order-09032015-115 of 2014

MERC Order Case No. 115 of 2014 Page 1 of 99

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai 400 005 Email: [email protected]

Website: www.mercindia.org.in/ www.merc.gov.in

Case No. 115 of 2014

In the matter of

Petition of Vidarbha Industries Power Ltd. for determination of Capital Cost and Final

Tariff for FY 2014-15 and FY 2015-2016 for its Generating Station at Butibori, Distt.

Nagpur

Smt Chandra Iyengar, Chairperson

Shri. Azeez M. Khan, Member

Shri. Deepak Lad, Member

ORDER

Date: 09 March, 2015

M/s. Vidarbha Industries Power Limited (VIPL) filed a Petition on 30 May, 2014 for

approval of capital cost and final Tariff of its 2 x 300 MW generating station located at the

Maharashtra Industrial Development Corporation (MIDC)s Butibori Industrial Area, Distt.

Nagpur, in the second Control Period of the Multi Year Tariff (MYT), i.e. FY 2014-15 and

FY 2015-16. The Petition has been filed under the provisions of Section 61, 62, and 86(1) (a)

and (b) of the Electricity Act (EA), 2003 and as per Parts A to C, E, F and K of the MERC

(MYT) Regulations, 2011. The Commission, in exercise of the powers vested in it under

Sections 61 and 62 of EA, 2003 and all other powers enabling it in this behalf, and after

taking into consideration the submissions of VIPL, issues raised during the Public Hearing

and all other relevant material, approves the capital cost and determines the final Tariff for

VIPLs 2 x 300 MW generating station at Butibori for FY 2014-15 and FY 2015-16 as

follows.


TABLE OF CONTENTS

1. BACKGROUND .............................................................................................................. 9

1.1. BACKGROUND OF THE CASE ....................................................................................... 9

1.2. ADMISSION OF THE PETITION AND PUBLIC PROCESS ................................................. 10

1.3. ORGANISATION OF THE ORDER ................................................................................. 11

2. PUBLIC HEARING ...................................................................................................... 12

2.1. PUBLIC HEARING AND SUGGESTIONS/OBJECTIONS FROM THE PUBLIC/STAKEHOLDERS

12

3. APPROVAL OF CAPITAL COST .............................................................................. 13

3.1. PROJECT COMMISSIONING AND TIME-LINES.............................................................. 13

3.2. SUBMISSION OF VIPL ON CAPITAL COST .................................................................. 29

3.3. LAND ........................................................................................................................ 34

3.4. EPC CONTRACT ........................................................................................................ 35

3.5. INITIAL SPARES AS PART OF THE CAPITAL COST AS ON COD .................................... 39

3.6. OUTSIDE BOUNDARY LIMITS (OSBL) ....................................................................... 40

3.7. OVERHEADS .............................................................................................................. 40

3.8. INTEREST DURING CONSTRUCTION (IDC) ................................................................. 44

3.9. FOREIGN EXCHANGE RATE VARIATION .................................................................... 48

3.10. APPROVED CAPITAL COST ........................................................................................ 50

3.11. MEANS OF FINANCE .................................................................................................. 51

4. DETERMINATION OF TARIFF FOR FY 2014-15 AND 2015-16 .......................... 53

4.1. CAPITAL COST FOR DETERMINATION OF TARIFF ........................................................ 53

4.2. ADDITIONAL CAPITALISATION .................................................................................. 55

4.3. DEPRECIATION .......................................................................................................... 59

4.4. INTEREST ON LONG TERM LOAN ............................................................................... 61

4.5. RETURN ON EQUITY .................................................................................................. 66

4.6. INCOME TAX ............................................................................................................. 69

4.7. OPERATION AND MAINTENANCE (O&M) EXPENSES ................................................. 71

4.8. NON- TARIFF INCOME................................................................................................ 73


4.9. INTEREST ON WORKING CAPITAL ............................................................................. 73

4.10. ANNUAL FIXED CHARGES ......................................................................................... 75

4.11. FUEL SUPPLY AGREEMENT ....................................................................................... 77

4.12. CALORIFIC VALUE AND PRICE OF FUEL .................................................................... 79

4.13. OPERATIONAL PARAMETERS ..................................................................................... 81

4.14. ENERGY CHARGES .................................................................................................... 87

4.15. SUMMARY OF TARIFF ................................................................................................ 89

5. COMPLIANCE OF DIRECTIVES ............................................................................. 90

5.1. RISK OF FERV .......................................................................................................... 90

5.2. FUEL SUPPLY AGREEMENT ....................................................................................... 90

5.3. PERFORMANCE GUARANTEE TEST ............................................................................ 91

5.4. AUXILIARY CONSUMPTION ....................................................................................... 91

6. APPLICABILITY OF ORDER AND TARIFF .......................................................... 93

7. RULINGS OF THE COMMISSION ........................................................................... 94

APPENDIX-I .......................................................................................................................... 98

APPENDIX-II ........................................................................................................................ 99


LIST OF TABLES

TABLE 1 - PROJECT TIME-LINES AND SCHEDULE AS SUBMITTED BY VIPL ................................. 13

TABLE 2 - CHRONOLOGY OF EVENTS FOR RAILWAY LAND LICENSING FOR SIDING ................... 15

TABLE 3 - CHRONOLOGY OF EVENTS REGARDING SICOM LAND FOR RAILWAY SIDING ........... 16

TABLE 4 - SCHEDULE OF KEY MILESTONES, AS SUBMITTED BY VIPL ........................................ 20

TABLE 5 - PROJECT COST HAD COD BEEN AS PER MYT NORMS, AS SUBMITTED BY VIPL (RS.

CRORE) .............................................................................................................................. 27

TABLE 6 - UNIT-WISE ACTUAL PROJECT COST AS ON COD, AS SUBMITTED BY VIPL (RS.

CRORE) .............................................................................................................................. 28

TABLE 7 - PROJECT COST AS ON COD, AS SUBMITTED BY VIPL (RS. CRORE) ........................... 29

TABLE 8 - ADDITIONAL FEATURES OF THE PLANT, AS SUBMITTED BY VIPL .............................. 30

TABLE 9 - COST OF LAND, AS SUBMITTED BY VIPL .................................................................. 34

TABLE 10 - DETAILS OF COST OF MIDC LAND, AS SUBMITTED BY VIPL ................................. 35

TABLE 11 - BTG AND BOP COST, AS SUBMITTED BY VIPL (RS. CRORE) ................................. 36

TABLE 12 - BENCHMARKING OF CAPITAL COST, AS SUBMITTED BY VIPL ................................ 37

TABLE 13 - BENCHMARKING OF PER MW COST, AS SUBMITTED BY VIPL ................................. 38

TABLE 14 - DETAILS OF OVERHEADS, AS SUBMITTED BY VIPL ................................................ 41

TABLE 15 OVERHEAD COST APPROVED BY THE COMMISSION (RS. CRORE) ........................... 44

TABLE 16 - DETAILS OF IDC AND FINANCING CHARGES AS SUBMITTED BY VIPL (RS. CRORE) 46

TABLE 17 - IDC AND FINANCING CHARGES, AS SUBMITTED BY VIPL ....................................... 47

TABLE 18 - IDC APPROVED BY THE COMMISSION (RS. CRORE) ................................................ 47

TABLE 19 - DETAILS OF FERV, AS SUBMITTED BY VIPL .......................................................... 48

TABLE 20 - FERV APPROVED BY THE COMMISSION (RS. CRORE) ............................................. 50

TABLE 21 - CAPITAL COST APPROVED BY THE COMMISSION (RS. CRORE) ................................ 50

TABLE 22 - MEANS OF FINANCE AS APPROVED BY THE COMMISSION (RS. CRORE) ................... 52

TABLE 23 - CAPITAL COST FOR DETERMINATION OF TARIFF, AS SUBMITTED BY VIPL .............. 53

TABLE 24 - CAPITAL COST FOR DETERMINATION OF TARIFF APPROVED BY THE COMMISSION (RS.

CRORE) ............................................................................................................................. 55

TABLE 25 - ADDITIONAL CAPITALISATION, AS SUBMITTED BY VIPL (RS. CRORE) ................... 55

TABLE 26 - ADDITIONAL CAPITALISATION, AS SUBMITTED BY VIPL (RS. CRORE) ................... 56

TABLE 27 - DETAILS OF RAILWAY SIDING COST, AS SUBMITTED BY VIPL (RS. CRORE) ........... 57

TABLE 28 - ADDITIONAL CAPITALISATION AS APPROVED BY THE COMMISSION ....................... 59


TABLE 29 DEPRECIATION, AS SUBMITTED BY VIPL (RS. CRORE) .......................................... 60

TABLE 30 - DEPRECIATION AS APPROVED BY THE COMMISSION (RS. CRORE) ........................... 61

TABLE 31 - COMPUTATION OF INTEREST RATE, AS SUBMITTED BY VIPL ................................. 61

TABLE 32 - INTEREST EXPENSES, AS SUBMITTED BY VIPL (RS. CRORE) ................................... 62

TABLE 33 - SCENARIOS FOR HEDGING COST, AS SUBMITTED BY VIPL (RS. CRORE) .................. 62

TABLE 34 - IMPACT OF HEDGING ON ARR HEADS, AS SUBMITTED BY VIPL (RS. CRORE) ......... 64

TABLE 35 - INTEREST EXPENSES AS APPROVED BY THE COMMISSION (RS. CRORE) ................... 66

TABLE 36 - RETURN ON EQUITY, AS SUBMITTED BY VIPL (RS. CRORE) ................................... 67

TABLE 37 - TIME SCHEDULE FOR COMMISSIONING COMPUTED BY THE COMMISSION ................ 68

TABLE 38 RETURN ON EQUITY APPROVED BY COMMISSION (RS. CRORE)................................. 69

TABLE 39 - INCOME TAX AS SUBMITTED BY VIPL (RS. CRORE) ............................................... 70

TABLE 40 - O&M EXPENSES AS SUBMITTED BY VIPL .............................................................. 72

TABLE 41 - O&M EXPENSES AS APPROVED BY THE COMMISSION (RS. CRORE) ........................ 73

TABLE 42 - INTEREST ON WORKING CAPITAL, AS SUBMITTED BY VIPL (RS. CRORE) ............... 73

TABLE 43 - INTEREST ON WORKING CAPITAL AS APPROVED BY THE COMMISSION (RS. CRORE)

.......................................................................................................................................... 75

TABLE 44 - ANNUAL FIXED COST AS SUBMITTED BY VIPL (RS. CRORE) .................................. 75

TABLE 45 - ANNUAL FIXED CHARGES AS APPROVED BY THE COMMISSION (RS. CRORE) .......... 76

TABLE 46 - CALORIFIC VALUE AND PRICE OF FUEL, AS SUBMITTED BY VIPL .......................... 80

TABLE 47 - CALORIFIC VALUE AND PRICE OF FUEL CONSIDERED BY THE COMMISSION ........... 81

TABLE 48 - OPERATIONAL PARAMETERS, AS SUBMITTED BY VIPL ........................................... 81

TABLE 49 - OPERATIONAL PARAMETERS FOR UNIT 1 FROM COD TILL FY 2013-14 ................. 84

TABLE 50 - STATION HEAT RATE ALLOWED BY THE COMMISSION............................................ 85

TABLE 51 OPERATIONAL PARAMETERS APPROVED BY THE COMMISSION ................................. 86

TABLE 52 - ANNUAL ENERGY CHARGES, AS SUBMITTED BY VIPL (RS. CRORE) ...................... 87

TABLE 53 - FUEL COST AS APPROVED BY THE COMMISSION (RS. CRORE) ................................ 87

TABLE 54 COST OF WATER AS SUBMITTED BY VIPL (RS. CRORE)............................................ 87

TABLE 55 - ENERGY CHARGES AS APPROVED BY THE COMMISSION .......................................... 88

TABLE 56 - TARIFF APPROVED BY THE COMMISSION FOR FY 2014-15 AND FY 2015-16 .......... 89


List of Abbreviations

ACQ Annual Contracted Quantity

ACW Auxiliary Cooling Water

AFC Annual Fixed Charges

AHP Ash Handling Plant

ARR Aggregate Revenue Requirement

AS Accounting Standards

ATE Appellate Tribunal for Electricity

BC Buyers Credit

BoP Balance of Plant

BFP Boiler Feed Pump

BTG Boiler Turbine Generator

CA Chartered Accountant

CAPEX/Capex Capital Expenditure

CCEA Cabinet Committee on Economic Affairs

CCI Competition Commission of India

CEA Central Electricity Authority

CERC Central Electricity Regulatory Commission

CFBC Circulating Fluidised Bed Circulation

CHP Coal Handling Plant

CIL Coal India Limited

COC Cycles of Concentration

COD Commercial Date of Operation

CW Cooling Water

CWIP Capital Work In Progress

DCS Digital Control System

DM De-mineralisation

EAC Expert Advisory Committee

ECB External Commercial Borrowings

EPC Engineering, Procurement and Construction

ERP Enterprise Resource Planning

ESP Engineering Scale Plan

FBSM Final Balancing and Settlement Mechanism

FERV Foreign Exchange Rate Variation

FO Furnace Oil

FSA Fuel Supply Agreement


FY Financial Year

GCPP Group Captive Power Project

GCV Gross Calorific Value

GFA Gross Fixed Assets

GoM Government of Maharashtra

ICAI Institute of Chartered Accountants of India

IDC Interest During Construction

IPP Independent Power Producer

Kcal kilo calories

Kcal/kWh kilo calories per kilowatt hour

Kg Kilogram

kV kilo Volt

KW kilo Watt

kWh Kilo Watt hour

LoA Letter of Assurance

LD Liquidated Damages

LDO Light Diesel Oil

LIBOR London Interbank Offered Rate

MAT Minimum Alternate Tax

MERC Maharashtra Electricity Regulatory Commission

MIDC Maharashtra Industrial Development Corporation

MLD Million Litres per Day

MMT Million Metric Tonnes

MMTPA Million Metric Tonnes per Annum

MoC Ministry of Coal

MoEF Ministry of Environment and Forests

MoP Ministry of Power

MoPNG Ministry of Petroleum and Natural Gas

MPCB Maharashtra Pollution Control Board

MSPGCL Maharashtra State Power Generation Company Ltd.

MSLDC/SLDC Maharashtra State Load Despatch Centre

MT Metric Tonnes

MU Million Units

MW Megawatt

MYT Multi Year Tariff

NA Non-Agriculture

NTP Notice to Proceed


NTI Non Tariff Income

NOC No Objection Certificate

OEM Original Equipment Manufacturer

OSBL Outside Boundary Limits

O&M Operation & Maintenance

P&L Profit and Loss account

PLF Plant Load Factor

PPA Power Purchase Agreement

P&G Test Performance & Guarantee Test

PPM Parts per million

RBI Reserve Bank of India

RCC Roller Compacted Concrete

RH Relative Humidity

RHT Re-Heat Temperature

RInfra-D Reliance Infrastructure Limited-Mumbai Distribution

RO Reverse Osmosis

RoE Return on Equity

RPL Reliance Power Limited

SBAR State Bank Advance Rate

SECL South Eastern Coalfields Limited

SFOC Secondary Fuel Oil Consumption

SHR Station Heat Rate

SHT Super Heat Temperature

SICOM State Industrial & Investment Corporation Of Maharashtra

SLC(LT) Standing Linkage Committee (Long Term)

TMCR Turbine Maximum Continuous Rating

TVS Technical Validation Session

USD United States Dollar

VAM Vapour Absorption Machine

VAT Value Added Tax

WCL Western Coalfields Limited


1. BACKGROUND

1.1. Background of the Case

1.1.1. VIPL is a Generating Company which has developed a 600 MW (2 x 300 MW)

Power Plant at MIDC Butibori, District Nagpur in Maharashtra. The power from the

generating station is being supplied to Reliance Infrastructure Ltd. (Distribution

Business) (RInfra-D), which is a Distribution Licensee in parts of Mumbai.

1.1.2. VIPL has submitted that the Commission, vide Order dated 20 February, 2013 in

Case No. 2 of 2013 and Order dated 19 July, 2013 in Case No. 76 of 2013, had

accorded in-principle approval to the Power Purchase Agreement (PPA) between

RInfra-D and VIPL for procurement of power from the latters generating Unit 2 and

Unit 1 respectively on long term basis, and the Consolidation Agreement dated 4

June, 2013 executed between RInfra-D and VIPL for supply under the two PPAs for

Unit 1 and Unit 2 to be treated as supply from the Power Plant as a whole for Tariff

and regulatory purposes.

1.1.3. Vide Order dated 17 January, 2014 in Case No. 91 of 2013, the Commission had

approved the provisional Tariff for FY 2014-15 and FY 2015-16, and directed VIPL

to submit the capital cost based on audited accounts post the date of Commercial

Operation (COD).

1.1.4. VIPL has filed the present Petition for approval of capital cost and final Tariff for its

600 MW (2 x 300 MW) generation station at Butibori for the Second MYT Control

period FY 2014-15 and FY 2015-16 under the provisions of the MERC MYT

Regulations, 2011.

1.1.5. VIPLs prayers are as under:

(a) Admit the present Petition;

(b) Approve the capital cost and final tariff of the station for FY 2014-15 and FY

2015-16 based on the rationale submitted by VIPL.


(c) Approve the performance parameters as submitted in this petition.

(d) Provide directives on the identified options for treatment of FERV/hedging.

(e) Condone any shortcomings in the petition and allow the Petitioner to submit

additional information as may be required by the Commission at a later stage;

(f) Allow VIPL to recover the difference in current tariff /provisional tariff vis--

vis the final tariff to be approved in this petition from the date of issue of order.

(g)Pass any such order as deemed appropriate in the circumstance of this case.

1.2. Admission of the Petition and Public Process

1.2.1. Technical Validation Session: Vide Notice dated 11 June, 2014, the Commission

scheduled a Technical Validation Session (TVS) on the Petition on 19 June, 2014 in

the presence of institutional Consumer Representatives authorised under Section

94(3) of the EA, 2003. During the TVS held on 19 June, 2014, VIPL made a

presentation focusing on the salient features of the Petition. The list of persons who

participated in the TVS is at Appendix-I.

1.2.2. Admission of the Petition: The Commission admitted the Petition on 13 October,

2014. In accordance with Section 64 of the EA, 2003, VIPL was directed to publish a

Notice to solicit suggestions and objections from the public. In accordance with

Regulation 90 of the MERC (Conduct of Business) Regulations, 2004, the

Commission also directed VIPL to publish the Notice in at least two local Marathi

and English daily newspapers with wide circulation in Maharashtra, and to reply

expeditiously to all the suggestions and objections received.

1.2.3. Public Notice: VIPL published the Notice on 3 November, 2014 in two English

newspapers, viz. Indian Express and Hindustan Times, and two Marathi newspapers,

viz. Loksatta and Samana, inviting suggestions and objections. Copies of the Petition

and its summary were made available at the Companys offices for inspection/

purchase, and also on VIPLs website www.reliancepower.co.in. A copy of the

Public Notice and the executive summary of the Petition were also made available on

the website of the Commission (www.mercindia.org.in / www.merc.gov.in) in a

downloadable format.


1.2.4. Public Hearing: The Public Hearing on the Petition was held on 9 December, 2014

at the office of the Commission at World Trade Centre, Centre No.1, 13th

Floor,

Cuffe Parade, Mumbai. The list of objectors, responders and other persons who

participated in the Hearing is at Appendix II. The due process contemplated under

law was followed by the Commission at every stage to ensure transparency and

public participation and to provide adequate opportunity to all those who wanted to

express their opinion in this matter.

1.3. Organisation of the Order

1.3.1. This Order is organised in the following Sections:

Section 1 provides a brief history of the quasi-judicial regulatory process

undertaken by the Commission.

Section 2 discusses the suggestions raised by the stakeholders/public in writing as

well as during the Public Hearing before the Commission.

Section 3 deals with the approval of capital cost of VIPLs Butibori generating

station.

Section 4 deals with the determination of final Tariff of the generating station for

FY 2014-15 and FY 2015-16.

Section 5 deals with the compliance of directives contained in the provisional

Tariff Orders of the Commission

Section 6 deals with the applicability of the Order.

Section 7 sets out the Rulings of the Commission.


2. PUBLIC HEARING

2.1. Public Hearing and suggestions/objections from the public/stakeholders

2.1.1. Neither the Commission nor VIPL received any suggestions/objections from

stakeholders or other members of the public on the Petition.

2.1.2. The Public Hearing was held on 9 December, 2014, at the start of which VIPL made

a brief presentation.

2.1.3. During the hearing, the Commission inquired if any members of the

public/stakeholders wished to make any suggestions/comments on the Petition.

However, no suggestions/objections/comments were made by any of those present.

2.1.4. The list of persons who participated in the Public Hearing is at Appendix-II.


3. APPROVAL OF CAPITAL COST

3.1. Project Commissioning and Time-lines

3.1.1. VIPL is a Special Purpose Vehicle (SPV) originally established for implementation

of a Group Captive Power Project (GCPP) through a Competitive Bidding Process

conducted by the MIDC.

3.1.2. Vide its Order dated 20 February, 2013 in Case No. 2 of 2013, the Commission

accorded in-principle approval to the PPA between VIPL and RInfra-D for supply of

300 MW from Unit 2. Vide Order dated 19 July, 2013 in Case No. 76 of 2013, it

accorded in-principle approval to the PPA between VIPL and RInfra-D for supply of

300 MW from Unit 1.

3.1.3. VIPL submitted that it had awarded three separate Engineering, Procurement &

Construction (EPC) contracts to RInfra for Unit 1, Unit 2 and Railway siding works.

3.1.4. VIPL further submitted that Unit 1 has achieved COD on 4 April, 2013 and Unit 2 on

28 March, 2014.

Commissions Analysis

3.1.5. Based on the Project zero date as submitted by VIPL, the time overrun considering

the scheduled COD of Units I & II vis--vis their actual COD are as under:

Table 1 - Project time-lines and schedule as submitted by VIPL

Particulars Start Date Scheduled

COD

Actual Full

Load Test

Actual

COD

Time Over-

run

Unit 1 27.02.2010 27.09.2012 17.08.2012 4.04.2013 189 days

Unit 2 30.4.2010 31.01.2013 19.03.2013 28.03.2014 421days

3.1.6. The Commission asked VIPL to explain the reasons for the delay in COD. In reply,

VIPL has cited two major reasons:


(i) Non-availability of land from SICOM and Railways In order to complete

the railway siding, a few pockets of land were required to be procured from

the State Industrial & Investment Corporation of Maharashtra (SICOM) and

Central Railways (CR). In case of SICOM land, an application for transfer of

the identified land to VIPL was made in January, 2009. Based on the demand

note given by SICOM, VIPL paid 50% advance amount in May 2011.

However, for the final transfer of land, SICOM was required to take

clearance from the Industries, Revenue, Law and Judiciary Departments of

Govt. of Maharashtra (GoM), and these clearances have taken more time than

could be anticipated.

In case of Railway land, similar application for transfer was made to Central

Railways in August, 2010. The detailed Engineering Scale Plan (ESP) was

approved by the relevant authorities in June, 2011 enabling the further

Railway Land Licensing approval process. Railway Land Licensing has been

completed in January, 2014.

VIPL added that it has made significant efforts to speed up the process of

clearances and followed up with more than forty letters.

(ii) Delay in execution of Fuel Supply Agreement (FSA) VIPL submitted that

Unit 1 was demonstrated by achievement of full load operation on 17 August,

2012, but its COD was delayed on account of non-availability of Carpet Coal

required for commissioning purposes from Western Coalfields Limited

(WCL). Despite the Central Electricity Authority (CEA)s recommendation

and valid Letter of Assurance (LoA) approved by the Standing Linkage

Committee - Long Term (SLC (LT)), WCL did not supply it in time. VIPL

has followed up with more than 90 letters.

3.1.7. VIPL has submitted the following chronology of events with regard to Railway Land

Licensing for the Railway siding:


Table 2 - Chronology of events for Railway Land Licensing for siding

Sr.

No.

Activity Date

1 Application to railways for land licensing 01-Aug-10

2 CR, Nagpur after verification forwarded the plan to Chief

Engineer (CE(G)), CR, Mumbai

23-Feb-11

3 Engineering Scale Plan (ESP) approved by Railways 04-Jun-11

4 CR (Finance Department) forwarded the land proposal to

CE(G), CR Mumbai

14-Jun-11

5 CE(G), CR Mumbai raised queries to Sr. DEN (Co.) CR

Nagpur

07-Jul-11

6 DEN(HQ) forwarded their reply to CE(G), Mumbai 26-Aug-11

7 CE(G), CR Mumbai sent file back to Nagpur with observation

that land licensing has to be done from (-) 800 chainage while

Nagpur Division has approved +95 chainage

30-Sep-11

8 Dy. CE incorporated the additional area and forwarded file to

CE(G), CR, Mumbai

05-Dec-11

9 Follow up letter from VIPL to GM, CR for land licensing 23-Dec-11

10 VIPL to Sr DOM, CR, Nagpur for alteration of ESP 26-Dec-11

11 New Railway Board Circular No. 99/TC (FM)/26/1/Pt-II

dated 30 January, 2012 in connection with railway siding. The

relevant clause is No licence fees will be charged on the common user traffic facilities at the station from the siding

owner.

30-Jan-12

12 VIPL to Chief Transportation Planning Manager, CR,

Mumbai modification in approved ESP 02-Feb-12

13 RCC (Consultant of VIPL) to DEN (HQ) CR, Nagpur Revision of proposal due to change in Railways rules and

requesting to send old land licensing drawing to make

necessary corrections

21-Feb-12

14 CE(G), CR, Mumbai sent drawing back to Nagpur division

for required alterations in line with New Railway Board

Circular

01-Mar-12

15 VIPL to GM, CR follow up letter 07-Mar-12

16 Dy. CE to Sr. DEN/CO, Nagpur Communication to obtain requisite documents from VIPL

The documents required are;

1) Undertaking that party shall bear the cost of yard

remodeling and cost of additional land

2) Undertaking by competent authority to enter into financial

commitment

20-Nov-12

17 VIPL to CE (Genl.) Regarding bearing additional charges of land

27-Nov-12


Sr.

No.

Activity Date

18 VIPL to Sr. DEN Acceptance of land licence fees and requesting to process the case to PHOD Committee and GM's

approval

20-Dec-12

19 VIPL to CIPM, CR, Mumbai Acceptance of following additional clause in land licensing agreement

In future railway is authorised to take out more routes from the VIPL siding for other siding.

25-Feb-13

20 VIPL to CIPM, CR, Mumbai Informing about the construction facilities as per ESP

25-Feb-13

21 File put up for approval before PHOD Committee Apr-13

22 VIPL to CIPM, CR, Mumbai Follow up letter with for expediting land licensing as plant is already operational

11-Jun-13

23 File approved by PHOD Committee Sep-13

24 Meeting of VIPL with General Manager, CR regarding the

proposal. It was decided to verify the feasibility of reducing

the usage of railway land at site.

20-Sep-13

25 VIPL to CIPM, CR, Mumbai Informing about the feasibility reducing railway land requirement

11-Oct-13

26 VIPL to CIPM, CR, Mumbai Follow up letter for approval of land licensing

21-Nov-13

27 Final Land licensing approval by CR 01-Jan-14

3.1.8. VIPL has submitted the following chronology of events for approval of SICOM land

for Railway siding:

Table 3 - Chronology of events regarding SICOM land for Railway siding

Sr.

No.

Activity Date

1. Application to SICOM for purchase of land for Railway siding

16-Jan-09

2. VIPLs email to SICOM for requesting for encumbrance free possession of land at Rs. 8 lakh per acre

15-Dec-09

3. SICOMs email to VIPL- Informing final offer of Rs. 11 Lakh per acre and other charges payable

16-Dec-09

4. Meeting between SICOM and VIPL on finalisation of way forward

07-Jun-10

5. VIPL to SICOM - A note has been sent for applying to Industries Department

16-Jun-10


Sr.

No.

Activity Date

6. SICOM applied to Industries Deptt. (GoM) for NOC 02-Jul-10

7. NOC from Industries Deptt. GoM. Further, Industries Deptt. GoM suggested that approval of Revenue Department, GoM

also be taken for sale of land

06-Sep-10

8. VIPL made an application for additional land of 450 acre in addition to 47 acres applied earlier

21-Sep-10

9. Meeting between SICOM and VIPL regarding commitment letter for purchase of land

16-Feb-11

10. Commitment letter to SICOM for purchase of encumbrance free land of :

a) 47 acres @ Rs. 11 Lakh per acre and 3% to SICOM Realty

Pvt. Ltd.

b) 453 acres @ 9.6 Lakh per acre including Rs. 1.6 Lakh per

acre to SICOM Realty Pvt. Ltd.

12-Mar-11

11. SICOM demand for 50% advance payment 30-Mar-11

12. VIPL acceptance letter to demand of advance 31-Mar-11

13. SICOM letter to Principal Secretary, Industries Deptt. requesting assistance in getting NOC from Revenue Deptt.

12-May-11

14. SICOM invoices for payment of 50% advance for 47 acre and 453 acre of land

19-May-11

15. Payment of professional fees to SICOM (Rs. 3.7 Crore) (credited on 15 July, 2011)

19-May-11

16. VIPL letter to SICOM requesting to allow start of site enabling work

11-Jun-11

17. SICOM letter to request Revenue Deptt. GoM for permission for outright sale of 47 acres of land

16-Jun-11

18. Account statement for payment of 50% advance to SICOM 15-Jul-11

19. SICOM letter to Collector, Wardha for non attachment of assets and setting aside levy of NA tax on SICOM

10-Oct-11

20. Petition filed by SICOM against Collector of Wardha regarding recovery of charges

17-Dec-11

21. Collector, Wardha letter to Pr. Secretary (Revenue) informing about the encumbrances on SICOM land requested by VIPL

on conditions :

1) Pending dues (Non Agriculture (NA) Tax assessment of

Rs. 1.01 Crore) may be either be deposited or waived by GoM

2) High Court Order in Appeal No. 248/04 filed against Court

order by SICOM regarding additional compensation shall be

binding on SICOM

22-Dec-11

22. SICOM to Minister, Revenue for his intervention 23-Jan-12

23. VIPL letter to Revenue Minister for his intervention 03-Sep-12

24. High Level Committee called by Revenue Deptt. for fast tracking the case. VIPL, Revenue, and Law & Judiciary

Deptts. were present. High Level Committee recommends

29-Oct-12


Sr.

No.

Activity Date

that:

1) Revenue Deptt. shall make available all relevant documents

and terms and conditions applicable while handing over the

land to SICOM to Law & Judiciary Deptt.

2) Law & Judiciary Deptt. to give opinion on whether the

SICOM can sell the land, which was handed over to it by

Government, to VIPL without their permission.

3) Law & Judiciary Deptt. to give opinion on whether the land

handed over to SICOM can be further handed over to MIDC

with due compensation to SICOM for future use/purpose 25. VIPL to SICOM- follow up letter 06-Mar-13

26. File forwarded to Revenue Department from Law & Judiciary Department after giving legal opinion (no documentary

evidence provided)

May-13

27. SICOM to VIPL - Proposal sent for consent for grant of land on long term lease

05-Jun-13

28. VIPL to SICOM- follow up letter including chronology of communications from the beginning

06-Jun-13

29. VIPL to SICOM- Confirmation of land lease instead of outright sale

19-Jun-13

30. SICOM to Collector, Wardha informing the status of 24 cases for enhanced compensation with no pending case in respect of

enhanced compensation in the High Court

03-Sep-13

31. SICOM to Collector, Wardha requesting removal of encumbrances on SICOM land

03-Sep-13

32. VIPL to Minister, Revenue for his intervention as land is not handed over yet

03-Oct-13

33. Collector, Wardha to Revenue Department-Status report of land sought by VIPL

15-Oct-13

34. VIPL to SICOM- Seeking intervention for getting approval from Revenue/Finance Department

22-Nov-13

35. VIPL to SICOM- Informing about starting of power plant without railway siding and requesting for execution of lease

deed

03-Jan-14

36. Final approval by GoM for transfer of land on lease to extent of 46.73 acres for 30 years

23-Apr-14

37. Collector, Wardha to VIPL-Approval of lease and directing to deposit Rs. 84.65 Lakh pertaining to enhanced compensation

17-May-14

38. Collector, Wardha to Revenue Deptt. - Suggesting changes in lease agreement, i.e. that the matter is pending before the

Hon'ble High Court for 18.29 acre land and the responsibility

for complying with the High Court Order for the said land

will lie with VIPL.

11-Jun-14

39. Lease deed signed 15-Jul-14


Sr.

No.

Activity Date

40. SICOM-VIPL-Consent for creation of charge on land 24-Jul-14

41. Placement of subordinate debt with SICOM 24-Jul-14

3.1.9 For transporting coal from the mines to its power plant at Butibori by rail, VIPL

planned a Railway siding off Sindhi Station, which is the nearest railway station on

the Wardha-Nagpur line of Central Railways. As per the rail alignment plan, this

Railway siding will take off from the Sindhi Station and be connected to the Butibori

plant. Considering the proposed rail alignment route, the siding project required 47

acres of SICOM land in some villages of Tehsil Selu Tehsil in Wardha District.The

Commission notes that VIPL had started the process of arranging for SICOM land for

the Railway siding before the start of work. For Railway Land Licensing also, VIPL

had initiated the process early. For obtaining the land from SICOM, clearances were

required from the Industries and Revenue Departments, GoM, and legal opinions were

also taken within Govt. Clearance from Revenue Department took substantial time

because of pending issues of levy of Non Agricultural Tax assessment on land held by

SICOM and liability of SICOM to pay for additional compensation for one patch of

land. Revenue Department also sought legal opinion as to whether the land could be

sold by SICOM to VIPL since it had been handed over to SICOM by GoM. Further,

SICOM sent a proposal to VIPL for consent for grant of the land on long term lease,

to which VIPL consented. GoM gave the final approval for transfer of land of 46.73

acre to VIPL on long term lease for 30 years.

3.1.9. With regard to Railway land, the Commission observes that VIPL had applied in

August, 2010 but considerable time was taken in the internal approval process of

Railways, including modification in number of chainage from +95 chainage to (-)

800 chainage, change in Railway rules regarding the land licence fee, etc.

3.1.10. VIPL has asserted that this delay by external agencies was beyond its control, and

that the time overrun in completion of Railway siding work by the scheduled date

could not be attributed to it.


3.1.11. The Commission asked VIPL how COD of Unit 1 was declared without resolving the

issues such as SICOM/Railway land availability, non-supply of linkage coal, etc.

VIPL submitted as follows:

(i) There was no delay in achieving the readiness of the plant to commence COD as

far as construction was concerned. It achieved COD readiness by synchronising

the Unit and achieving the full load within the committed EPC contract schedule.

The key milestones are as under:

Table 4 - Schedule of key milestones, as submitted by VIPL

Sr. No. Particulars Unit 1 Unit 2

1 Scheduled COD as per

EPC Contract 27 September, 2012 31 January, 2013

2 Synchronisation date 25 June, 2012 1 January, 2013

3 Full load test Completed 17 August, 2012 19 March, 2013

4 Time taken in attaining

full load/COD readiness 30 months 36 months

5 COD as per MERC MYT

Regulations, 2011 33 months 37 months

(ii) VIPL had signed a Medium Term PPA for supply of 134 MW power to RInfra-D

through competitive bidding in September, 2009. VIPL considered that, by

declaring early COD, it could build pressure on the Ministry of Coal

(MoC)/CIL/WCL to execute the FSA for meeting its obligation under the PPA.

However, CIL/ MoC introduced a condition that, to execute FSAs and commence

coal supply, a generating plant should have a Long Term PPA with a Distribution

Licensee.

(iii) VIPL made arrangements to buy coal from e-auction and obtained the

Maharashtra Pollution Control Board (MPCB) permission in March, 2013 for

transporting the coal by road in the absence of Railway siding as an interim

arrangement. Thereafter, it declared COD immediately to fulfil its Medium Term

PPA commitment and maintaining power supply to Mumbai. The early


declaration has helped to reduce the Interest During Contruction (IDC) by Rs.

84.45 Crore, which was transferred to the Profit and Loss account post-COD.

3.1.12. The Commission observes that full load test of Unit 2 was undertaken on 19 March,

2013 and VIPL declared the COD of Unit 2 on 28 March, 2014 i.e., after nearly a

year. The Commission asked VIPL to submit the justification for not declaring the

COD of Unit 2 immediately after achieving full load/COD Readiness. In reply, VIPL

submitted that the possibility of getting linkage coal for operating Unit 2 diminished

for want of assurance from CIL/WCL on commencement of coal supply without a

Long Term PPA and WCLs refusal to release initial carpet/ commissioning coal.

Further, there was very limited availability of e-auction coal and this small window

of opportunity was leveraged to secure coal for Unit 1 only. Moreover, the

connectivity of the plant with the State Transmission Utility (STU) made it even

more unattractive to offer the power outside Maharashtra as the Wheeling cost plus

losses amounted to around Rs 0.50/ kWh. VIPL made several attempts to sell power

in the market through short term bidding, but these were unsuccessful. Therefore, in

the absence of viable off-take from Unit 2, VIPL could not declare Unit 2 COD

immediately after achieving Full Load/ COD readiness.

3.1.13. As regards Unit 1, the Commission observes that VIPL declared its COD also

without resolving the above issues, and asked VIPL to submit the justification. VIPL

submitted that it declared the COD of Unit 2 to fulfil its commitment under the Long

Term PPA with RInfra-D which required commencement of supply from 1 April,

2014, and securing the FSA with WCL. VIPL declared the COD of Unit 2 only after

securing Railway land in January, 2014 and receiving assurance from GoM in March,

2014 on leasing of SICOM land required for completing the Railway siding.

3.1.14. As regards the impact of delay on Project cost, the Commission asked VIPL for the

details of cost overrun from the original estimates to the day of readiness of the

Project. VIPL submitted that, as the Project is implemented based on firm price lump

sum Turnkey EPC contract without escalation clause, there was no overrun in the

hard costs on account of delay in the Project.


3.1.15. The Commission asked VIPL to submit reasons for declaring COD of Unit 1 and

Unit 2 18 months and 6 months prior to the commissioning of Railway siding,

respectively. VIPL submitted that:

(i) Unit 1 was commissioned by considering that coal transportation can be handled

by road as a temporary solution, Unit 1 could be made operational to fulfil the

Medium term PPA, and to meet debt service obligation and reduce the effective

capital cost of the Unit when Long Term PPA takes effect from 1 April, 2014.

(ii) Unit 2 could not have been commissioned without certainty of Railway siding and

based on movement of coal by road transport, which would have involved around

430 truck trips per day, along several highways, village roads, and railway

crossings. Hence, Unit 2 was commissioned after there was certainty on

availability of pending land parcels for completion of Railway siding just before

March, 2014, and considering that a stock of coal of 1.5 Lakh tonnes had been

stocked at the plant site to deal with any shortfall in coal movement by road for 3-

4 months to meet Long Term PPA obligations.

3.1.16. The Commission observes that, despite delays and difficulties in obtaining SICOM

and Railway land for Railway siding, VIPL was able to achieve the COD, and that it

had declared the COD considering its commitment to supply power to RInfra-D

under Medium and Long Term agreements. The Commission notes VIPLs

submission that it would not have been able to tie up the power supply had the COD

been declared based only on the availability of e-auction coal. The Commission

observes that, on the day of readiness for declaring COD for Unit 1, VIPL had an

existing Medium Term PPA for which it could have supplied energy by declaring

COD. Further, VIPL has submitted that the COD was declared to meet its PPA

obligation and in order to reduce the effective capital cost. However, had VIPL

declared COD on the date of readiness of the Plant, the effective capital cost would

have been further reduced, which VIPL had done at a later stage inspite of

unresolved issues remaining the same.


3.1.17. The Commission notes that Unit 1 has achieved COD on 4 April, 2013 and Unit 2 on

28 March, 2014. There is a delay in the commissioning of the Project with respect to

the scheduled dates. With regard to such delay, the Appellate Tribunal for Electricity

(ATE), in its Judgement dated 27 April, 2011 in Appeal No. 72 of 2010, has held as

under:

7.4. The delay in execution of a generating project could occur due to

following reasons:

i) due to factors entirely attributable to the generating company, e.g.,

imprudence in selecting the contractors/suppliers and in executing contractual

agreements including terms and conditions of the contract, delay in award of

contract, delay in providing inputs like making land available to the

contractors, delay in payments to contractors/suppliers as per the terms of

contract, mismanagement of finances, slackness in project management like

improper co-ordination between the various contractors, etc.

ii) due to factors beyond the control of the generating company e.g. delay

caused due to force majeure like natural calamity or any other reasons which

clearly establish, beyond any doubt, that there has been no imprudence on the

part of the generating company in executing the project.

iii) situation not covered by (i) & (ii) above.

In our opinion in the first case the entire cost due to time overrun has to be

borne by the generating company. However, the Liquidated Damages (LDs)

and insurance proceeds on account of delay, if any, received by the generating

company could be retained by the generating company. In the second case the

generating company could be given benefit of the additional cost incurred due

to time over-run. However, the consumers should get full benefit of the LDs

recovered from the contractors/suppliers of the generating company and the

insurance proceeds, if any, to reduce the capital cost. In the third case the

additional cost due to time overrun including the LDs and insurance proceeds

could be shared between the generating company and the consumer. It would

also be prudent to consider the delay with respect to some benchmarks rather

than depending on the provisions of the contract between the generating

company and its contractors/suppliers. If the time schedule is taken as per the

terms of the contract, this may result in imprudent time schedule not in

accordance with good industry practices.

7.5. In our opinion, the above principles will be in consonance with the

provisions of Section 61(d) of the Act, safeguarding the consumers interest


and at the same time, ensuring recovery of cost of electricity in a reasonable

manner.

3.1.18. The ATE Judgement categorises the reasons for delay as controllable, uncontrollable

and neither controllable nor uncontrollable, and specifies the treatment of the impact

of such delays while approving the Project cost.

3.1.19. The Commission observes that the reasons cited by VIPL for the delay in the

commissioning of the Project from the scheduled COD were mainly on account of

delay in the availability of land from SICOM and Railways for the Railway siding,

and delay in execution of FSA.

3.1.20. The Commission notes that, considering the general uncertainty in availability of fuel

in the country, VIPL was not the only party subjected to delay in execution of FSA.

However, the responsibility of arranging for fuel lies with the Generating Company,

and VIPL must or should have accounted for the risk relating to fuel availability at

the outset of the Project. Being aware of issues regarding fuel availability, VIPL

declared COD of the Project to meet its Medium Term PPA commitment by using

coal obtained from e-auction. VIPL has submitted the difficulties in the sustained

operation of the plant as a whole with the transportation of coal by road. Hence,

ultimately the commissioning of the Railway siding was essential.

3.1.21. The Commission notes that VIPL has achieved COD readiness/ completion of full

load for Unit 1 on 17 August, 2012 and for Unit 2 on 19 March, 2013. There was no

delay in the execution of the Project as COD readiness and completion of full load

test for Unit 1 were achieved in 30 months and 36 months, respectively, from the

date of NTP, i.e. earlier than the MERC MYT Regulations, 2011 norms of 33 months

and 37 months, respectively. The Commission observes that the delay was only in the

the declaration of COD of the Project because of the reasons set out above.

3.1.22. The Commission notes that VIPL has declared COD of Unit 1 to fulfil the Medium

Term PPA obligations. The supply delivery date in the Medium Term PPA was 1

April, 2012. However, VIPL has declared COD of Unit 1 on 4 April, 2013, i.e. with a


delay of more than a year. COD readiness/completion of full load for Unit 1 was

achieved on 17 August, 2012 and COD on 4 April, 2013 without commissioning of

Railway siding and execution of FSAs. Hence, the decision not to declare the COD

of Unit 1 even after completion of the full load test was a decision taken by VIPL in

its own interest. According to VIPL, the COD of Unit 1 was declared to meet its PPA

obligation and to reduce the effective capital cost. However, had VIPL declared COD

on the date of readiness, the effective capital cost would have reduced further.

Instead, COD was declared later despite the unresolved issues remaining the same.

The Commission also notes that VIPL has been operating Unit 1 by using coal

transported by road. It was, therefore, possible to do so even without completion of

Railway siding work.

3.1.23. The Commission observes that the delay in acquisition of SICOM land was because

of procedural delays in resolving certain issues between the GoM and SICOM which

which were beyond VIPLs control. Inspite of this, VIPL declared the COD of Unit 2

without commissioning of the Railway siding so as to meet its obligation of supply of

power to RInfra-D. The Commission notes VIPLs submission that it declared the

COD of Unit 2 only when it got clarity on the acquisition of the land for Railway

siding (in January, 2014) and after ensuring sufficient stock of coal for running the

plant till the commissioning of the siding.

3.1.24. VIPL-G issued Letter of Intent (LoI) on 6 July, 2010 to the EPC contractor for

completion of the Railway siding work by 5 July, 2012 (within 24 months), i.e.

before the scheduled COD (27 September, 2012) of Unit-1. However, the work was

completed 27 months late (in October, 2014) mainly because of delay in acquisition

of land and related clearances from SICOM and Central Railways, the details of

which may be seen in the chronology set out earlier. The Commission notes that

VIPL initiated the process of acquiring SICOM land in January, 2009, long before

issuing the EPC contract LoI. After clearance from the Industries Department,

SICOM approached the Revenue Deptt., GoM in June, 2011, but GoM permission

was finally received nearly 3 years later, in April, 2014. This delay was beyond the

control of VIPL, and inspite of its efforts, since matters relating mostly to GoM and

SICOM such as additional compensation to erstwhile land owners, liability of Non-


Agriculture tax on SICOM, legal consultations regarding mode of allotment of land,

change in mode of land allotment from sale to lease, etc. had to be resolved. The

Commission also notes that VIPL initiated the process for land licensing approval

from Central Railways in August, 2010, just after issuing the EPC LoI. The delay in

obtaining that approval was also beyond VIPLs control, involving issues of revision

in assessment of chainage, modifications in assessments of different offices, changes

norms for licence fee, additional undertakings required from VIPL, delays in internal

approval process, etc.

3.1.25. Unit-2 COD was declared on 28 March, 2014 after assurance regarding availability

of pending land parcels for completion of the Railway siding. From that time till

commissioning of the siding in October, 2014, VIPL was running both Units by

transporting coal by road. This was possible because VIPL was able to stock 1.5

Lakh tonnes of coal to meet any shortfall in the movement of coal. However,

operation of both Units with transport of coal by road is unsustainable because of

cost and the fact that the road infrastructure cannot support movement of as many as

430 trucks per day continuously for a long time. Hence, the railway siding was

essential for combined operation of both Units.

3.1.26. As the Project developer, VIPL had a responsibility to declare COD as scheduled, if

necessary by making alternative arrangements for transportation of coal. The

Commission notes that VIPL was able to run Unit 1 by bringing coal by road, and

hence that it was feasible to operate it for some time without the siding. However, the

Railway siding was an integral component for sustained operation of the Project and

was delayed for reasons beyond VIPLs control. Therefore, the Commission is of the

view that the delay in commissioning Unit-1 was neither fully controllable nor fully

uncontrollable. In line with the ATE Judgment dated 27 April, 2011 and in order to

protect the interests of the consumers, the additional Project cost due to time overrun

of Unit 1 should be equally shared by VIPL and the consumers.

3.1.27. While Unit 1 could be operated for some time in this manner, the Commission notes

the genuine difficulty in combined operation of both the Units on the basis of road


transport of coal and without the Railway siding on a sustained basis. The

Commission is of the opinion that the reasons for delay, set out in earlier paragraphs,

in the commissioning of Unit 2 cannot be attributed to VIPL and must be treated as

uncontrollable. Hence, in line with the ATE Judgement dated 27 April, 2011 cited

earlier, the Commission allows the additional Project cost due to time overrun of Unit

2 on actual basis.

3.1.28. The Commission considers it prudent to consider the delay with respect to some

benchmarks rather than solely on the time-lines provided in the contract for execution

of the Project. VIPL has also referred to the MERC MYT Regulations, 2011

regarding the project completion period. The Commission has considered the

benchmark in accordance with those Regulations, which provide as under:

A. Thermal Power Projects: Coal/Lignite Power Plant: Unit size

200/210/250/300/330 MW and 125 MW CFBC technologies:

(a) 33 months for first Unit of green field projects. Subsequent Units at an

interval of 4 months each.

(b) 31 months for first Unit of extension projects. Subsequent Units at an

interval of 4 months each.

3.1.29. The Commission directed VIPL to submit the impact of the delay in commissioning

on the Overheads, IDC and Foreign Exchange Rate Variation (FERV) as compared

to the norms specified under the Regulations. VIPL submitted that, had the project

been commissioned as per those norms, Overheads, IDC and FERV would be as

under:

Table 5 - Project cost had COD been as per MYT Norms, as submitted by VIPL (Rs.

crore)

Sr.

No. Particulars

Cost for

Unit 1

Cost for

Unit 2 Project Cost

1 Hard Cost 1544.50 1264.22 2808.72

2 Pre-operative and

commissioning expenses 132.69 108.37 240.76


Sr.

No. Particulars

Cost for

Unit 1

Cost for

Unit 2 Project Cost

3 IDC 176.82 224.83 401.65

4 FERV 104.48 112.53 217.01

5 Total Project Cost 1958.19 1709.95 3668.13

3.1.30. As directed by the Commission, VIPL submitted details of actual Overheads, IDC

and FERV of Units 1 and 2 as under:

Table 6 - Unit-wise Actual Project cost as on COD, as submitted by VIPL (Rs. crore)

Sr.

No. Particulars

Cost for

Unit 1

Cost for

Unit 2 Project Cost

1 Hard Cost 1544.50 1264.22 2808.72

2 Pre-operative and

commissioning expenses 144.97 136.86 281.83

3 IDC 254.90 308.95 563.85

4 FERV 143.92 206.83 350.75

5 Total Project Cost 2088.29 1916.86 4005.15

3.1.31. In view of the above, the Commission observes that the delay in Commissioning

of Unit 1 cannot be categorized either fully controllable or uncontrollable. In

light of the forgoing, the Commission, for approving the project cost, has

considered equal sharing of impact of delay of Unit 1 on overheads, IDC and

FERV (i.e. difference between the actual cost for Unit 1 and estimated cost for

Unit 1 considering COD as per MYT norms) between VIPL and consumers. The

Commission has considered the actual cost of Unit 2, treating delay in the

commissioning of Unit 2 as uncontrollable.

3.1.32. The Commission has considered the approval of costs under each head in subsequent

sections of this Order.


3.2. Submission of VIPL on Capital Cost

3.2.1. Regulation 38.5 of the MERC MYT Regulations, 2011 provides that a Generating

Company has to approach the Commission for approval of capital cost and

determination of final Tariff as follows:

38.5 A Generating Company shall make a fresh Petition in accordance with

these Regulations, for determination of final tariff based on actual capital

expenditure incurred up to the date of commercial operation of the Generating

Station duly certified by the statutory auditors based on Annual Audited

Accounts.

3.2.2. Along with Chartered Accountant (CA)s certificate, VIPL submitted that the overall

capital cost of the generating station as on COD of Unit 2 (28 March, 2014) is Rs.

4005.15 Crore, based on the audited accounts as on that date.

3.2.3. The break-up of the capital cost as on COD, as submitted by VIPL, is as under:

Table 7 - Project Cost as on COD, as submitted by VIPL (Rs. crore)

Sr. No. Particulars Actual Cost as on COD

1 Land 85.36

2 BTG 790.12*

3 BOP 1695.87

4 Initial Spares 22.34

5 Taxes and duties 179.00

6 Overheads 281.83

7 OSBL 36.03

8 IDC & FC 563.85

9 Total Capital Cost 3654.40

10 Impact of FERV 350.75

11 Total Project cost as on COD 4005.15

*BTG Cost in 170.48 MUSD

3.2.4. VIPL submitted that the benchmark capital cost provided by the Central Electricity

Regulatory Commission (CERC) in Order dated 4 June, 2012 in Case No. L-


1/103/CERC/2012 for a thermal power station with coal as fuel for a single 500 MW

Unit is Rs. 5.08 Crore per MW as on December, 2011. The actual hard cost

(including additional capitalisation) excluding land cost, infirm power and Railway

siding, of Rs. 5.16 Crore per MW for the generating station at Butibori is competitive

considering the comparable CERC benchmark of Rs. 5.39 Crore after considering

3% escalation for two years.

3.2.5. VIPL submitted that it had opted for the following additional features in order to

meet Project- specific requirements:

Table 8 - Additional features of the plant, as submitted by VIPL

Sr.

No.

Equipment /

Services

Convention

al thermal

power plant

Additional features of

VIPL plant Remarks

1 Land

Normally

the plants

are located

in remote

areas where

cost of land

is low

Land is located near

Nagpur city and in

industrial area where

land cost is high

Location being in industrial

area has reduced the need to

acquire agricultural land,

thereby helping the

environment

2

Cooling

Water(CW)

/Auxiliary

Cooling

Water

(ACW) Pump

Single Pump

House for

both Units,

with

common

standby

pump for

both Units.

Dedicated CW/ACW

pump house for each

Unit with Standby CW

pump for each Unit.

Electric Overhead

Crane (EOT) crane for

each pump house.

Ventilation for each

CW pump house.

Dedicated CW

treatment system for

In the available layout it was

not possible to accommodate

two cooling towers with

common forebay and

CW/ACW pump house.


Sr.

No.

Equipment /

Services

Convention

al thermal

power plant


VIPL plant Remarks

each Unit.

3 Raw Water

Storage

Earthen

reservoir

Roller-compacted

concrete (RCC)

reservoir

For Unit-I, the clarified

quality water is made

available by MIDC. RCC

reservoir was found to be

necessary to maintain the

better water quality of the

water supplied by MIDC.

Raw water reservoir of

required capacity with

earthen embankment could

not be accommodated in

available space

4

Coal

Handling

Plant (CHP)

Coal Receipt

only by

Railway

In addition to Wagon

Tippler Arrangement,

dedicated coal

unloading & crushing

system for coal receipt

by road is provided.

Facility to receive the coal

by truck is incorporated in

the system so that blending

of market coal can be done.

5 Ash handling

Plant (AHP)

Lean Phase

Ash Slurry

disposal

System.

High Concentration

Slurry Disposal System

for fly ash disposal

To meet MoEF clearance

requirement

6 Ash Pond Earthen Ash

Pond RCC Ash Pond

Ash Pond of required

capacity with earthen

embankment could not be

accommodated in available

space. Therefore Ash Pond is

constructed out of Plum


Sr.

No.

Equipment /

Services

Convention

al thermal

power plant


VIPL plant Remarks

concrete as against

conventional earthen Ash

Pond.

7

Demineralisa

tion Plant

(DM Plant)

Ion

exchange

vessels

without

Ultra

filtration

system

In addition to Ion

exchange vessels, Ultra

filtration System is used

Butibori water contains

higher colloidal silica (6 ppm

against less than 1 ppm).

Colloidal silica cannot be

removed by conventional ion

exchange process, but only

by Ultra filtration process.

Therefore Ultra filtration

system has been considered

for removal of colloidal

silica present in

dematerialized water.

8

Cooling

Water

Treatment

Chemical

dosing

system

without Side

Stream

Filtration

system

Side Stream Filtration

system

Higher Cycles of

Concentration (COC)

adopted as per MOEF

Clearance for conservation

of water. Due to higher

COC, suspended particles in

the CW water exceed

permissible limit

recommended by Cooling

Tower fill manufacturer. To

maintain suspended solids

below permissible limit, side

stream filter is used in CW

circuit to remove suspended


Sr.

No.

Equipment /

Services

Convention

al thermal

power plant


VIPL plant Remarks

solids.

9 Air

Conditioning

Screw

Chillers are

used

Vapour Absorption

Machines (VAM)

Chiller is provided

which will be in the

operation & screw

chiller will be in

standby mode.

Due to its low operating cost,

VAM Chiller is provided in

centralized air conditioning

system in addition to

conventional screw chiller.

10

Mill Reject

Handling

System

Pneumatic

Mill Reject

Handling

System,

common for

two units.

Mechanical Redder

conveyor operated mill

reject handling system

is provided.

Mechanical conveyor will

ensure uninterrupted

operation of the mill even if

rejects are more than

designed quantity, i.e. output

of the unit will not be

affected in case of receipt of

poor quality coal.

11

Reverse

Osmosis

(RO) System

No RO Plant RO Plant envisaged To meet MPCB requirement.

12

Widening of

External

Drain

Widening of external

drain required to be

included

Widening of external drain

Culverts was carried out as

per recommendation of M/s

WAPCOS pursuant to the

requirement of MoEF.

13 Raw Water

System

Pipeline of 18 Kms

implemented requiring

road and railway

crossing

VIPL constructed a pipeline

of around 18 km as against a

nominal requirement of

around 5 km for other

conventional power plants.


Sr.

No.

Equipment /

Services

Convention

al thermal

power plant


VIPL plant Remarks

MIDC had asked VIPL to

make alternate arrangements

to get the water supply for

the station. Further, VIPL

encountered Railway

crossing and State &

National Highways and in

order to avoid disruption of

traffic, Push through

technology had to be adopted

for laying the pipeline.

3.3. Land

3.3.1. VIPL submitted that the actual cost of land incurred as on COD was Rs. 85.36 Crore.


3.3.2. The Commission asked VIPL for a statement of land acquired from all sources along

with the acquisition rate. VIPL mentioned that the rates of MIDC land had increased

from Rs. 4 Lakh/acre to Rs. 19 Lakh/acre, and the Commission asked for supporting

documents. VIPL submitted summary statement of land acquired along with average

acquisition rates as below:

Table 9 - Cost of Land, as submitted by VIPL

Sr.

No.

Source/Type of

Land Acquired

Area (In

Acres)

Total Cost

(In Rs. Lakh)

Avg. Acquisition

Rate (Rs.

Lakh/Acre)

1 MIDC Land 298 2384.00 8.00

2 Private Land 257 6137.00 23.88


The following Table gives the details of land acquired from MIDC at rates varying

from Rs. 4 Lakh to Rs. 19 Lakh/Acre:

Table 10 - Details of Cost of MIDC Land, as submitted by VIPL

MIDC Land Area Cost of Land Rate

In Sq. Mtr In Acres Rs. Crore Rs. Crore/Acre

D-3 700000 173.00 7.00 0.04

D-3/Part 200000 49.00 3.45 0.07

D-3/Part 1 205099 51.00 8.20 0.16

RS-1 101175 25.00 4.05 0.16

P-81 1250 0.31 0.06 0.19

P-82 1440 0.36 0.07 0.19

3.3.3. The Commission referred to the land lease agreements and other documentary

evidence submitted by VIPL.

3.3.4. The Commission notes that the land cost claimed by VIPL is the actual cost incurred by

it. Hence, the Commission has considered the actual cost incurred for land as on COD.

3.4. EPC Contract

3.4.1. VIPL submitted that the development of project was undertaken through EPC

contracts, and that it has awarded the turnkey EPC contract to RInfra on fixed price

basis. VIPL stated that it gave Notice to Proceed (NTP) for Unit 1 on 27 February,

2010 and for Unit 2 on 30 April, 2010, with a commissioning schedule of 31 months

for Unit 1 and 34 months for Unit 2 from the respective dates of NTP.

3.4.2. VIPL also submitted that there has been no price variation in the domestic cost

component. The cost of the main equipment of the plant, i.e., Boiler, turbine and

generator, civil works and Commissioning and Installation (C & I) package, is

competitive in comparison to similar Projects, and that VIPL had ensured due

diligence as regards the scope of work in the EPC contract.

3.4.3. VIPL submitted that it has incurred the following BTG and BOP costs as on COD:


Table 11 - BTG and BOP Cost, as submitted by VIPL (Rs. Crore)

Sr.

No. Particulars

Cost

1 BTG (plant and equipment) 790.12

2 Design and engineering 42.68

3 BOP Mechanical 595.12

4 BOP Electrical 329.60

5 Commissioning and Installation package 54.16

6 BTG Erection Services 143.24

7 Civil Works 531.07

8 Taxes and duties 179.00

Total BTG and BOP 2664.99


The Commission had directed VIPL to show how least cost principles and

competitive bidding route have been followed while awarding the EPC contract.

VIPL submitted that the Butibori project was originally conceived as one Unit of 300

MW to be developed as GCPP. This was awarded by MIDC through competitive

bidding process. Originally, 51% of the power was required to be sold to industrial

consumers with their equity participation so as to qualify as a GCPP. Subsequently,

an additional capacity of 300 MW was undertaken at the same site. Ensuring its

competitiveness of the Project has been at the core of its development. The Project is

being executed by awarding EPC contract whereby the entire responsibility of

construction is with the contractor. The EPC contract price offered by RInfra was

compared with cost benchmarks for similar projects at that point of time, and with

BTG supply awarded to Reliance Infra Projects (UK) Ltd. VIPL submitted further

that, for competiveness of procurement, it had also undertaken due diligence on the

market dynamics prevalent at the time of contract award. There are two types of

packages for the construction of a power plant, viz. mandatory packages (BTG, BOP,

Civil, etc,), and Project-specific additional packages (township, transmission line and

Railway siding). A comparison was undertaken with mandatory packages. In early

2008, similar Units (2 x 270 MW) were ordered by M/s GVK for a Project in Punjab.


GVK awarded the main packages through a competitive bidding process. The GVK

contracts are understood to have standard price escalation clauses. The other

precedent was from Maharashtra, where the Maharashtra State Power Generation Co.

Ltd. (MSPGCL), the State Generating Company, had awarded the EPC of Paras Unit

3 (250 MW) to M/s BHEL through competitive bidding. The contract, it had a price

escalation clause of 20%. The rationale for selection of these Projects for

benchmarking was the similarity of Unit size, similar time frame for contract award,

and since credible information on these Projects could be gathered from the public

domain. VIPL provided a broad comparison of these Projects as under:

Table 12 - Benchmarking of Capital Cost, as submitted by VIPL

Particulars

GVK

(2x270)MW

Paras 3

(1x250)MW

VIPL

(1x300) MW

Year of Award 2008 2007 2008

EPC Cost ( BTP, BOP & Civil) (Rs

Crore) 2221 1195 1390

Price Escalation factor#1 1.1 1.1 1 @

Total(Rs Crore) 2443 1315 1390

Removal of cost advantage for 2 Units

configuration for sharing of common

facilities #2 55% NA NA

Total Per Unit (Rs Crore) 1344 1315 1390

Per MW (Rs. Cr./MW) 4.98 5.26 4.63 # 1: Assumed to be equivalent to 10% over a 4 year tenure of Project construction period.

# 2 : Correction for cost advantage of 2 Unit configuration v/s single Unit. First Unit taken as

55% of total EPC Cost.

@ : VIPL awarded the EPC Contract on fixed price basis.

3.4.4. VIPL submitted that the average price of BTG, BOP and civil contract for these

similar Projects was between Rs 4.98 to Rs 5.26 Crore/MW. The variation was

perceived to be on account of the fact that the two Units of GVK would use certain

facilities in common and, therefore, the cost per MW would be lower in comparison

to Paras Unit -3, which was more like a greenfield Unit.

3.4.5. Since the initial intention idea was to develop a 300 MW Unit as a GCPP, the

ordering cost as in Paras Unit-3 was considered for comparison. Subsequently, when

it was decided to take up the second Unit , the cost of the GVK project was


considered relevant in view of the sharing of certain facilities by both Units.

Therefore, VIPL undertook exercise to optimise the cost of the second Unit. The

comparison of EPC award cost for the 2 units (600 MW) below is made to

substantiate its competitiveness.

Table 13 - Benchmarking of per MW cost, as submitted by VIPL

Particulars GVK VIPL

Capacity (MW) 540 600

EPC Cost ( BTG, BOP & Civil) (Rs Crore) 2221 2636

Price escalation factor # 1.1 1 @

Total (Rs Crore) 2443 2636

PER MW (Rs Crore/MW) 4.52 4.39 # : Assumed to be equivalent to 10% over a 4 year tenure of Project construction period.

@ : VIPL awarded the EPC Contract on fixed price basis.

3.4.6. The Commission notes VIPLs submission that the ordering cost for both its Units

compares well with that of the GVK Units. VIPL submitted that, with the addition of

Unit 2, the EPC cost was reduced considerably due to optimization in design,

efficient capacity utilization of the existing infrastructure and the common facilities.

The least cost principle was, therefore, ensured.

3.4.7. Subsequently, VIPL had compared the EPC cost of some other generating Stations

developed by Central and State Sector entities. The EPC cost for Central Sector

Projects was in the range of Rs. 5.04 Crore/MW to 5.48 Crore/MW, and between Rs.

5.13 Crore/MW to 5.93 Crore/MW for State Sector Projects.

3.4.8. The Commission notes that VIPL has endeavoured to follow the least cost approach

for award of the EPC contract for BOP and BTG. The EPC contract, popularly

known as Turnkey Contract, is awarded to a single contractor responsible for the

Supply, Erection and Commissioning of a project, to be completed within the time

period fixed, and based on agreed price and guaranteed performance.

3.4.9. The Commission notes that VIPL has followed the least cost approach while

awarding the EPC contract (including BTG, BOP and Civil works) and awarded the


contract on firm price basis. Further, the actual cost of EPC contract (including BTG,

BOP and civil works) is lower than its ordering cost.

3.4.10. For the purpose of approving the capital cost, the Commission has considered

the actual cost incurred for BTG package, BOP including civil works, and taxes

and duties paid for the Project.

3.5. Initial Spares as part of the Capital Cost as on COD

3.5.1. VIPL submitted that it has incurred an actual cost Rs.22.34 Crore, as on COD, for

initial spares.


3.5.2. The Commission directed VIPL to furnish the list of initial spares included in capital

cost and documents justifying procurement of such spares. VIPL submitted that the

procurement of initial spares was based on general recommendations of Original

Equipment Manufacturers (OEM) to the EPC contractor, and submitted a list of

spares for Unit 1 and Unit 2 as provided to it.

3.5.3. As regards the cost of spares, Regulation 27.7 of the MERC MYT Regulations, 2011

specifies as under:

27.7 The capital cost may include capitalised initial spares for a maximum of

first five years of operation as follows:

(a) upto 2.5% of original capital cost in case of coal based/lignite fired

Generating Stations...

3.5.4. The Commission observes that the cost of initial spares capitalised till COD is

within 2.5% of Project cost as approved in this Order, as stipulated in

Regulation 27.7 of the MERC MYT Regulations, 2011. Accordingly, the

Commission has allowed the actual cost of initial spares amounting to Rs 22.34

Crore as on COD, being within the ceiling specified in the Regulations.


3.6. Outside Boundary Limits (OSBL)

3.6.1. VIPL submitted that it has incurred Rs. 36.03 Crore as cost of OSBL as on COD for

the Project, which pertains to the water conveyance system. The cost variation of the

water conveyance system compared to original estimates was because of finalisation

of the scope of work after the original estimates were made.


3.6.2. The Commission notes that Railway siding, water conveyance system and

transmission lines were included in OSBL in the original estimates. After the change

in the nature of the Project from a GCPP to an Independent Power Plant (IPP), the

transmission lines have been separated from the generation and made a part of Intra

State Transmission System (InSTS). Further, because of the delay in its

commissioning, the Railway siding has been considered by VIPL in additional

capitalisation in FY 2014-15. The Commission notes that the cost incurred towards

OSBL pertains only to the water conveyance system.

3.6.3. The Commission notes that the amount claimed under OSBL by VIPL is the

actual cost incurred for the water conveyance system. The Commission has

accordingly considered a cost of Rs. 36.03 Crore for OSBL.

3.7. Overheads

3.7.1. VIPL submitted that the cost of actual overheads as on COD is Rs. 281.83 Crore as

against the estimate of Rs. 155 Crore. The increase is on account of higher than

anticipated expenditure on the following:

(i) Capital cost contribution paid to MIDC for water allocation: Against the total water

requirement of 22 MLD for a Unit, MIDC initially allotted 15 MLD without charging

capital cost contribution (one time payment to MIDC). For the balance 7 MLD, MIDC

charged fees as capital cost contribution.

(ii) Restoration charges paid to Irrigation Department for water allocation: As per MIDC

policy, water shall be provided by MIDC for the industries located in its MIDC area.

However, due to non-availability of water allocation to MIDC from the Irrigation Deptt.,


MIDC asked VIPL to arrange water from alternate sources. Vide letter

VIPL/NGP/IRRIG/09/001 dated 3 January, 2009, VIPL accordingly approached

Irrigation Department and obtained water allocation for the Project. The Irrigation

Department has levied restoration charges.

(iii)Start up expenses have increased primarily on account of higher than anticipated

expenditure on:

- Purchase of market coal (instead of linkage coal)

- Significantly reduced revenue from Infirm power considering MSEDCL's policy of

paying for infirm power only during peak hours

- Start up power from MSEDCL.

3.7.2. VIPL also submitted that the overheads for Railway siding and other systems which

are yet to be completed have not been considered.


3.7.3. The Commission directed VIPL to submit details, with reasons and documents, of the

increase in each of the overhead costs vis-a-vis the original estimates. VIPL

submitted as under:

Table 14 - Details of Overheads, as submitted by VIPL

Particulars

Original

estimates

(Rs.

Crore)

Actual

Cost

(Rs.

Crore)

Reasons for variation

Charges to MIDC

for water supply

0 11.27 Capital cost contribution was paid in order to

get water allocated for the Project.

Charges to

Irrigation

Department for

water

supply

0 12.73 Due to non-availability of water allocation

from MIDC, VIPL was required to arrange

water from Irrigation Department, GoM.

Irrigation Department directed VIPL to pay

restoration charges for allocating water for the

Project.

Start up Expenses

- Fuel

30.00 44.78 As the linkage coal for start up and testing of

the Project was not made available by WCL in

the absence of FSA, VIPL had to procure

market coal. Also, there was an increase in

HFO / LDO prices which added to the costs.


Particulars

Original

estimates

(Rs.

Crore)

Actual

Cost

(Rs.

Crore)

Reasons for variation

Employee and

other

Administration /

establishment

Expenses

145.00 213.30 The power sector employment market scenario

had undergone a change du

order-09032015-115 of 2014

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