CASE NO. 14 of 1997
ORDER No.003 DATED 16th JUNE, 1997

Shri A.R. Mohanty, Member
Shri D.K. Roy, Member

In the matter of application by M/s Grid Corporation of Orissa Limited seeking approval of the Commission on Power Purchase Agreement (PPA) with M/s. AES Ib Valley Corporation.

M/s Grid Corporation of Orissa Limited - Petitioner

For the Petitioner :
Shri N.G Nath, S.E. (PP-1).
Shri Sarojkanta Parida, Asst. Manager (PP-1).

For the affected party :
Shri K.C. Mishra, Advisor AES lb Valley Corporation.
Shri Anil Pattnaik, Vice-President, AES lb Valley Corporation.
Shri R.L. Jamuda, Managing Director, OPGC.
Shri B. Mishra, OSD-cum-Dy. Secretary, Deptt. of Energy, Govt. of Orissa.

1. This order is with reference to a request made by M/s. Grid Corporation of Orissa Limited (GRIDCO) to confirm the acceptance of Amended Power Purchase Agreement signed by them with M/s. AES lb Valley Corporation on 31st March, 1997. Certain clarifications were obtained from M/s. Gridco and a hearing was fixed on 6th June, 1997 to investigate into the preliminary issues and to decide upon the type and scope of order the Commission could issue in this case.

2. M/s. Grid Corporation of Orissa Limited (GRIDCO) was represented by Sri N.G. Nath, S. E. (PP-I), Sri S. K. Parida, Sri S. N. Ghosh, Manager. State Government, Deptt. of Energy represented by Sri B. Mishra, OSD-cum-Dy. Secretary. M/s. AES lb Valley Corporation represented by Sri K.C. Mishra, Adviser and Sri Anil Pattnaik, Vice-President. M/s. OPGC represented by Sri R.L. Jamuda, Managing Director.

3. The Commission enquired from M/s GRIDCO, the State Govt., and M/s AES Ib Valley Corporation about the status of the said Amended Power Purchase Agreement submitted by the GRIDCO for Commission approval/acceptance. The parties were requested to clarify whether the present agreement dated the 31st March, 1997, was to be treated as a new agreement or as an amended version of the Power Purchase Agreement executed between the OSEB and AES lb Valley Corporation dated 5th January, 1995.

4. Sri Nath, on behalf of GRIDCO stated that in response to Govt. of Orissa's request to the Government of India for counter guarantee on the said PPA, a meeting had been held in the Ministry of Power on 21.05.97, during which it was indicated by the Ministry of Power that the clearance of the PPA by the Orissa Electricity Regulatory Commission should be obtained before the Ministry considered issuing a counter guarantee for the GRIDCO's payment obligations under the PPA. On enquiry by the Commission, it was stated by Sri Nath that recorded minutes of the meeting, setting forth the requirement, has not yet been received by GRIDCO.

5. Sri B. Mishra, on behalf of the Govt. of Orissa stated that in view of provisions of Section 15(4)(i) of the OER Act, 1995 purchase of power by GRIDCO is required to be done in an economic manner under a transparent power purchase procurement process. Sri Mishra stated that the Cabinet has decided on the basis of re-negotiation done by GRIDCO to give guarantee and recommended to the Government of India for counter guarantee, subject however to satisfactory resolution of several issues at Govt. of India level. The State Govt. have submitted fourteen copies of the PPA to the Govt. of India, Ministry of Power, for review by the different ministries, such as Finance, Law, Environment, and the CEA. The State Govt. have also requested GRIDCO to apprise the Orissa Electricity Regulatory Commission of the PPA. Sri Nath then submitted a copy of Govt. of Orissa letter No. 23088 aft. 23.12.96 addressed to GRIDCO on this matter.

6. Sri Mishra explained that the project cost of the 2 x 250 MW lb Valley Power Station, units A & B has been fixed with a ceiling of $587 Million plus Rs. 2259 Million (Rs.2075 Crores at an exchange rate of Rs.31.5 per 1 US $). Any increase in Project Cost shall be borne by AES lb Valley Corporation, and not reflected in the cost of power supplied to Gridco. If, on the other hand, the project cost was lower than the above ceiling after the EPC contract was awarded, the benefit of the reduced cost would be reflected in the cost of power supplied to Gridco.

7. Sri Pattnaik, on behalf of AES lb Valley Corporation, confirmed that the above stated ceiling on the project cost has been accepted by AES. He referred to the opening paragraph of the present PPA to confirm that the present PPA is merely an amended and restated version of the Jan'95 PPA, reflecting the re-negotiation and restating the said PPA for clarity, as agreed between AES and Gridco. To that extent the present PPA supersedes the Jan '95 agreement, but is not a new agreement. This PPA ispresently being examined by the CEA. and during discussion with the CEA and the Power Ministry, CEA desired to have a new Detailed Project Report (DPR) for the re-configured project to process techno-economic clearance. AES are preparing the new DPR. The clearance from the State Pollution Control Board will be obtained after going through the required public hearing. In a high level meeting taken by the Principal Secretary, Energy Deptt., Govt. of Orissa have agreed to transfer/assign the permits and clearances previously obtained, to AES for Units A & B. AES expect to submit the DPR to the CEA shortly.

8. Sri R.L. Jamuda, Managing Director, OPGC stated that the permits assigned in favour of AES for units 3 & 4 have not yet been surrendered by AES for reassignment to OPGC.

9. Before we record our observations with regard to PPA, we have to note that the type and nature of scrutiny and approval by the Commission will be substantially different if the renegotiated and amended PPA is considered to be a new agreement. Govt. of India have issued guidelines for procurement of power. In their letter No. 4/1/96-lPC-II aft. 28.06.96, it has been stated that the CEA will not entertain any proposal for setting up generating stations on the MOU/LOI, etc. route after 31.03.97. This extended period shall be available only to such generating projects for which In principle clearance has been issued prior to 31.03.96. Proposals for which In principle clearance was not issued prior to 31.03.96 and for which approval of CEA has not been sought together with detailed project report before the 31.03.97 will have to come through the international competitive bidding route. In this case techno-economic clearance was given by CEA on 19.01.94 on a project cost of Rs.1993.63 crores. The Govt. of Orissa guarantee was given on 06.01.95 and Govt. of India issued counter guarantee on 16.01.95. The project was notified as a fast track project by Govt. of India. Subsequently, however, there has been re-negotiation with M/s AES resulting in reduction of about Rs.300 crores in the capital cost. Certain other modifications have also been agreed upon. AES has agreed to re-locate its installation at the site earmarked for units 5&6 of lb Valley project instead of originally agreed site for unit 3&4. It appears that the amended PPA has to obtain fresh techno-economic clearance from CEA in view of change in some of the basic aspects namely; change of site, change of capacity to 2X250 MW instead of earlier configuration 2X210 MW, reduction of project cost and some other aspects. The Govt. of Orissa has moved the Govt. of India for granting counter guarantee to the revised PPA after satisfactory resolution of some of the issues identified by them.

10. There is no specific provision in the OER Act, 1995 calling for approval of any PPA. But, the Commission is to grant clearance firstly in view of provisions under Section 15(4)(i) so as to ensure that power is purchased in an economical manner under a transparent power purchase procurement process. This provision has also been incorporated in Clause 15 of the Orissa Transmission and Bulk Supply License, 1997 (2/97) stipulating that the Licensee shall not commence any process of purchase electricity without an authorization granted by the Commission. The said authorization is to be granted only after the licensee demonstrated to the Commission's satisfaction on three conditions specified in Clause 15.3 of the License. These conditions are necessity of additional power, examination of available alternatives for purchase of additional electricity and obtaining tenders and processing them in a manner approved by the Commission. However, Regulations 110 of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 makes it obligatory for the licensee to apply to the Commission to approve the draft Power Purchase Agreement which it proposes to enter into.

11. In the above background we have examined the request made to the Commission by M/s Gridco, the status of the amended PPA filed before us and the nature of order the Commission can issue at this point of time. It has to be noted that the provisions of the OER Act, 1995 do not supersede the provisions of Section 28 to 32 of the Electricity (Supply) Act, 1948. It is obligatory for the generating company to submit schemes to the Central Govt. and the Central Electricity Authority who have to take a decision for concurrence on the same. It is mandatory to obtain techno-economic clearance from the CEA before going ahead with establishment and operation of scheme. In the instant case it has been admitted before us that the generating company namely M/s AES is still engaged in preparation of the Detailed Project Report (DPR) for submission to the CEA. Even though clearance have been obtained earlier by them for the original PPA, CEA seems to have asked for a revised DPR in view of the substantial modification and reconfiguration of the Project. Thus the CEA has not yet applied its mind for the techno-economic clearance of the Project. M/s AES has yet to obtain many of the clearances.

12. The Commission has made a preliminary examination of the requests made by Gridco and found that one of the three conditions specified at 15.3 of the Terms of license has been satisfied in as much as the additional power proposed to be contracted is found to be necessary to meet the license's service obligation and generally conforms to load forecast and generation planning submitted to Commission. With regard to the other aspects it is not possible to take a view before the techno-economic clearance is obtained from the CEA. The CEA clearance should establish that the PPA under consideration is an amended version of the Jan '95 PPA and therefore, it is not necessary to insist upon the international competitive bidding route. The most important /aspect of the Commission approval relates to tariff. This examination cannot be done until the Project cost is finalized. The Commission is unable to establish firm figures of the capital cost, financial plan and the impact on tariff until the techno-economic clearance has been issued by the CEA. We have noted the contents of the flow Chart issued by the Govt. of India, Ministry of Power in their brochure "India's Electricity Sector - Widening Scope of Private Participation". The flow Chart for "Approval process for Thermal Generation Project Costing of Rs.100 crores through MOU/LOI route or more than Rs.1000 crores through the ICB route" indicates that it is only after the techno-economic clearance and much after submission of DPR to the CEA that Govt. of India's approval to PPA and Tariff deviation can be considered. Now that the Regulatory Commission is in position in Orissa, this part of approval namely tariff aspect has to be examined by the OERC. Thus, the approval for the PPA by the Commission can be considered only after the techno-economic clearance which will firm up the capital cost. As stated earlier, the clearance of the Commission is mainly for the purpose of ensuring economical purchase and for commitment to pass on the impact of tariff to consumers. In the instant case the stage has not come for the Commission to examine these two aspects. Gridco and M/s. AES were asked by the Commission to furnish documents establishing the status of clearance of the project within fifteen days.

13. We, therefore, conclude that while Gridco and AES can go ahead in getting the Amended PPA processed for various clearances, the stage has not reached for clearance of the PPA by the OERC. M/s. Gridco is directed to submit application in terms of 110 (3) of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 after obtaining the techno-economic clearance from the Central Electricity Authority.

The application of Gridco is disposed off, accordingly.

I agree.

06.06.97 M/s. Grid Corporation of Orissa Limited (GRIDCO) was represented by Sri N.G. Nath, S.E. (PP-I), Sri S.K. Parida, Sri S.N. Ghosh, Manager. State Government, Deptt. of Energy represented by Sri B. Mishra,OSD-cum-Dy. Secretary. M/s. AES lb Valley Corporation represented by Sri K.C. Mishra, Adviser and Sri Anil Pattnaik, Vice-President. M/s. OPGC represented by Sri R.L. Jamuda, Managing Director.

The Commission enquired from M/s GRIDCO, the applicant, the State Govt., and M/s. AES lb Valley Corporation, the status of the Power Purchase Agreement, submitted by the GRIDCO for Commission approval. The parties were requested to clarify whether the present agreement dated the 31st March, 1997, is to be treated as a new agreement or as an amended version of the Power Purchase Agreement executed between the OSEB and AES lb Valley Corporation dated 5^th January, 1995.

Sri Nath, on behalf of GRIDCO stated that a meeting had been taken in the Ministry of Power on 21.05.97, during which it was desired by the Ministry of Power that the clearance of the PPA by the Orissa Electricity Regulatory Commission should be obtained before the Ministry of Power considered issuing a counter guarantee for the GRIDCO's payment obligations under the PPA. On enquiry by the Commission, it was stated by Sri Nath that recorded minutes of the meeting, setting forth the requirement, has not yet been received by GRIDCO.

Sri B. Mishra, on behalf of the Govt. of Orissa stated that under the OER Act, 1995, Section 15(4)(i) purchase of power by GRIDCO is required to be done in an economic manner under a transparent power purchase procurement process. Sri Mishra stated that the State Govt. guarantee, based on the re-negotiation done by GRIDCO has been approved by the State Govt. in the Cabinet meeting (date not indicated), subject to satisfactory resolution of several other issues at Govt. of India level. The State Govt. have submitted fourteen copies of the PPA to the Govt. of India, Ministry of Power, for review by the different ministries, such as Finance, Law, Environment, and the CEA. The State Govt. have also requested GRIDCO to apprise the Orissa Electricity Regulatory Commission of the PPA. Sri Nath then submitted a copy of Govt. of Orissa letter No. 23088 dt. 23.12.96 addressed to GRIDCO on this matter (Copy at Annexure - A)

Sri Mishra stated that the project cost of the 2 x 250 MW lb Valley Power Station, units A & B has been fixed with a ceiling of $587 Million plus Rs. 2259 Million (Rs.2075 Crores at an exchange rate of Rs.31.5 per 1 US $). Any increase in Project Cost shall be borne by AES Ib Valley Corporation, and not reflected in the cost of power supplied to Gridco. If, on the other hand, the project cost was lower than the above ceiling after the EPC contract was awarded, the benefit of the reduced cost would be reflected in the cost of power supplied to Gridco.

Sri Pattnaik, on behalf of AES lb Valley Corporation, confirmed that the above ceiling on the project cost has been accepted by AES on the above basis. He referred to the opening paragraph of the present PPA to confirm that the present PPA is merely an amended and restated version of the Jan'95 PPA, reflecting the re-negotiation and restating the said PPA for clarity, as agreed between AES and Gridco. To that extent the present PPA supersedes the Jan '95 agreement, but is not a new agreement. This PPA is presently being examined by the CEA, and during discussion with the CEA and the Power Ministry, CEA desired to have a new Detailed Project Report (DPR) for the re-configured project to process techno-economic clearance. AES are preparing the new DPR. The clearance from the State Pollution Control Board will be obtained after going through the required public hearing. In a high level meeting taken by the Principal Secretary, Energy Deptt. Govt. of Orissa have agreed to transfer/assign the permits and clearances previously obtained, to AES for Units A & B. AES expect to submit the DPR to the CEA shortly.

Commission pointed out that the OER Act, 1995 does not curtail the authority of the Govt. of India (U/S 43-A of the Electricity Supply Act) and the CEA (U/S 29 of the Electricity Supply Act). The determination of the power tariff has to be made based upon the techno-economic appraisal of CEA, the capital cost and the financing plan approved by the CEA, and approval by Govt. of India of the deviations from the normatives notified by Govt. of India. The ceiling on capital cost has been qualified in Schedule 15 of the subject PPA by several conditions, in this Schedule and in Section 1(C) of Schedule 10 and does not reflect the position stated by Sri Mishra on behalf of the State Govt. and Sri Pattnaik on behalf of AES.

Sri R. L. Jamuda, Managing Director, OPGC stated that the permits assigned in favour of AES for units 3 & 4 has not been surrendered by AES for reassignment to OPGC.

AES and Gridco were requested to furnish documents regarding various clearances required and the status of the Project. Gridco may submit a fresh petition to the Commission on receipt of TEC and approval of the project cost and financing plan from CEA and GOI approval to PPA and/or Tariff deviations from GOI specified norms, for approval/acceptance of the PPA by the Commission.

Formal order to be issued.

Order issued. Copy to be given to all concerned.

(D. K. ROY)
MEMBER

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