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Issues with ultra mega power projects

Issues with ultra mega power projects


GS 3  ||Economy || Infrastructure || Power

Why in News:

  • The Gujarat government has recently asked its discoms to approach the CERC (Central Electricity Regulatory Commission) to get approval for a tariff hike.
  • CERC is a statutory quasi-judicial body functioning under sec – 76 of the Electricity Act 2003 (CERC was initially constituted under the Electricity Regulatory Commissions Act, 1998 on 24th July, 1998). CERC is the regulatory body of power sector in India.
  • If the Discoms (Distribution Companies) have to increase or make differences in the tariff on power and electricity, they will have to get approval from CERC.

Background of the UMPP:

  • In 1995, the central government had come up with this policy with a purpose to coal based power projects in the nation, with a capacity of 1000MW or more than that.
  • In this policy, it was decided to set up UMPPs and central government invited for the coastal project
  • UMPPs are run by three companies: TATA group, Adani and the third is ESSAR group.
  • According to the new conditions they can run only on imported coal and should have a combined generation capacity of 10,000 MW and these companies have to sign a power purchase agreement with the various state governments. Coal is imported from Indonesia.


  • Coal was imported from Indonesia. But, in 2010, Indonesia issued new regulations in which pricing and policies were increased. Earlier it was cheaper.
  • The increased cost of coal infused some financial implications.
  • According to a new decision by Supreme Court, there should not be any change in the price within the nation because of increased coal tariff by Indonesia.
  • Discoms were not able to raise the tariff which badly effected lenders, promoters and customers. For the three plants, they were unable to pass the uncontrollable increase in the fuel prices of discoms. Power projects were surviving by additional funds by the promoters.
  • There was also a likelihood of erosion in the credit worthiness of the generators and this would result in creation of NPA. This could have been only solved if there were some reasonable increase in the tariffs. But it would burden the consumers so both ways were difficult.
  • So, a high powered committee (HPC) was set up by the Gujarat govt.

Recommendations of the HPC:

  • Three projects should be permitted to pass on impact of high fuel cost equitably to consumers, lenders and other stakeholders.
  • The banks have to make a cut of more than 10,000 crores. It also recommended that lenders should reduce the interest rates which may ease the pressure on power plants.
  • Also recommended a partial pass-through of this high coal prices to the consumers. Which means the price hike on the coals must be passed on to consumers also, but in partial magnitude. It may increase the tariff also.
  • Along with this, there should be a commercial restructuring of these plans.

Present Status:

  • SC said, its previous verdict will not intercept in the way of measures suggested by the HPC.
  • From the part of the state government, they are contemplating to pass on the extra fuel cost on the consumers, rest no other charges.
  • With regard to CERC, the state govt has asked its discoms to get approvals from CERC for the increase in tariffs. CERC should also consider the following factors before these approvals:
    Affordability of power consumers, Protection of interests of various stake holders, and also alternatives to these situations.
  • Inclusively it should be based on balanced approach.