Case No. 89 of Shri V.P. Raja, Chairman Shri Vijay L. Sonavane, Member

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: Case No. 89 of 2010 In the matter of Petition filed by M/s. Kay Power and Paper Ltd., for Grant of Interim Unit Rate for Bagasse Based Co-generation Project Shri V.P. Raja, Chairman Shri Vijay L. Sonavane, Member M/s. Kay Power & Paper Ltd. --- Petitioner (Formerly Kay Pulp & Paper Mills Ltd.) Gat. No. 454/457 At & Post: Borgaon, T/D : Satara (Maharashtra State) Vs Maharashtra State Electricity Distribution Company Ltd. --- Respondent Prakashgad, Mumbai. ORDER 24 th February, 2011 M/s. Kay Power and Paper Ltd. (herein after referred to as the Petitioner ) filed the Petition under affidavit before the Commission on November 24, 2010, inter alia seeking grant of interim unit rate for its bagasse based Co-generation project. Order_[Case No. 89 of 2010] Page 1 of 14

2 2. The main prayers of the Petitioner are as follows; a) The Commission may kindly grant us an interim rate of Rs. 4.79/- per unit (as per Generic Order) for exportable power to MSEDCL grid till finalization of the final rate determination. b) We may kindly be given the determined rate from the start of Co-generation project i.e. from 1 st week of Nov c) The Commission may kindly advise MSEDCL to file an affidavit in this case at an early date. 3. The Petitioner in its Petition, submitted as follows; 3.1 The Commission vide Order dated April 2, 2009, Case No. 88 of 2008 directed MSEDCL (herein after referred to as the Respondent ) to submit detailed proposal clubbing all similar applications including the issue related to the need for revision in tariff, in consultation with MEDA. 3.2 Accordingly, the Respondent requested MEDA to co-operate in the matter and referred the same with providing adequate supporting documents with recommendations. MEDA has submitted to the Respondent its recommendations with due adequate justification from the technical experts, for renewal of tariff in respect of the Petitioner s 6 MW bagasse based Co-generation project. The Respondent shall be submitting its reply on affidavit before the Commission in due course of time. 3.3 The Commission vide Suo-Motu Order dated July 14, 2010, in Case No. 20 of 2010, has passed a tariff of Rs. 4.79/- per unit for bagasse based Co-generation Projects. 3.4 Considering the procedural delay for submitting the reply on affidavit by the Respondent and keeping in view the urgency, it is requested to the Commission Order_[Case No. 89 of 2010] Page 2 of 14

3 to grant an interim rate of Rs. 4.79/- per unit in line with the existing Order dated July 14, 2010 till the time the disposal of the case under reference. 3.5 The current crushing season is approaching and likely to commence in the first week of November 2010 and the bagasse will be amply available soon after the commencement of the season. The Petitioner has decided to commence generation in the first week of November There are no similar projects like the Petitioner s project, wherein the project proponent requires to procure and transport the bagasse from Sugar factories, stack the same and feed it into the boiler incurring overheads of labour etc. 3.6 The Commission may please decide the rate rather considering MEDA s report. The Commission may kindly consider the difference of unit rate from retrospective effect. 4. The Commission vide Order dated April 2, 2009, in Case No. 88 of 2008, in the matter of Petition filed by the Petitioner, seeking review of Order dated August 16, 2002 in the matter of purchase of power from bagasse based Co-generation Projects, directed the Respondent as follows; to submit detailed proposal clubbing all the similar applications including the issues related to the need for revision in tariff for bagasse based co-generation projects of the kind of Kay Power and Paper Ltd., in consultation with MEDA. However, the Petitioners and MSEDCL need to substantiate their claims with adequate justification and supporting documents to seek revision in tariff rather than merely seeking revision without appropriate backup. 5. Based on the above observations, the Commission held a hearing on January 6, 2011 at hrs in the office of the Commission. 6. During the hearing, Shri. Arvind Patil, Manager (Admin) appeared on behalf of the Petitioner. The Petitioner relied upon the Commission s Order dated 16th August, 2002, Case Nos. 8/9/10/15/17/18/19/20/21 of 2001, wherein the Commission had considered the Order_[Case No. 89 of 2010] Page 3 of 14

4 Petitioner as a Qualifying Co-generation Project as a special case. Further, the Petitioner submitted that its Plant is located at Borgaon, Dist. Satara and purchasing the bagasse from nearby Sugar factories. 7. The Petitioner further submitted that it has been declared as a sick industrial unit under SICA and duly registered with BIFR and currently getting the tariff of Rs. 3.14/- per kwh for exportable power to the Respondent grid, due to which the Petitioner is unable to recover the variable cost of the project. 8. Shri. S. A. Patil, I/c G.M, appearing on behalf of MEDA also submitted as follows; 8.1 In light of the earlier Commission s Order dated April 2, 2009, Case No. 88 of 2008, the Respondent had requested MEDA to provide adequate supporting documents with suggestions/advice assisting them in substantiating the claims for revision in tariff in case of the Petitioner. 8.2 MEDA has submitted its study report to the Respondent in the month of October, 2010, which gives requisite information for providing views/comments pertaining to revision of tariff in case of the Petitioner. 8.4 MEDA has visited the Petitioner s Plant and certified that it is a Cogeneration Plant. 8.3 It is understood from the affidavit by the Petitioner, that the Respondent is still in the process of analyzing this report and could take some time in giving its views/comments in this matter. In view of this, it is felt that the Petitioner may be allowed to operate its co-generation plant for exporting green energy to the grid for such time till the regular tariff Order in Case of the Petitioner is declared. During such time the unit rate of Rs. 4.79/- per kwh given by the Commission in the generic tariff dated July 14, 2010 be made applicable as interim tariff for the said project. 9. Shri. R. G. Sonwane, S.E (Commercial) appeared on behalf of the Respondent and requested the Commission to grant them two weeks time to file an affidavit in this regard. Order_[Case No. 89 of 2010] Page 4 of 14

5 10. During the hearing, the Commission observed that Hon. Appellate Tribunal for Electricity has held that promotion of Co-generation needs to be taken into consideration while discharging of functions by Commissions under Section 86(1)(e) of the Electricity Act, Furthermore, the Respondent s views in this matter need also to be taken into consideration as it directly affects the power purchase cost of the Respondent. Accordingly, the Commission directed the Respondent to file its reply on affidavit in line with the directives given by the Commission in its Order dated April 2, 2009 in Case No. 88 of 2008 and with respect to the matter raised by the Petitioner, within 10 days from the date of the aforesaid hearing. The Commission also directed the Petitioner to submit all necessary documents which were submitted to BIFR to recognize them as a Sick Industrial Unit under SICA. 11. The matter was once again heard on January 20, 2011 at hrs in the office of the Commission. 12. In light of the Petitioner s prayers, the Respondent filed its reply on affidavit before the Commission on January 19, 2011, as follows The Petitioner was permitted vide T.O.L. No dated March 22, 1999 to install, operate bagasse based 6 MW Co-generation Project for 1.5 MW self use and 4.5 MW as sale to the Respondent as per prevailing GoM policy on Nonconventional energy sources. Accordingly, the Respondent entered into Energy Purchase Agreement with the Petitioner on June 7, The Commission vide Order dated August 16, 2002 determined the tariff for non fossil fuel bagasse based Co-generation (Qualifying) projects as under; The Tariff for the purchase of electricity by the MSEB from the co-generation project based on any non-fossil fuel (such as bagasse, biomass, biogas, agriculture waste such as rice husk, groundnut shells etc.) shall be Rs (Rupees three and paise five only) per kwh for the first year of operation of the co-generation project Order_[Case No. 89 of 2010] Page 5 of 14

6 and the tariff shall be escalated at the rate of 2% per annum on compounded basis In the above said Order, the Commission has considered the Petitioner at par with the qualifying Co-generation projects. The relevant portion of the Order is as under- The Commission would also like to clarify that M/s. Kay Pulp & Paper Mills Limited does not meet the qualifying requirement of Co-generation (as elaborated above). Thus, the project case of the M/s. Kay Pulp & Paper Mills Ltd. is the Co-generation project to a limited extent. However, the Commission notes that M/s. Kay Pulp & Paper Mills Limited has already commissioned the plant, and the Commission by this Order has introduced the definition together with qualifying requirement for the Co-generation subsequently. Hence, the Commission has considered this particular case, as an exception and therefore, this Order shall also be applicable to M/s. Kay Pulp & Paper Mills Ltd. However, the Commission expects them to meet the qualifying requirement of the co-generation in case of any future expansion The EPA dated June 7, 2000, was amended on May 21, 2003 as per directives mentioned in the above said Order for the tenure of 13 years from the date of Commercial operation i.e. January 11, Subsequently, the Commission vide Order dated May 25, 2005 determined the tariff for Non-qualifying Cogeneration Projects as under; The tariff for purchase of electricity by the MSEB/Licensees from Non-qualifying Co-generation Order_[Case No. 89 of 2010] Page 6 of 14

7 Projects for the first year of operation of the Cogeneration Project shall be Rs. 1.94/kWh However, the Petitioner was covered under the Commission s Order dated August 16, Accordingly, the Respondent effected the payment of the Petitioner as per the tariff covered under the qualifying category i.e. Rs per unit with an escalation of 2% on compounded basis instead of Rs per unit The Petitioner then filed a Petition before the Commission on October 13, 2008 for seeking higher tariff i.e. Rs per unit (instead of prevailing tariff of Rs. 3.05/- per unit with an escalation of 2% on compounded basis) on the ground that the Petitioner does not have any captive generation based on usage of bagasse and it has to purchase the bagasse from nearby sugar mills. In the said Petition, the Petitioner also prayed that, if such rates cannot be granted, it may be allowed to opt for Open Access The Commission vide Order dated April 2, 2009 disposed of the matter with the following directives; MSEDCL to submit detailed proposal clubbing all the similar applications including the issues related to the need for revision in tariff for bagasse based Co-generation projects of the kind of Kay Power and Paper Ltd., in consultation with MEDA. However, the Petitioner and the MSEDCL need to substantiate their claims with adequate justification and supporting documents to seek revision in tariff rather than merely seeking revisions without appropriate backup The Respondent vide letter dated June 11, 2009, requested MEDA as under: To co-ordinate in the matter referred with providing adequate supporting documents with suggestions / advice. Further, a Order_[Case No. 89 of 2010] Page 7 of 14

8 meeting can be scheduled as per your convenience, to resolve this issue The Petitioner has stopped generation from their co- generation plant since July Subsequently, the Commission vide Order dated January 11, 2010 in Case No. 123 of 2008, decided an interim rate of Rs per unit for all the Non-fossil fuel based Co-generation projects in the State with effect from January 11, 2010 upto March 31, Further, the Commission vide Suo-Motu Order dated July 14, 2010 in Case No. 20 of 2010, has determined the tariff of Rs. 4.79/kWh (Fixed Charge component is Rs. 2.26/kWh and Variable Charge component is Rs. 2.53/kWh) for all the existing and new Non-fossil fuel bagasse based Co-generation projects for F.Y and for Non-qualifying Non-fossil fuel based Co-generation projects is Rs. 2.14/kWh for F.Y The Commission vide Order dated May 25, 2005, has ruled as under; If upon energy audit of the co-generation facility during the operation period, any Project fails to meet the qualifying criteria stipulated under the August 16, 2002 but meet the conditions of the present Order, then the tariff determined under this Order will be payable for such period MEDA vide letter dated October 19, 2010 has submitted a report prepared by Vasantdada Sugar Institute ( VSI ) in reference with the Respondent s letter dated June 11, In the said report the cost of energy derived by VSI is Rs per unit. (Fixed Cost: Rs Variable Cost: Rs Cost of steam to paper plant: Rs. 1.05) for exportable power. Also in the Petition filed by the Petitioner, it has prayed for an interim rate of Rs per unit till finalization of final rate determination. Order_[Case No. 89 of 2010] Page 8 of 14

9 13. Furthermore, in line with above submission, the Respondent has prayed as follows The Petitioner has requested for grant of interim rate of Rs per unit till finalization of the rate. The Respondent has paid the last bill to the Petitioner for the month of June Rs per unit as per the Commission s Order dated August 16, Further, in order to promote RE generation, the Respondent has no objection for promotional rate for RE power. However, the Commission may consider this project under only one category i.e. Non-fossil fuel bagasse based Co-generation projects under Qualifying Criteria or Non-qualifying Criteria for deciding the energy rate The Commission may decide the interim rate/final rate considering appropriate qualifying criteria/report from VSI in line with the assessment of MEDA The Respondent may not be in position to purchase the power at the tariff more than the approved rate for Qualifying Co-generation projects in the State This rate may pleased be allowed as a direct pass through for the purpose of ARR. Though, the power procured from the Petitioner is pass through for the purpose of ARR, the Commission may please grant a reasonable rate. 14. During the hearing, Shri. Niraj Chandra, Managing Director of the Petitioner company, reiterated as follows; 14.1 The Petitioner company has two divisions i.e. MG Kraft Paper division having capacity of 70 Tons per day and Power division having 6 MW generation capacity. The Paper division manufactures Kraft paper using waste paper (Domestic and imported). The paper production started from February The Power division runs on bagasse having capacity of 6 MW with power purchase agreement with the Respondent. Order_[Case No. 89 of 2010] Page 9 of 14

10 14.2 The Petitioner company set up a power plant in the F.Y keeping in view the acute shortage of power in the State of Maharashtra and also to improve the bottom line of the company. The Plant was set up in F.Y The Power plant was set up keeping in view abundant availability of bagasse in this area The Petitioner company planned 6 MW bagasse based Co-generation plant as per State Government Policy laid down vide their circular no. GR/NO/DAP/1097/CR- 68/URJA 7 dated October 18, 1999 and obtained NOC from the Respondent under section 44 of the ES Act, IREDA assessed the technical and commercial viability of the project and extended financial assistance. The company executed power purchase agreement on June 7, 2000 with the Respondent. At that time the Commission was not in picture When the plant was ready for commissioning in December 2000, it was informed by the Respondent that the permission from the Commission was necessary for Power Purchase Agreement, which was already executed At this juncture the plant was ready for commissioning, man power was deployed, raw material was procured, but Petitioner Company was not able to run the plant for want of consent from the Commission On July 19, 2001 the Petitioner company got permission but for captive use only and synchronization allowed in January The plant was operated at 20% of its installed capacity for almost 7 months resulting in heavy losses The drought conditions during the years 2003 and 2004 affected the sugar cultivation in the State which resulted in acute shortage of bagasse and their Skyrocketing prices. Under the above circumstances, the Petitioner company had to shut down operation from December 2003 onwards. Order_[Case No. 89 of 2010] Page 10 of 14

11 14.10 Further, the Petitioner company restarted the Paper division operation from December 2006 and still it is in operation and has stabilized. Now in F.Y , the availability of bagasse has much improved. There are 13 operating sugar factories in 100 KM radius and out of total only four factories are having their own co-generation plants. The Petitioner Company is currently procuring about 10-15% bagasse from Ajinkyatara Sugar factory and remaining from nearby sugar factories located around 100 km periphery. The Petitioner company does not foresee any shortage of bagasse in the next three four years. Keeping in view these favorable conditions the Petitioner expects revision in the power purchase rate. The Petitioner company has restarted the power plant operation from December 2010 and is expected to stabilize the same shortly The company s rehabilitation package is under active consideration at BIFR. The Paper division has now stabilized but it will be remunerative once it will receive its own power and steam, after re-commissioning the Power plant operations. The Power plant will stabilize in near future but it will be economically viable only on revision of existing Power Purchase rate as recommended by MEDA. 15. The Petitioner has submitted the relevant documents to the Commission, which were submitted to BIFR to recognize them as a Sick Industrial Unit under SICA. The reason for sickness submitted by the Petitioner, are as follows The Petitioner incurred heavy losses due to various reasons, some of which were beyond the control of the Petitioner and were unanticipated In the wake of certain unforeseen delays and subsequent events, the Paper production and Power generation were severely affected resulting in not only loss of opportunity cost but also technical difficulties leading to increase in financial loss The various reasons for sickness in Power division were as follows; Order_[Case No. 89 of 2010] Page 11 of 14

12 Time overruns, delay in implementation of project, and inordinate delay in erection of power plant Delay in procedural clearance, for erection of Power plant by the Respondent. Non-synchronization of Power plant with the Respondent s Grid Inordinate delay by the Respondent in the execution of power purchase agreement in line with the approval given by the Commission. This delayed in execution led to delays in the disbursement of loan funds from financial institutions Volatile prices of bagasse affecting its procurement in the offseason Lower power tariff paid by the Respondent. High interest rates charged by banks/financial institutions on term loans Limited working capital resources The main reasons for sickness of the Paper division were as follows Recessionary conditions prevailing in the Packaging industry during the years Stiff competition in the market due to reduction in import duties and frequent load-shedding in power supply by the Respondent disrupting production. This led to loss of consumers due to delays and non fulfillment of deliveries Difficulties in collection of receivables and increase in bad depts and due to change to direct sale instead of conventional selling through dealers. As a result the Petitioner had to write off bad debts amounting to Rs Crore. Order_[Case No. 89 of 2010] Page 12 of 14

13 Subsequently, inordinate delay in project implementation, in erection of power plant and generation of power within the factory for self consumption. This resulted in lower production, far below the break-even level High interest rates charged by banks/financial institutions on term loans. Delay in disbursement of loans by the financial institutions and limited working capital resources. 16. MEDA further submitted that the Ajinkyatara bagasse Co-generation project is expected to be commissioned in year The Commission is of the view that under the mandate of Section 86(1)(e) of Electricity Act 2003 ( EA 2003 ) and the subsequent judgment delivered by the Hon. Appellate Tribunal for Electricity in Appeal No 57 of 2009 dated April 26, 2010, the State Electricity Regulatory Commissions are to promote cogeneration irrespective of the fuel used i.e., either fossil fuel or non-fossil fuel and to promote generation of electricity from renewable energy sources. Further, the Commission vide Order dated August 16, 2002 in Case Nos. 8/9/10/15/17/18/19/20/21 of 2001 ruled as follows; The Commission would also like to clarify that M/s Kay Pulp & Paper Mills Limited does not meet the qualifying requirement of co-generation (as elaborated above). Thus, the project case of the M/s Kay Pulp & Paper Mills Ltd is the Co-generation project to a limited extent. However, the Commission notes that M/s Kay Pulp & Paper Mills Limited has already commissioned the plant, and the Commission by this Order has introduced the definition together with qualifying requirements for the Cogeneration subsequently. Hence, the Commission has considered this particular case, as an exception and therefore, this Order shall also be applicable to M/s Kay Pulp & Paper Mills Ltd. However, the Commission expects them to meet the Order_[Case No. 89 of 2010] Page 13 of 14

14 qualifying requirement of the co-generation in case of any future expansion. 18. The Commission has analyzed the Petitioner s submission and the material placed on record by the MEDA and the Respondent. The Commission clarifies that the Petitioner has a Power Purchase Agreement ( PPA ) with the Respondent for a period of 13 years, which is valid till March, 2013, therefore only after the expiry of current PPA, the Petitioner can avail open access. 19. During the hearing held on January 20, 2011 in the office of the Commission, the Respondent stated that it is agreeable to purchase power at the rate Rs. 4.79/- per unit, generated from the Petitioner s bagasse based Co-generation plant. The Commission hereby directs that the interim tariff of Rs. 4.79/- per unit same as that of levellized tariff applicable to Qualifying bagasse based Co-generation projects during F.Y to F.Y as mentioned in the Commission s Order dated July 14, 2010 in Case No. 20 of 2010, shall also be applicable to the Petitioner s bagasse based Co-generation project from the start of sugar cane crushing session i.e. effective from November 1, 2010 to March 31, 2013 or till the finalization of the final rate, whichever is earlier. Meanwhile, the entire issue will be deliberated and examined with respect to variable cost of the project and subsequently the Commission will consider whether any other rate is to be determined for bagasse based Co-generation project of the Petitioner type. 20. With the above, the Commission scheduled the next hearing on above matter on March 9, 2011 at hrs in the office of the Commission. Sd/- (Vijay L. Sonavane) Member Sd/- (V. P. Raja) Chairman (K. N. Khawarey) Secretary, MERC Order_[Case No. 89 of 2010] Page 14 of 14