regards, does not mean that the State Commission can never raise queries in this regard and take a considered view on the matter in future orders.

... 64. We have carefully considered the said submissions on the issue. 65. At the outset, it shall be mentioned that the Community Social

Responsibility is the responsibility of the Company. The contention of the Appellant that the State Commission had approved these expenses in the ARR petition and that therefore, it cannot change during true up exercise is not tenable.

66. In fact, the State Commission is duty bound to apply prudency check while truing up otherwise no purpose would be served in truing up.

67. On going through the impugned order on this point as well as the submissions made by the learned Counsel for the State Commission, it is clear that the conclusion on this point arrived at by the State Commission is valid and the reasons for such conclusions are justified.”

5.25 In view of the above discussions, the Commission has decided not to allow any expenses on account of Corporate Social Responsibility for FY 2014-15.

Insurance Charges


5.26 RVUN has claimed insurance charges as per norms defined under Regulation 25 of RERC Tariff regulation 2014 which allows actual insurance charges by the generating company, subject to a ceiling of 0.2% of average Net Fixed Assets for the year. Accordingly, RVUN has claimed the insurance charges of Rs. 10.86 Crore for FY 2014-15 for KaTPP Unit -1. RVUN however, in its additional submission dated 10.10.2014 revised its claim as Rs. 9.95 Crore.


5.27 Regulation 25 of RERC Tariff Regulations, 2014 stipulates as follows. “Actual insurance expenses incurred by the generating company or licensee shall be allowed separately, subject to a ceiling of 0.2% of average Net Fixed Assets for the year.”

5.28 The Commission accordingly asked Petitioner the actual amount paid towards insurance charges. The Petitioner in its response submitted that it has not actually incurred such expenses however it has made a provision against insurance charges. Since as per regulation only actual expense is admissible hence the Commission has not considered the same. The

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Commission will consider the actual insurance charges (if any) while carrying out the truing up for FY 2014-15.

Return on Equity (RoE)


5.29 RVUN vide its additional submission dated 10.10.2014 submitted that RVUN has decided to claim ROE at the rate of 15.50% in accordance with RERC Tariff Regulations, 2014. RVUN has accordingly claimed an amount of Rs. 157.57 Crore on account of RoE.

5.30 The Petitioner has also submitted that it had earlier not claimed any RoE as there were no directions from the State Government in this regard and since GoR has now issued a letter dated 14.08.2014 for implementation of the modified budget announcements for FY 2014-15, it is claiming RoE @ 15.50%.


5.31 The Commission observes that the Petitioner has claimed RoE for the entire year as against 329 days of operation. The Commission further observes that subsequent to the letter dated 14.08.2014, GoR issued another letter dated 18.03.2015 to RVUN. In this letter, GoR with reference to Budget announcement no. 32 of modified budget of FY 2014-15, directed RVUN to claim RoE @ 5% in FY 2015-16, 10% in FY 2016-17 and 15.50% in FY 2017-18 without mentioning any RoE to be claimed for FY 2014-15.

5.32 The Commission is, therefore, of the view that the basis on which RVUN has claimed RoE has now been modified by the GoR and therefore, the Commission has not considered any RoE for FY 2014-15.

Tax on Return on Equity


5.33 RVUN has claimed the tax on RoE of Rs. 41.78 Crore for FY 2014-15. RVUN has however not submitted the basis for computation Tax on RoE.


5.34 As discussed above, the Commission is not allowing any RoE for FY 2014-15 and therefore no tax on RoE is being allowed for FY 2014-15.

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Non-Tariff Income

Petitioner’s submission

5.35 RVUN submitted that the main heads of accounts of “Non-Tariff Income” are Sale of scrap, Interest on FD/Staff loans and Miscellaneous Receipts (rebates), etc. Accordingly, RVUN has estimated the “Non-Tariff Income” of Rs. 2.10 Crore for the Period FY-2014-15 (329 days).


5.36 The Commission vide its data gaps letter no. RVUN/CE (PPMC&IT.)/F.D.1462 DATED 29.9.2014 asked RVUN to submit the detailed break-up of the ”Non-Tariff Income”, as claimed in the ARR and Tariff petition for FY 2014-15. The Commission has examined RVUN’s submission and has approved provisionally the same for computing the Annual Fixed Charges for FY 2014-15 as shown in the table below:

Table 14: Non-Tariff Income approved for FY 2014-15 (Rs. Crore)



Non-Tariff Income 2.10 2.10

Provisional Annual Fixed Charges for FY 2014-15

5.37 Based on the above analysis, the provisionally approved Fixed Charges of the Kalisindh Thermal Power Station-Unit -1 (600 MW) for FY 2014-15 (329 days) allowed are as under:

Table 15: Provisional Annual Fixed Charges for FY 2014-15 for 329 days (Rs. Crore)

Particulars

KaTPP Unit1 (600 MW)

As per Petition Provisionally approved by the Commission

Depreciation 217.97 193.06

Interest on term Loans and Finance Charges 468.71 415.72 Interest on Working Capital 43.49* 39.10

Operation & Maintenance Expenses 78.31 78.31

RoE 157.57 0.00

Tax on RoE 41.78 0.00

Recovery of ARR & Tariff Petition Fees 0.30 0.30

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Particulars

KaTPP Unit1 (600 MW)

As per Petition Provisionally approved by the Commission

Corporate Social Responsibility Activity 0.20 0.00

Insurance Expenses 9.95 0.00

Gross Fixed Charges 1018.28 726.50 Less: Non-Tariff Income 2.10 2.10 Net Fixed Cost (i.e. Capacity Charges) 1016.18 724.40 *Based on revised fuel cost submitted by RVUN

Determination of provisional Variable Charges for FY 2014-15

Petitioner’s submission

5.38 RVUN has considered SHR of Unit-1 as 2320.63 kCal/kWh. The PLF and Auxiliary consumption has been considered as 83% and 5.25% respectively. RVUN further submitted that the coal for Unit -1 is being procured from Parsa East and Kante Basan coal blocks through a Joint Venture company of RVUN and M/S Adani Enterprises Ltd. Ministry of coal vide letter dated 19/25.06.2007 has allocated Parsa East and Kente Basan coal blocks to RVUN under Govt. Company dispensation route for Kalisindh phase-I (Unit-1&2) and CTPP- Stage-1- Phase-2 (2x250MW).

5.39 RVUN submitted that the State Government vide Letter dated 23.10.2006 issued “No objection certificate” for issuance of Letter of Intent (LOI) to the selected Joint Venture Partner for Mining of coal and supply of coal to above mentioned power stations of the Petitioner. Further, RVUNL has signed “Coal Mining and Delivery Agreement (CMDA) on July 16, 2008 and amendment dated September 22, 2010 with Parsa Kente Collieries Limited (PKCL).

5.40 Further, RVUN has considered the GCV of 10000.00 kCal/litre for HFO and 10000.00 kCal/litre for LDO. It has considered the prices of oil as Rs. 47091/kL for HFO and Rs. 67254/KL for LDO for FY 2014-15.

5.41 RVUN further submitted that any variation in the cost of generation due to change of Qty. /quality of coal will be adjusted as per ”Fuel Price Adjustment” clause, prescribed by the Commission in the regulations. In case of any variation in price before the finalization of tariff order, RVUN

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has requested the Commission to consider the change in tariff accordingly.

5.42 Further, RVUN in its Petition has considered average GCV and price of domestic coal as per agreement i.e. 4500 kCal/kg and Rs. 3384.56/MT respectively.


5.43 The Commission has approved Variable Charges for the FY 2014-15 on the basis of following. (a) The Commission has considered PLF of 83% as per the RERC Tariff

Regulations, 2014. (b) The Commission with regards to Station Heat Rate (SHR) asked the

Petitioner to submit the basis of the SHR claimed by the Petitioner. The Petitioner submitted the Guaranteed Design Heat Rate for the station as 2220.7 kCal/kWh and also provided necessary documents to substantiate the Guaranteed Design Heat Rate claimed by it. The Commission has considered the Guaranteed Design Heat Rate as claimed by the Petitioner and in accordance with RERC Tariff Regulations, 2014, has considered 4.50% over and above Guaranteed Design Heat Rate as the SHR, which works out to be 2320.63 kCal/kWh.

(c) With regard to Auxiliary Consumption, the Petitioner has claimed the same @ 5.25% of the gross generation, which is in accordance with the RERC Tariff Regulations, 2014. Further the Petitioner has claimed secondary fuel oil consumption as 0.50 ml/kWh which is also in accordance with the regulations.

(d) With regards to cost of coal to be considered, Regulation 11(8) of the RERC Tariff Regulations, 2014 stipulates as follows:

“a) Any person who owns or is allotted captive mine or is given land use rights for mining for fuel supply to thermal power plant, may petition to the Commission for determination of fuel transfer price at mine mouth if it is not determinable by the Government or Government approved mechanism or by fuel regulator. The petition shall contain salient features of the project along with approved mining plan and other requisite information e.g. annual mining capacity, mine reserve, period of availability of fuel, washing/ beneficiation plan, financial package, performance parameters, reference price levels, amortization of initial costs, etc.”

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(e) With regards to coal cost submitted as Rs 3384.56/MT, various stakeholders have raised issues regarding mechanism for approval of coal price.

(f) RVUN was asked to submit the mechanism adopted by it for determination of price of coal. In response RVUN submitted that the mechanism followed for discovery of price of coal was approved by the Government of Rajasthan. RVUN further submitted that Expression of Interest was invited through wide publicity by publishing the notice in the newspapers for selection of JV partner for captive coal mining for Parsa East and Kante Basan coal blocks, in response to which 13 bidders submitted their bids. On the basis of technical qualification and price bids M/s Sun Flag Iron and Steel Company was selected as the successful bidder. RVUN further submitted that the selected bidder did not take up the work and hence its EMD of Rs 1 Crore was forfeited.

(g) RVUN further submitted that Sub-Committee on Project Purchases of RVUN, in its meeting dated 20.12.2005, recommended to invite fresh open tenders for selection of JV partner. RVUN further submitted that three participants submitted their offers and based on their technical capability and financial bids M/s Adani Exports Ltd. (Subsequently name changed to Adani Enterprises Ltd.) was adjudged as successful bidder.

(h) RVUN submitted that Board of Directors of RVUN before issuing Letter

of Award to the successful bidder decided to refer the case to Govt. of Rajasthan for seeking their ‘No objection’. Accordingly, the CMD of RVUN vide his letter dated 18.10.2006 sought approval / No objection from Government of Rajasthan, wherein the whole case including quoted price was apprised in detail. RVUN submitted the copy of the letter along with its submissions. RVUN further submitted that the Secretary(Energy), Govt. of Rajasthan vide his letter dated 23.10.2006 conveyed ‘No objection’ of the Govt. of Rajasthan for issuance of LoI to the selected JV Partner for captive coal mining for Parsa East and Kante Basan coal blocks. RVUN submitted a copy of the letter with its response. RVUN submitted that accordingly letter of intent dated 23.10.2006 was issued to M/s Adani Exports Limited. Subsequently, the Joint Venture Company M/s Parsa Kente Collieries Limited has been

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formed to undertake the work of mining for the said coal blocks and arranging for transportation and delivery of coal to RVUN’s thermal power stations.

(i) The Petitioner has also submitted a copy of Coal Mining and Delivery Agreement executed on 16th July 2008 between RVUN and Parsa Kente Collieries Limited. The Commission observed that as per the provisions of Coal Mining and Delivery Agreement, the base prices of coal for grades A to C is specified as certain percentage to the SECL notified price. For other coal grades, the base price is specified in the agreement and the agreement specifies the ceiling price linked to the published price of pithead F Grade coal. The agreement also provides that the price of coal shall always be lower than the relevant CIL price and at no stage the same shall exceed the relevant CIL price.

(j) The Commission has gone through the submission of RVUN and various correspondences in this regard including the Coal Mining and Delivery Agreement and is of the view that the price of coal in the said case has been determined through competitive bidding in accordance with government approved mechanism and the mechanism of coal price has been approved by the Government. The Commission is therefore of the view that the coal price as per the provisions of Coal Mining and Delivery Agreement can be considered as price determined through Government approved mechanism and there is no need for the Petitioner to file a separate Petition with the Commission for the transfer price of coal. The Commission has accordingly considered the coal price as per the provisions of Coal Mining and Delivery Agreement.

(k) RVUN was further asked to submit the basis of the cost of coal submitted along with the component wise computation / justification as per the Coal Mining and Delivery Agreement. The Petitioner in its response dated 19.02.2015 submitted the cost of coal on the basis of the coal received in the month of May and June 2014 as Rs. 3578/MT with GCV as 4500 kCal/kg (ADB basis). The Petitioner however in its reply dated 24.04.2015 submitted that the GCV of 4500 kCal/kg as provided earlier was on ADB basis and the actual average GCV for the period April 2014 to January 2015 is 4358 kCal/kWh on as received basis. RVUN further submitted that the price of coal that was earlier

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submitted as Rs 3584/MT for the month of May 2014 didn’t include some expenses that were due to be paid and submitted revised format F5.1 for the month of October 2014 to December 2014 stating that the cost of coal for the month of October was Rs. 3949.66/kg. The cost of coal and consumption as submitted by RVUN is as shown in the table below.

Table 16: Cost and Consumption of Coal as submitted by RVUN

Particulars Units Oct-14 Nov-14 Dec-14 Quantity of Coal Consumed MT 1,07,576.40 2,11,277.42 1,54,034.49 Landed Cost of Coal Rs./MT 3,949.66 4,011.25 4,032.64

(l) The Commission at this stage has provisionally considered the

weighted average cost of coal for the month of October to December 2014 as submitted by the Petitioner which works out to be Rs. 4004.21/MT. The Commission directs the Petitioner to submit the actual coal price in accordance with the provisions of Coal Mining and Delivery Agreement at the time of truing up along with the detailed justification of the component wise actual coal price claimed vis-à-vis the provisions of the CMDA. The Commission shall carry out the final prudence check of the individual component wise coal cost while determining the final tariff of both the Units of KaTPP.

(m) As regard the GCV, the Commission has provisionally considered the GCV as submitted by RVUN.

5.44 The variable charges provisionally determined by the Commission for FY 2014-15 are as under:

Table 17: Provisionally Approved Variable Charges for FY 2014-15 (Rs. Crore)

Particulars Unit

KaTPP-Unit-1 (600 MW) RVUN(Based on

Revised Submissions)

Provisionally Allowed

Installed Capacity MW 600 600 Availability % 83% 83% Plant Load Factor % 83% 83% Gross Generation MU 3932.21 3932.21 Auxiliary Consumption % 5.25% 5.25% Auxiliary Consumption MU 206.44 206.44 Net Generation MU 3725.77 3725.77

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Particulars Unit

KaTPP-Unit-1 (600 MW) RVUN(Based on

Revised Submissions)

Provisionally Allowed

Station Heat Rate kCal/kWh 2320.632 2320.632 Gross Calorific Value Fuel - (Indigenous Coal) kCal/Kg 4358.00 4358.00 Fuel 2 (HFO) kCal/Ltr. 10000.00 10000.00 Fuel 3 (LDO) kCal/Ltr. 10000.00 10000.00 Specific Fuel Consumption Fuel - (Indigenous Coal) Kg/kWh 0.53 0.53 Fuel 2 (HFO) ml/kWh 0.45 0.45 Fuel 3 (LDO) ml/kWh 0.05 0.05 Landed Fuel Price per unit Fuel - (Indigenous Coal) Rs/MT 4004.21 4004.21 Fuel 2 (HFO) Rs/KL 47091.00 47091.00 Fuel 3 (LDO) Rs/KL 67254.00 67254.00 Total Fuel Cost Fuel - (Indigenous Coal) Rs Crore 836.63 836.63 Fuel 2 (HFO) Rs Crore 8.33 8.33 Fuel 3 (LDO) Rs Crore 1.32 1.32 Total Cost Rs Crore 846.29 846.29 Cost of Generation per Unit - Rs/Unit 2.152 2.152 Energy Charge per Unit (ex-bus) Rs/Unit 2.271 2.271

5.45 The Commission accordingly provisionally approves the tariff for FY 2014-15 for Unit-1 as follows.

Table 18: Tariff for FY 2014-15 (Rs. Crore)

Particulars As claimed by the Petitioner

Provisionally Approved

Fixed Charges (for 329 days) – Rs Crore 1012.06 724.40 Fixed Charge – Rs/kWh (Energy Sent out) 2.727 1.944 Variable Charge – Rs/kWh (Energy Sent out)

2.271 2.271

Total Tariff – Rs/kWh (Energy Sent Out) 4.999 4.216

5.46 The copy of this Order may be sent to the Petitioner, Respondents, Objectors, CEA and Government of Rajasthan.

(Raghuvendra Singh) (Vinod Pandya) (Vishvanath Hiremath) Member (T) Member (F) Chairman

of 70 RERC/462/14

Annexure-1 ABBREVIATIONS

Act Electricity Act, 2003 APR Annual Performance Review APTEL Appellate Tribunal for Electricity ARR Aggregate Revenue Requirement BHEL Bharat Heavy Electricals Ltd. BoD Board of Directors BoP Balance of Plant BTG Boiler, Turbine & Generator CEA Central Electricity Authority CMDA Coal Mining and Development Agreement COD Commercial Operation Date CSR Corporate Social Responsibility DPR Detailed Project Report Discoms Distribution Companies EPC Engineering Procurement and Construction ETC Erection Testing & Commissioning FERV Foreign Exchange Rate Variation FY Financial Year GCV Gross Calorific Value GFA Gross Fixed Assets GoR Government of Rajasthan GT Generator Transformer HFO High Furnace Oil IDC Interest during Construction KaTPP Kalisindh Thermal Power Station kCal kilo calorie kL kilo litre kW kilo Watt kWh kilo Watt hour LD Liquidated Damages LDO Light Diesel Oil LOA Letter of Award MOE&F Ministry of Environment, Forest and Climate Change MoM Minutes of Meeting MT Metric Ton MU Million Units MW Mega Watt MYT Multi Year Tariff O&M Operation & Maintenance PLF Plant Load Factor PPA Power Purchase Agreement PV Price Variation RERC Rajasthan Electricity Regulatory Commission

of 70 RERC/462/14

ROE Return on Equity SBI State Bank of India SCM Standard cubic meter SECL South Eastern CoalFields Limited SHR Station Heat Rate TPS Thermal Power Station

of 70 RERC/462/14

Annexure-2

Section/ Para/ Annexure Particulars Page

No.

Section 1 General 1

Section 2 Summary of filing, Annual Performance Review and Tariff determination process 3

Section 3

Summary of objections/ comments/ suggestions received from stakeholders and RVUN’s response on the ARR and Tariff Petition for FY 2014-15 and True up of ARR for FY 2011-12

5

Section 4 Capital Cost of Kalisindh Thermal Power Station-Unit -1 (600 MW) 23

Section 5 Determination of ARR and Tariff for KaTPP Unit -1 (1x600 MW) for FY 2014-15 (329 days)

55

Annexure 1 Abbreviations 70 Annexure 2 Index 72

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