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Petition No. 08 of 2015(M)

In the matter of, approval of revised capital cost for the 1x500

MW Korba West TPP.

Chhattisgarh State Power generation

Company Limited … Petitioner

PRESENT : Narayan Singh, Chairman

Vinod Shrivastava, Member

ORDER

(Passed on 22/09/2015)

Chhattisgarh State Power Generation Company Limited (CSPGCL

in short) herein after referred as petitioner, has filed this petition under

section 62 and 86 1 (a) and (b) of the Electricity Act 2003, and

Chhattisgarh State Electricity Regulatory Commission (Terms and

Conditions for determination of tariff according to Multi-Year Tariff

principles and Methodology and Procedure for determination of

Expected revenue from Tariff and Charges) Regulations, 2012 (in short

CSERC MYT Regulation, 2012) before the Commission for approval of

revised capital cost for the 1x500 MW Korba West Thermal Power Plant

(TPP). As per provision of Act and Regulation notified there under,

suggestions, comments and objections were invited on the petition and

hearing was also conducted.

Chhattisgarh State Electricity Regulatory Commission Irrigation Colony, Shanti Nagar, Raipur - 492 001 (C.G.)

Ph.0771-4048788, Fax: 4073553

www.cserc.gov.in, e-mail: cserc.sec.cg@nic.in

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2. Brief History of project:

2.1 The Chhattisgarh State Power Generation Company Limited

(CSPGCL), became functional as generation company w.e.f., 1st

January 2009, carved out on re-organization of The Chhattisgarh

State Electricity Board (CSEB). CSPGCL is a Company registered

under the Companies Act, 1956.

2.2 The petitioner submitted that HTPS Korba West plant has four

units of 210 MW each. The plant was commissioned in the period

1982-1986. The erstwhile CSEB in the year 2008 decided for

establishment of a new unit of 500 MW in the same premises.

Though there are no common auxiliaries and the project has also

included acquisition of some land, erection of new quarters and

so many other facilities; yet due to proximity of the site and

initial administrative / technical support, the project is called as

Korba West TPP.

2.3 The petitioner further submitted that after COD of this plant

CSPGCL has diversified generation capacity of 2,424.7 MW in its

power portfolio comprising of Thermal, Hydro, Small Hydro and

Co-generation power plants.

2.4 The petitioner submitted that I X 500 MW Korba West Thermal

Power Project (Korba West TPP) is installed to meet the growing

demand of power in the State of Chhattisgarh. The Petitioner has

further confirmed that 100% power that will be generated from

this Unit will be sold to CSPDCL on the rates to be determined by

the Commission. With CSPDCL’s consent for purchase of 100%

power from these Units, MOU was also signed on 15.10.2009.

Subsequently, a Power Purchase Agreement to this effect was

signed on 30.11.2011.

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3. Facts of the petition:

3.1 The petitioner submitted that the CSERC (Terms & conditions of

determination of tariff according to Multi-Year tariff principles)

Regulations, 2010 (in short “CSERC MYT Regulation, 2010”) had

a specific clause regarding approval of the business plan.

Accordingly, in February 2010, CSPGCL filed a business plan

petition no. 08 of 2010 (M) before the Commission. Among other

schemes, the detail proposal for capital cost approval, amounting

to Rs 3,156.00 crore (exclusive of PVC and initial spares), of

Korba West 1X500 MW TPP project was also submitted before the

Commission. Copies of the orders for BTG and BOP along with

PFC loan agreement and all other related documents were

submitted before the Commission. Vide its order dated 1st June

2010, the Commission has considered the same.

3.2 CSPGCL submitted that in Capital Investment Plan petition no. 52

of 2012 (M) filed by CSPGCL under the provisions of the CSERC

(Terms & conditions of determination of tariff according to Multi-

Year tariff principles) Regulations 2012 (in short “CSERC MYT

Regulations 2012”), leave was craved for filing of revised project

cost at the time of tariff filing. During the TVS, the same was

consented by the Commission. In the CIP order also, the same

has found place. The unit was synchronized on 18th March 2013

and the Commercial Operation Date (COD) was attained on 5th

September 2013. During construction, erection and

commissioning, the price indices moved significantly. The

inflationary trend resulted in increased hard cost due to

significant PVC and also resulted in higher IDC due to increased

interest rates. The petitioner submitted that the impacts of these

variations are uncontrollable.

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3.3 CSPGCL while considering the provisions made in the Act, the

relevant Regulations, directions of Hon’ble APTEL and as well as

this Commission, has filed a petition on 14th March 2014 for

approval of the revised Capital cost and Tariff for the balance

control period i.e. FY 2014-15 and FY2015-16. Petition was not

registered by the Commission and vide letter dated 19th May,

2014 petitioner has communicated that the Commission has

decided to continue the single part tariff of Rs 2.65 per unit (used

for estimation of power purchase cost of CSPDCL) for FY 2014-

15. Commission also directed CSPGCL to file separate petitions

for approval of revised capital cost and ARR. Meanwhile, vide

letter no. 03/CSERC/Tariff/500 dated 7 April 2014, CSPGCL was

also directed that while filing petition for approval of revised

capital cost, component wise comparison of originally approved

cost vis-à-vis actual cost along with detail of penalty clause and

penalty imposed shall be submitted.

3.4 CSPGCL submitted that the instant petition, for approval of the

revised capital cost of the project, is being filed accordingly.

3.5 CSPGCL in this petition has prayed:

i) To the revised estimated capital cost of Rs 3,696.18 crore

(excluding cost of initial spares) with leave for

submission of final Capital cost after finalization of

audited accounts of financial year FY 2015-16 i.e. after the

‘cut-off date’ applicable for the project.

ii) Allow procurement of initial spares to the tune of 2.5% of

the project cost.

iii) Condone any inadvertent omissions / errors / shortcomings

and permit CSPGCL to add / change / modify / alter this

filing and make further submissions as may be required at

a future date.

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iv) Allow recovery of petition filing fee and publication

expenses and allow any such relief, as the Commission may

deem fit and proper keeping in view the facts and

circumstances of the case.

4. Proceedings in petition:

4.1 A set of data gaps were forwarded to CSPGCL vide letter no. 2057

dated 27/12/2014. After preliminary scrutiny and due verification

of the document on record the Commission registered the petition

as petition no. 08 of 2015 (M) dated 05/02/2015.

4.2 Further, the Commission raised additional data gaps to ensure

adequacy of information for processing the petition vide letter no.

267 dated 06/02/2015.

4.3 The Technical Validation Session (TVS) was held on 04/04/2015.

During TVS, the Petitioner presented the case in detail focusing

on salient features of the Petition. The Petitioner also highlighted

issues such as increase in Capital Cost of the Unit as compared to

original estimated cost, delays in implementation, reasons for

delay, and measures taken by CSPGCL to minimize the increase

in Project Cost due to time overruns.

4.4 During TVS, CSPGCL was asked to submit comparison of Capital

Cost with Mauda projects of 500 MW Unit size vis-à-vis with

benchmarking of Capital Cost (Hard Cost) for Thermal Power

Stations with Coal as main fuel notified by CERC vide its Order

dated 4 June, 2012.

4.5 CSPGCL submitted the replies to data gaps raised by the

Commission and also made addition submission in support of

various contentions vide its letters dated 09/01/2015,

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13/02/2015, 08/04/2015, 17/04/2015, 29/04/2015 and

18/05/2015.

4.6 In accordance with provisions of CSERC, MYT Regulation, 2012,

the Commission vide its letter no. 292 dated 09/02/2015 has

directed CSPGCL to publish its Petition in news papers in abridged

form to give due opportunity to all the stakeholders to offer

views/suggestions/objections. The petitioner vide its letter no.

124 dated 10/02/2015 submitted gist for approval for publication

in news papers. The gist was approved and communicated vide

letter no. 366 dated 24/02/2015 for publication in news papers.

The petitioner vide their letter no. 199 dated 09/03/2015

confirmed that the gist was published in following news paper on

27/02/2015:

Dainik Bhaskar (Hindi) - Bilaspur

Hari Bhoomi (Hindi) - Raipur

Hitvada (English) - Raipur

4.7 The public notice for hearing was published by the Commission in

the following newspapers for inviting suggestions/objections from

the stakeholders.

Table: Newspaper Notice of Hearing

Name of the Newspaper Date of Publication

Nav Bharat (All Edition of CG)

25/03/2015 Dainik Bhaskar (All Edition of CG)

Hitvada (All Edition of CG)

4.8 The copies of CSPGCL’s Petition and its Executive Summary were

made available at CSPGCL’s and also on the Commission’s

website.

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4.9 The Commission received objections / suggestions / comments

from stakeholders in writing on the Petition filed by CSPGCL for

determination of Capital Cost.

4.10 The hearing in the matter was held on 31/03/2015 at 03:30 pm

at the Commission’s Office. The list of individuals who

participated in the hearing is shown in Appendix – I.

4.11 The issue raised by different stakeholder along with petitioner’s

response and Commission’s views are elaborated in subsequent

section of this order.

4.12 CSPGCL submitted that the AG audit up to 2013-14 has

completed. A certificate issued by Chartered Accountant dated

14/10/2014 was submitted along with petition to confirm a

capital cost of Rs. 2,935.96 crore was capitalised in its books of

account as on the date of COD and as on 31st March 2014 the

capitalization was Rs. 3,073.53 crore.

4.13 CSPGCL further submitted certificate issued by Chartered

Accountant dated 16/05/2015 confirming additional capitalization

of Rs. 310.70 crore for FY 2014-15. Thus total value of

capitalization till 31/03/2015 towards Korba West TPP is Rs.

3,384.23 crore as per petitioner books of account.

4.14 The Commission has ensured that due process as contemplated

under the law be followed at every stage meticulously and

adequate opportunity was given to all the persons concerned to

file their objections / suggestions / comments in the matter.

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5. Hearing Process, including the Comments made by various

Stakeholder, The Petitioner response and views of

Commission:

5.1 Delay in the implementation of the project:

5.1.1 Shri Satyanarayan Sharmaji (MLA) along with Shri Shyam Kabra

(Urla Industries Association), Gopal Krishna Agrawal (Laghu

Udyog Bharati), Shri Rajkumar Gupta of (Chhattisgarh Nagrik

Adhikar Raksha Manch) & Shri Sudhendu Gupta (Chhattisgarh

Harihar Pehredar Samiti) during hearing pointed out that

construction of the project has already been delayed by 15

months, hence, responsibility should be fixed and the delayed

cost should not be burdened on the consumer directly. It was

stated that plant should be got completed within 44 months as

per the guidelines of CERC, however, CSGPCL has taken more

than 56 months. He further stated that due to prolong delay

the cost due to IDC and impact of PVC will increase and is not in

the interest of State and consumers. It was also alleged that

general people of Chhattisgarh are not responsible for non

completion of project in scheduled time; on the contrary

CSPGCL is fully responsible for this. Besides this, they also

states that if the project been got completed within the time

schedule State could be able to achieve surplus of additional

500 MW, owing to this power cut problem should not have been

arise. As also, the distribution company should not have been

purchased the power at high cost rather it can directly procure

the power from generating company in a reasonable cost.

Additionally, it was also alleged due to delay in getting the

project completion is mainly because of mis-management and

finally pointed out on the working of officers particularly

engaged on this project. That in the year 2010 when CSPGCL

has got approval of capital cost from the Commission, then it is

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the responsibility of the Commission for proper persuasion and

asking feedback to get the project complete in time. Thus,

Commission is also responsible for not getting the completion of

project in a time bound manner.

CSPGCL Reply:

5.1.2 In reply to above CSPGCL submitted that towards reasons for

delay in execution of the project explaining that in and around

the country there were lot of project which got delayed from 15

to 40 months. Regarding Korba West TPP project primarily it

was estimated that in the year June 2012 commissioning could

be achieved whereas actual date of commissioning is achieved

in March 2013, thus there is a delay of only 9 months. The

CERC has stated 44 months span for eligibility of additional

0.5% ROE. However such incentive scheme does not exist in

CSERC Regulations. The justification for actual time incurred for

synchronization / COD of the plant has been explained in the

TVS. This delay was also beyond the control of CSPGCL. During

the erection / construction, a severe accident took place at

nearby power house (BALCO). The Chimney construction of M/s

Balco was being done by M/s GDCL. The same agency was also

selected by M/s BHEL through tender for Chimney construction

of Korba West project. Exercising prudence, M/s BHEL was

directed to select other suitable agency for construction of

chimney prudently. The whole process resulted in additional

time requirement. Additionally, the agitation by land oustees at

the ash bund site also resulted in work interruptions,

necessitating additional time. Both the factors were

uncontrollable for CSPGCL. CSPGCL in its reply further clarified

that the PV clause is a standard clause in such long gestation

projects. As submitted in the para 5 of the petition, the clause

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was part of the order copies submitted during the Business plan

proceedings (no 08/ 2010) in which principle approval was

accorded by the Commission. In the year Feb’2013 when

chimney was found to be properly functions subsequently the

unit got commissioned in March’2013. In spite of such situation

CSPGCL is able to achieve the target as early as possibility

which does not point on the delay in project. CSPGCL also

pointed that for construction of project there is no burden on

the general people of Chhattisgarh. In the real scenario, the

generation cost per unit is very less as compared to other

project. In the year 2015-16 the CSPGCL has filed petition

before the Commission vide petition no. 01/2015 which clearly

indicates that NTPC Mauda Project cost worked out to Rs. 5.65

per unit. They also cited the examples that power purchase cost

from Kahalgaon power house, NTPC and Joint venture of SAIL

BSP at Rs. 4.54 per unit and Rs. 4.61 per unit respectively,

whereas in the revised cost submitted by CSPGCL it arrives at

Rs. 3.14 per unit, which is much lesser than other project.

Petitioner replied that the Unit is commissioned in March 2013

and not in September 2013 as stated by the objector. Further,

as submitted in the petition, at the time of earlier estimation

IDC was estimated notionally, while the IDC stated in the

instant petition is realistic and based on actual audited

accounts. The allegation of negligence is unfounded, baseless

and as such is strongly denied.

Commission’s view:

5.1.3 Commission has judiciously examined the petition along with

additional submission made with document available on records

and after due prudence check the petition is being disposed.

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5.2 Capital Cost:

5.2.1 Shri Satyanarayan Sharmaji (MLA) along with other objectors

has proposed that capital cost to the tune of Rs. 3,696 crore

which is very high, whereas, similar project constructed by

NTPC for Mauda Project which constitute capital cost less than

Rs. 3000 crore (for one unit with capacity 500 MW). Hence

there is a prima facie mistake worked out to Rs. 700 crore. It is

further proposed that the submission made by the applicant for

project cost does not match with each other which require to be

investigated. Further it is objected on the issue of high total

capital cost of the project which is increased by 17.1% i.e. Rs.

3,696.18 crore instead of Rs. 3,156.31 crore under business

plan. The objector has also raised the issue that break up of

project cost was not mentioned in the petition because of which,

comparison could not be made with similar project like NTPC

Mauda. As also, objector has commented that the applicant has

not provided anywhere in the petition on which date project cost

arrived at Rs. 3,696.18 crore accordingly he pointed out that it

is simply a statistical jugglery to increase the project cost. One

of the objectors was further stated that towards construction of

Korba West (Ext) project the equity was infused by Govt. of

Chhattisgarh hence directly or indirectly the hike in the project

cost will be burdened on the end consumers. They pointed out

the approved capital cost of the project in the year 2010 was

Rs. 3156 crore which constitute Rs. 6.51 crore per MW, which

has now been substantially increased by 25%. It was also

alleged that considering bench mark cost is of Rs. 5 crore per

MW, the project cost would not be more than Rs. 2500 crore. It

is further pointed out on the issue that Korba West (Ext) is

contemplated to be installed in the Green Field. Since applicant

is already holding the land and coal holding machinery along

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with other infrastructure facility, accordingly, the instant project

cost should not be more than Rs. 4 crore per MW. Hence,

contended that revised capital cost of the project should not be

approved by the Commission. It is also states that on the

request of the applicant if Commission approves the revised

capital cost then end consumer will be directly burdened. It is

further states that Commission has approved more than 60% of

the cost beyond bench mark cost for construction of project in

the arena of Green Field.

CSPGCL Reply:

5.2.2 In Reply to the above point CSPGCL submitted that approval for

NTPC Mauda project was filed before Central Electricity

Regulatory Authority on August 2014. According to Central

Electricity Regulatory Authority cutoff date capital cost was Rs.

6696.53 crore was estimated. However, when initial spares of

2.5% was separated then capital cost was Rs. 6533.20 crore. As

aware, the bench mark cost for the 1st unit decided by the

Central Electricity Authority for 2x500 MW is around 54% and

for 2nd unit it costs 46%. The project cost of 1st unit of Mauda

project is Rs. 3528 crore, whereas, till cut-off date the project

cost of Korba West (Ext) is Rs. 3696 core is estimated.

Accordingly, there is a difference of Rs. 168 crore, out of this,

difference of approx. Rs. 101 crore was due to taxes because of

the fact that there is no tax exemption scope for Korba West

(Ext) capacity of 500 MW provided to Govt. of Chhattisgarh.

Another issue is that in the Mauda project debt equity ratio is

70:30, whereas, for Korba West (Ext) the debt equity ratio is

90:10. Due to change in the capital structure the project cost

seems to be on higher side. It is also pertinent to state that the

instant project cost also include distance coal conveyer system,

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which leads to the reduction of transportation cost of coal from

one place to another. CSPGCL also pointed that for construction

of project there is no burden on the general people of

Chhattisgarh. In the real scenario, the generation cost per unit

is very less as compared to other project. In the year 2015-16

the CSPGCL has filed petition before the Commission vide

petition no. 01/2015 which clearly indicates that NTPC Mauda

Project cost worked out to Rs. 5.65 per unit. They also cited the

examples that power purchase cost from Kahalgaon power

house, NTPC and Joint venture of SAIL BSP at Rs. 4.54 per unit

and Rs. 4.61 per unit respectively, whereas in the revised cost

submitted by CSPGCL it arrives at Rs. 3.14 per unit, which is

much lesser than other project.

The objection raised towards approved capital cost of Rs. 3156

crore which is 25% more than the benchmark cost is

unwarranted. It is also not appropriate to state that other

generator of power project including NTPC who intends to

develop power project in the field of Green field in which per

M.W. cost comes to Rs. 5 crore. None of the similar project so

far not developed at the cost of Rs. 5 crore per MW. As

submission made in the petition that for Korba West (Ext) plant

other infrastructure factors like coal handling plant, water

treatment plant and switchyard have been constructed

separately. Previous plant has already completed its 25 years as

such the infrastructure build at that time is no longer use for

this project. The objector has raised an issue regarding

maximum cost per MW comes to Rs. 4 crore is very

inappropriate. None of the similar project, so far not developed

at the cost of Rs. 4 crore per MW. As aware, in the state of

Chhattisgarh CSPGCL is only the generating company who can

achieve the cost per unit very less. If the approval could not be

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granted on the actual cost then critical situation will arise for

proper functioning. As narrated that CSPDCL use to purchase

the power at very high cost, which not only resulted in high

power purchase cost but also cumbersome situation will arise

for non availability of power. The revised cost as mentioned in

the petition is based on the actual cost. Electricity Act, 2003

also provides that cost of power is always constitute on actual

costing. Thus the apprehension of costlier power is just a rumor,

which is well narrated in the above para. Here, it is also

pertinent to mention that worked out cost by CSPGCL is less

than bench mark cost decided by the Central Electricity

Authority for the new power project which is a significant

achievement.

The objector has already raised the issue on installation of

this project availability of the power in the state will increase, so

that CSPDCL could not procure power from the private

generator. The explanation is well narrated in elsewhere in the

order. CSPGCL submitted that towards reasons for delay in

execution of the project explaining that in and around the

country there are lots of project which got delayed from 12 -15

months to 50 months. Regarding Korba West (Ext) project

primarily it was estimated that in the year June 2012

commissioning could be achieved whereas actual date of

commissioning is achieved in March 2013, thus there is a delay

of only 9 months. This delay was also beyond the control of

CSPGCL.

Regarding mismanagement and in adequate appropriation

of fund it is to state that the allegation of negligence is

unfounded, baseless and as such, are strongly denied as opined

by CSPGCL.

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CSPGCL further in its reply denied that the capital cost is on

higher side. In fact, the expected tariff from this plant is much

lesser than many other new plants. It is even lesser than the

projected tariff from NTPC (Seepat – Phase I) which is a super

critical Mega project. It is denied that the component wise

project cost has not been submitted. On the contrary, even the

order copies of all the major orders have been submitted.

Annexure-I, read with para 7 of the petition, makes it amply

clear that the project cost of 3696.18 Cr is estimated for cutoff

date of 31st March 2016. It is denied that the actual capital

cost has not been provided. The CA certificate clearly states:

“We hereby certify that as per information, records,

explanation and audited financial statements of

Chhattisgarh State Generation Co. Limited for the year

ended on 31.03.2014 provided to us the amount of Gross

Block of Fixed Assets as on C.O.D. i.e. 05.09.2013 is RS

2935.96 Cr and as on 31.03.2014 Rs 3073.53 Cr pertaining

to New 1x500 mw Korba West Thermal Power Project,

Korba.”

Clearly the certification is based on audited accounts and

other all relevant documents. The audit report of CSPGCL for FY

13-14 is already with the Hon’ble Commission.

It appears that the objector has failed to correlate the data

appropriately. The annexure-I of petition provides the

component wise break up of project cost of Rs 3696.18 Crore.

Para 7.3 clearly quotes Regulation 18.3 of CSERC MYT

Regulation 2012 as per which for coal based thermal stations,

initial spares to the tune of 2.5% of project cost are allowed.

Para 7.4 deals with capitalization, including year-wise additional

capitalization. The table provides additional capitalization of the

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project cost as well as the Initial spares. It also provides the

total additional capitalization. From the above, it’s clear that:

Project Cost as per Annexure I : Rs 3696.18 Cr

Capitalization of Project Cost as per para 7.4

Capitalization upto 31st March 2014 : Rs 3073.53 Cr

Additional Capitalization in 14-15 : Rs 253.03 Cr.

Additional Capitalization in 15-16 : Rs 369.62 Cr.

Total Expected Project Cost : Rs 3696.18 Cr

Thus, there is no mismatch in the project cost. Further,

regarding Initial Spares, it may be seen that Initial Spares as

per para 7.3 (Regulation 18.3) – 2.5% of project cost i.e. Rs

92.40 Cr.

Capitalization of Initial Spares as per para 7.4

Expected Additional Capitalization in 14-15 : Rs 46.20 Cr.

Expected Additional Capitalization in 15-16 : Rs 46.20 Cr.

Total Initial Spares : Rs 92.40 Cr.

Again, it may be appreciated that there is no mismatch.

The figures quoted by the objector regarding capital cost of

Mauda project has lost its relevance in light of the tariff petition

filed by NTPC Mauda in August 2014. CSPGCL reiterate that cost

of Korba West TPP includes cost of separate systems for all the

inputs/ output such as Coal Transportation system, Water

Treatment Plant, Ash Handling Plant, Switchyard etc. The

existing plant has already completed its useful life and none of

the old plant systems is proposed to be used in the project on

permanent basis. As such, for cost comparisons, the project

cannot be considered as extension project. Regarding, land cost

at Mauda, it may be suffice to note that objector has

conveniently ignored that the Korba West 500 MW project

includes cost of LDCC, which is not applicable in Mauda project.

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Commission’s view:-

5.2.3 The above issue is being dealt and deliberated in subsequent

para of this order.

5.3 Status of Benefits under Mega Power Policy

5.3.1 The objector has particularly raised objection on the status of

benefits under modified mega power policy in order to reduce

the capital cost. Any failure on the part of the applicant in

availing benefits under Central Government scheme should not

be burdened on consumers by way of higher retail tariffs.

CSPGCL Reply

5.1.1 As per Provisions of Mega Power Policy, the benefits were not

available for Korba West Project. Being a government policy, the

matter is uncontrollable for CSPGCL.

Commission’s view

5.3.2 Commission agress with CSGPCL’s reply, however, CSPGCL is

directed to explore the possibility of availing tax benefit if any

for new project under the Income Tax Act, 1961.

5.4 High Cost of debts & Interest During Construction

5.4.1 Shri Shyam Kabra along with other objectors also raised issue

on the high debt cost. He pointed out that CSPGCL should

explore the possibility of restructuring existing debt as the

project having high debt to equity ratio, because of the reasons

in the cost of debt will result in significant cost savings. Further,

he also informed that the rate of interest on loans has increased

from 11% originally to 11.5% - 13%, but has not provided any

details about lending institutions and subsequent rate of

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interest. He also alleged that NTPC Mauda has claimed a

weighted average rate of interest as low as 8.12% during FY

2013-14 therefore it is quite clear that CSPGCL has not made

any efforts to reduce cost of debt. Also pointed out that

weighted average rate of interest cannot be ascertained in

absence of relevant authentic data. Mere one line statement

cannot suffice the question in this regard. While approving

Business Plan Hon’ble Commission allowed IDC of Rs. 397 crore

with a proposed capital cost of Rs. 3196/- crore which is only

about 12.6% of capital cost. He also contended that CSPGCL

obtained certificate from Chartered Accountant which states that

Interest during Construction as Rs. 705.68 crore out of total

capital cost of Rs. 2935.96 crore which is as high as about 24%

of project cost. Such a huge IDC is not digestible. Alternatively,

NTPC Mauda has claimed IDC of Rs. 414.46 crore against

Audited Actual Cost of Rs. 2867.67 crore for Unit-I of 500 MW

till COD which is only about 14.45% of the capital cost. While

approving Business Plan, Commission directed CSPGCL to

properly schedule the dispatches of equipments and materials

required for the installation of the projects in order to minimize

interest during construction and also directed CSPGCL to take

appropriate action to minimize the amount of IDC. But in the

present petition, the Applicant has ignored to provide any

information on its efforts in complying with the directive of

Hon’ble Commission which is highly regretted.

CSPGCL reply

5.4.2 The complete loan for the project has been drawn from Power

Finance Corporation which is a ‘Navratna’ undertaking of

Government of India. To explore the possibility of loan

switchover a qualified merchant banker was appointed and as

per expert opinion, after incurring complete CAPEX & full loan

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disbursement on the project, refinancing may be taken up. It is

denied that the loan details and applicable interest rates have

not been submitted to the Commission. It is also denied that

the dispatches have not been scheduled as per standard

industrial practice. The IDC stated in the petition is the actual

IDC as per audited accounts. It is further submitted that

though with higher debt the IDC is higher, however at the same

time higher debt results in lower ROE and ultimately the end

consumer is benefitted. The anticipated rate of cost of power

purchase in FY 15-16 from Mauda project is Rs 5.65 per unit

while for Korba west TPP the same is expected to be Rs 3.14 per

unit.

Commission’s view

5.4.3 Commission had approved l for financing of this project at

debt:equity ratio of 90:10 vide its order dated 01/06/2010. The

impact on project cost due to higher debt of this project has

been analyzed in detail in subsequent para of this order.

5.5 High Cost of Trial run, Initial Spares & BTG Erection

5.5.1 Shri Shyam Kabra also contended on the issue of high cost of

trial run, initial spares & BTG Erection. The objector has

submitted that the working capital margin was tentatively

estimated at Rs. 35 crore. He further stated that with the rise in

coal and oil cost, the actual net working capital margin incurred

was Rs. 68.63 cr (i.e. net of fuel cost and sale of infirm power

Rs. 16.22 crore). He further raised questions on the issue of

initial spares to the tune of 2.5% of project cost should have

been allowed instead CSPGCL envisaged 50% of the initial

spares may be capitalized by 31st March 2015 and the balance

are expected to be capitalized in FY 2015-16. Further to above,

he also pointed out on the issue of PVC in which he states that

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PVC clause do not contain rate ceiling in terms of percentage

rather it has time ceiling in terms of schedule completion and

finally contended on the issue of completion of BTG is subjected

to maximum ceiling of 15% whereas application has raised the

cost upto 35%?

CSPGCL Reply

5.5.2 The objector has wrongly computed the cost of generation of

infirm power. The rate of infirm power is Rs 1 per unit and not

Rs 2.65 per unit. Accordingly the alleged cost of Rs 13.86 per

unit gets reduced to about Rs 5.23 per unit. Further, even this

value is over stated because during pre COD period,

considerable quantity of fuel (mostly oil) is needed for testing

and commissioning of various auxiliaries and during such

activities, no power is generated. The cost of fuel indicated is

only of the fuel consumed and do not include value of stock.

Regarding cost of Initial spares, the objector has failed to

appreciate the Regulations. Capitalisation of Initial spares is

allowed to take care of financing of mandatory and insurance

spares. The same is amply clear from bare reading of SOR

issued by CERC. In the CSERC Regulations too, the

capitalization of initial spares is allowed from COD to cutoff

date. Clearly, the inference that initial spares are the spares

which are consumed prior to COD is grossly misplaced and

devoid of merit. The PV clause is a standard clause. As already

explained in the petition, for labour intensive erection contracts,

rate ceiling is not applied. However, no price variation has been

allowed for the period of time overrun

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Commission’s view:

5.5.3 Commission has examined and disposed the issues under the

power conferred in the Act & Regulation notified thereunder.

The related issues are deliberated in subsequent para of this

order.

5.6 Lack of prudence check:

5.6.1 Shri Satyanarayan Sharmaji (MLA) along with other objectors

pointed out that, neither consumer have been technically sound

nor have adequate knowledge of financial matters to evolve the

project cost. According to him, Commission also does not have

sufficient staff to analyze the project cost. For this purpose, the

project cost should not have been got examined from external

agency. Thus he raised objection without prudence check of the

figures revised project cost should not be approved by the

Commission which leads to inhumanity with the general people

of Chhattisgarh. It is also raised question mark on the prudent

check carried out by the Commission before according approval

of business plan. Further, also alleged that common man does

not have enough technical and commercial expertise to

scrutinize such huge profits. The information provided by the

applicant is mostly incomplete and vague. Also pointed by him

on the date of public hearing is also not convenient to public

being the last day of the financial year as they are required to

fulfill several statutory & other obligations. He also contended

that Commission has not hired the services of any expert

agency who possess enough experience in the evaluation of

capital cost of such huge project as no such requirement is

published by Commission on website and newspapers,

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Commission’s view:

5.6.2 The objection is baseless and unacceptable. The Commission

has dealt every issue judiciously, very minutely and in

transparent way.

5.7 Need of Unbiased decision in Commission:

5.7.1 Shri Satyanarayan Sharmaji (MLA) pointed out that present

Member of CSERC Shri V.K. Shrivastava holds the post of

Managing Director of then CSGPCL therefore he could not have

the right to decide the case. Similarly Shri Rajkumar Gupta of

(Chhattisgarh Nagrik Adhikar Raksha Manch) & Shri Sudhendu

Gupta (Chhattisgarh Harihar Pehredar Samiti) also raised that

6-7 years back when the State Govt. has accorded approval for

Korba West (Ext) project, Shri V.K. Shrivastava was holding the

post of Managing Director of the Trading Company and

thereafter he holds the post of Managing Director of Generation

Company in the same year 2010. Hence any way he is also

responsible for getting the delay in completion of the project.

They also alleged that Shri Shrivastava at present holding the

post of Member in the Commission, hence, raised question on

the legal dispose of the petition in a transparent manner.

Commission’s view:

5.7.2 Regarding the issues raised by the objector in reference to

Member of the Commission, the Commission would like to

clarify that the Commission has been constituted as per

provision of the Electricity Act, 2003 and as per procedure laid

down in the ‘Act’, appointment of Chairman / Member is done

by the State Government on recommendation of a selection

committee. The Commission performs its duties in accordance

with the provisions specified in the Act, Guidelines and

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Regulations. The Commission strongly denies that there is any

biasing in the working of the Commission.

5.8 Audit and certification Related Issue:

5.8.1 Shri Satyanarayan Sharma ji(MLA) that, the project constitutes

various crore of rupee, hence, simply obtaining the certificate

from Chartered Accountant does not contain any element of

cost should not be considered. On the other hand the project

cost should be got audited by the CAG.

CSPGCL Reply

5.8.2 Shri Satyanarayan Sharma ji(MLA) CSPGCL Reply Point no. 4 In

the matter of certificate obtained from Chartered Accountant

towards certification of capital cost of the project it is to state

that before issue of certificate by the Chartered Accountant all

relevant documents was asked by the Chartered Accountant to

submit, on going through the relevant document only Chartered

Accountant issued the certificate. This also filed before the

Commission.

5.8.3 In the matter of certificate obtained from Chartered Accountant

towards certification of capital cost of the project it is to state

that before issue of certificate by the Chartered Accountant all

relevant documents was asked by the Chartered Accountant to

submit, on going through the relevant document only Chartered

Accountant issued the certificate. This also filed before the

Commission.

5.8.4 The CA certificate clearly states :

“We hereby certify that as per information, records, explanation

and audited financial statements of Chhattisgarh State

Generation Co. Limited for the year ended on 31.03.2014

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provided to us the amount of Gross Block of Fixed Assets as on

C.O.D. i.e. 05.09.2013 is RS 2935.96 Cr and as on 31.03.2014

Rs 3073.53 Cr pertaining to New 1x500 mw Korba West

Thermal Power Project, Korba.”

Clearly the certification is based on audited accounts and other

all relevant documents. The audit report of CSPGCL for FY 13-14

is already with the Hon’ble Commission.

Commission’s view:

The CSPGCL has already submitted audit report during tariff

proceeding. The certificate issued by Charter Accountant was

based on the audited figure provided by management which was

already audited by Auditor General of Chhattisgarh. However,

Commission has approved each cost after prudence check.

6. Legal framework

6.1 CSPGCL filed the present Petition for determination of Capital

Cost under Sections 62 and 86(1) (a) and (b) of the Electricity

Act, 2003 and CSERC (MYT Regulation, 2012).

6.2 It is to be noted that CSERC (MYT Regulation 2012) is applicable

till the end of FY 2015-16. Relevant provision of the Regulation

reads as bellow:

“7. CAPITAL INVESTMENT PLAN

7.1 The Generating Company, Transmission Licensee, and

Distribution Licensee shall file for approval of the Commission

a capital investment plan by 31st October 2012. The capital

investment plan should cover the entire Control Period, with

details for each year of the Control Period.

7.2 The capital investment plan may be in respect of new

generation projects or transmission/distribution schemes (for

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lines, sub stations, bays, etc.) for capacity addition/

enhancement or renovation of existing capacities on

completion of life or work required due to change in law, or

deferred execution of work included in original scope or

efficiency improvement or such works of value more than Rs.

1Crore which may be expedient for safe operation of the

system.

(a) The capital investment plan shall show separately, on-

going projects that will spill over into the Control Period, and

new projects (along with justification) that will commence in

the Control Period but may be completed within or beyond the

Control Period. The capital investment plan shall contain the

scheme details, justification for the work, capitalization

schedule, capital structure and cost benefit analysis (where

applicable).

7.3 The Commission shall scrutinize and approve the capital

investment plan after prudence check and after giving due

opportunity to all the stakeholders to offer

views/suggestions/objections and holding a hearing on the

proposed plan and after taking into consideration the

objections/ suggestions so received and any additional

information provided by the applicant.

7.4 The Commission shall approve the capital investment plan

before issuing the tariff order and shall consider the impact of

approved capital investment plan in the tariff order.”

6.3 As regards Capital Cost, relevant portion of Regulation-18 read

with Regulation-19 of CSERC (MYT Regulation, 2012) specified as

under:

18. CAPITAL COST AND CAPITAL STRUCTURE

18.1 Capital cost for a project shall include:

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(a) the expenditure incurred or projected to be incurred,

including interest during construction and financing

charges, any gain or loss on account of foreign exchange

risk variation during construction on the loan, up to the

date of commercial operation of the project, as admitted by

the Commission, after prudence check;

(b) capitalized initial spares subject to the ceiling rates

specified in Regulation 18.3; and

(c) additional capital expenditure determined under

Regulation 19:

Provided that the assets forming part of the project, but not

in use shall be taken out of the capital cost.

18.2 The capital cost admitted by the Commission after

prudence check shall form the basis for determination of

tariff:

Provided that prudence check may include scrutiny of the

reasonableness of the capital expenditure, financing plan,

interest during construction, use of efficient technology,

cost over-run and time over-run, and such other matters as

may be considered appropriate by the Commission for

determination of tariff:

Provided that where the actual capital cost is lower than the

approved capital cost, the actual capital cost shall be

considered for tariff determination. Any escalation in

capital cost over and above the approved capital cost may

be considered by the Commission subject to prudence

check or independently vetted by the Commission. ………..

Provided also that where the long-term power purchase

agreement entered into between the generating company

and the beneficiaries or the transmission service agreement

entered into between the transmission licensee and the

beneficiary, as the case may be, provide for ceiling of actual

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expenditure, the capital expenditure admitted by the

Commission shall take into consideration such ceiling for

determination of tariff.

18.3 The capital cost may include capitalized initial spares.

Initial spares shall be capitalized as a percentage of the

original project cost, subject to following ceiling norms:

i. Coal-based/lignite-fired thermal generating stations -

2.50%

……………

18.5 The average capital cost during a year shall be

computed as average of opening and closing gross fixed

assets for the year.

Provided that for the new generating station or unit, the

capital cost shall be charged on pro-rata basis during the

year for the asset declared under commercial operation and

for subsequent years, the capital cost shall be computed on

the average asset base.

19. ADDITIONAL CAPITALIZATION

19.1 The capital expenditure incurred or projected to be

incurred, on the following counts within the original scope

of work, after the date of commercial operation and up to

the cutoff date may be admitted by the Commission,

subject to prudence check:

i. Un-discharged liabilities;

ii. Works deferred for execution;

iii. Procurement of initial capital spares within the original

scope of work, subject to the provisions of Regulation 18.3;

iv. Liabilities to meet award of arbitration or for compliance

of the order or decree of a court; and

v. Change in law:

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Provided that the details of works included in the original

scope of work along with estimates of expenditure, un-

discharged liabilities and the works deferred for execution

shall be submitted along with the capital investment plan.

19.2 The capital expenditure incurred on the following

counts after the cut-off date may, in its discretion, be

admitted by the Commission, subject to prudence check:

i. Liabilities to meet award of arbitration or for compliance

of the order or decree of a court;

ii. Change in law;

iii. Deferred works relating to ash pond or ash handling

system in the original scope of work;

6.4 This Order is passed according to the provisions of CSERC (MYT

Regulation, 2012).

7. Submission including additional submissions of petitioner

on the CAPITAL COST OF KORBA WEST TPP:

7.1 CSPGCL submitted that proposal for developing I X 500 MW

Korba West TPP was approved by the Board of directors of

CSPGCL vide resolution dated 25/03/2008. CSPGCL submitted

that as per the said Resolution, the approved cost estimates were

for Rs. 1,111.00 crore which including freight and erection,

testing & commissioning but excluding taxes and duties which will

be paid on actual. The delivery schedule was expected to be

accomplished in 42 months period. The price variation for this

project is subject to price variation clause as per the PV formula

of 2X500 MW Mouda Project subject to ceiling of 15% for supply

portion only. The IEEMA indices shall be used for electrical and C

& I. The petitioner further submitted that the cost was revised by

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BoD on 26/09/2013 at Rs 3,671.00 crore (+/- 2%) excluding cost

of spares. The spares to the extent of 2.5% of the project cost

may be procured. The petitioner submitted that the BOD vide its

resolution dated 26/11/2014 further revised the capital cost of

Rs. 3,696.18 crore plus 2.5% towards initial spares for Korba

West (TPP).

7.2 CSPGCL submitted that the project cost capitalised on COD of the

Unit is Rs. 2,935.96 crore. Further capitalization as on

31/03/2014 was Rs. 3,073.53 crore. CSPGCL in confirmation of

capitalization has submitted the CA certificated. The comparison

of various components of Capital Cost as per business plan

approved by Commission and expected capital expenditure as

submitted by CSPGCL is given in Table below:

Comparison of Business Plan and Capital Cost submitted by CSPGCL

(Rs. crore)

Particulars Business Plan Capital Cost

Land & Site Development 57.19 41.00

BTG 1365.45 1490.94

BoP 993.00 1146.02

Taxes & Duties 175.00 166.80

Start-up Fuel 35.00 68.63

Overheads 134.00 121.33

IDC 397.00 661.46

Total 3156.64 3696.18

7.3 The key reasons for deviation in approved business plan order

dated 01/06/2010 vis-à-vis capital cost proposed by CSPGCL as

submitted in this petition and Commission’s view on various

component of capital cost are detailed in subsequent section of

this Order.

Page 30 of 77

Brief Background of Project Commissioning

7.4 CSPGCL has submitted that initially it was envisaged that the

HTPS Korba West TPS of 4X210 MW capacities shall be expanded

to include two more independent sets of 210 MW. Later on, the

concept was modified for installation of 2-sets of 250-300 MW.

Accordingly, a detailed Project Report was prepared. The

feasibility studies including Environmental and Forest clearances

were obtained for total 500 - 600 MW capacity. The technical

parameters and project cost was considered for 250 MW sets.

However, before physical start of the project, decision was taken

for installation of one set of 500 MW instead of two sets of 250-

300 MW. It may be appreciated that 500 MW sets offer better

thermal efficiency and consumes less natural resources. Thus, it

is advantageous for the consumers and more environments

friendly too. As, the feasibility studies such as EIA (Environment

Impact Study), Coal commitment. Water commitment, Land

requirement etc., remain applicable for 500 MW set in the same

manner as was applicable for two sets of 250 MW. The fact has

been acknowledged by all the stakeholders including Government

of Chhattisgarh, the lender (PFC), the Coal India, and WRD etc.

7.5 In continuation of pre-para the petitioner further submitted that,

the Board has also accorded its approval vide resolution dated

25/03/2008. As per the said resolution, the approved cost

estimate was for Rs. 1,111.00 crore. In the said Board

Resolution, it was concluded that the BTG package along with

electrical and station C&I was awarded to M/s BHEL on the same

techno-commercial condition as those on which NTPC has placed

order to BHEL for 2X500 MW TPP Mauda project, except the

condition relating to payment terms, LD, delivery schedule (i.e.

42 months) and price variance clause (PVC) (subject to ceiling of

15% for supply portion).

Page 31 of 77

7.6 CSPGCL submitted that the installation of 500 MW sets was also

for first time recognised by the Commission in its Tariff order for

FY 2009-10. Moreover, the change in cost estimation was

submitted to the Commission in the Business plan petition no. 08

of 2010 with expected date of commissioning as June-2012. The

Commission on assessing the capacity addition programme

submitted by CSPGCL with reference to the provisions of the

Electricity Act, 2003, Tariff Policy and Tariff Regulations accorded

in-principle clearance of the proposed capacity addition

programme vide its order dated 01/06/2010.

7.7 CSPGCL submitted that the BTG contract was awarded to BHEL

on the basis of Mauda project decided on ICB route by NTPC, by

the negotiation committee of CSEB which comprises of one senior

member from CEA. The LOI was issued on 11/04/2008 at total

contract price of Rs. 942.00 crore excluding taxes, duties and

price variation as per PV formula of Mauda TPP subject to ceiling

of 15% over and above the contract price i.e. Rs. 942.00 crore,

for supply of BTG. However, for transportation, insurance,

installation, testing and commissioning of BTG, the LOI was

issued on 11/04/2008 for an amount of Rs. 169.00 crore

exclusive of taxes i.e. Rs. 26.00 crore towards transportation and

Rs. 143.00 crore towards installation services including insurance.

For both LOI, the base date to arrive at the PV formula as

17/03/2008. Later on, CSPGCL submitted that zero date was

amended to 31/12/2008 with a condition that no escalation shall

be payable due to shifting of zero date.

7.8 CSPGCL submitted that the BOP contract was awarded to M/s.

Techpro System Ltd. through ICB route on 25/08/2009 for a total

contract value of Rs. 580.50 crore for designing, engineering,

manufacturing, fabrication, assembly, inspection and testing of

BOP inclusive of all taxes. The PV will be adjusted in accordance

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with the conditions of the contract subject to ceiling of 15% for

supply during the contract period. Further, for services for civil

works, structural steel, fabrication and erection, architectural and

other infrastructural works etc. including steel cement and other

construction materials transportation, insurance & installation

contract awarded for Rs. 412.50 crore was given inclusive of all

taxes.

7.9 CSPGCL submitted that project was financed through Power

Finance Corporation (PFC) and MOA was signed on 20/06/2008

for total project cost of Rs. 2,309.19 crore. Against the project

cost PFC has sanctioned the loan amount of Rs. 2,078.00 crore.

Further vide amended agreement dated 30/03/2011 the loan

amount was enhanced from Rs. 2,078.00 crore to Rs. 2,840.22

crore which was approved as per Board resolution dated

22/03/2011 subject to that in the event of reduction in project

cost by CSERC the loan amount shall be reduced proportionately.

7.10 CSPGCL submitted that through second amendment of agreement

dated 13/05/2014 with PFC the total loan amount was further

enhanced to Rs. 3,369.98 crore as per Board’s resolution dated

29/03/2014.

7.11 CSPGCL submitted its response to the Commission query on

starting date of project, expected date of synchronization and

expected COD versus actual achievement, as against detail

project report, referred above, as no fix date of commencement,

synchronization and COD is mentioned, hence comparison of such

dates envisaged in the DPR vis-a-vis actual dates is not possible.

The actual dates of COD have already been submitted in the

petition i.e. 5th Sep 2013.

7.12 Petitioner further submitted that in the business plan as approved

by Commission, the expected commissioning date of the unit was

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considered as June 2012. However actual commissioning took

place in 22nd March 2013. Thus additional time taken is about 9

months.

7.13 CSPGCL submitted that normally delay in implementation of

project on contract basis are analysed at the time of closure of

contract. However delay in completion of project is on accounts of

two major reasons:

Re-selection of agency for erection of Chimney:

7.14 CSPGCL submits that erection of chimney is one of the most

critical and time taking civil structure in the power station. Apart

from other critical civil works, Chimney construction work was

also awarded to M/s BHEL on cost plus basis. BHEL, through a

bidding process, selected M/s Ganon Dunkerley (GDCL) for the

said work and accordingly CSPGCL communicated its approval on

16/09/2009.

7.15 CSPGCL submitted that however, on 23rd September 2009, the

Chimney which was being constructed by M/s GDCL in the

premises of BALCO power house collapsed wherein more than 40

persons have lost their life. It may be appreciated that in the

aftermath of the fatal accident, it was the call of the prudence

that till the enquiry is finalized and actual cause for the

disastrous failure are ascertained, all the agencies involved in the

work must be avoided. Accordingly, vide letter dated 09/10/09,

CSPGCL withdrew its acceptance for award of contract to GDCL

and asked BHEL to appoint some other competent agency.

7.16 CSPGCL submitted that accordingly, BHEL did not award the work

to GDCL and after retendering another agency Prasad & Co. was

appointed for the erection of Chimney. However, taking into

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various aspects involved, the entire process took considerable

time.

7.17 CSPGCL further submits that taking a cue from the fatal accident

at BALCO site, all the agencies involved were repeatedly insisted

to exercise due caution during the construction/ erection work.

Therefore, during construction, taking into account site specific

conditions, engineering modifications were incorporated and

additional piling and additional load testing of piles was done to

suite the soil conditions.

7.18 CSPGCL submitted that though all out efforts were made to

expedite the work, but there was a limited scope. Chimney

involves considerable concrete work which needs proper curing

and settling time at each stage. CSPGCL, as a committed public

utility has never compromised safety. Moreover, as per standard

practice, chimney construction takes about 900 days. It may be

appreciated that Chimney was completing by February 2013 and

the generating unit was commissioned within one month after its

readiness.

7.19 CSPGCL further submitted that meanwhile, to expedite the other

works and to reduce the time between readiness of Chimney and

synchronization of generator, boiler light up was done by erection

of a temporary chimney. In a Business like ours, it would have

taken at-least additional 3-4 months from the readiness of

chimney to synchronize, which was cut-short with such timely

and ingenious intervention.

7.20 Petitioner further confirmed that It proves conclusively that

during project execution it not only exercised and accounted for

all precautions which any logical and prudent organization should

exercise but has also tried its level best to expedite the project in

time and left no stone unturned.

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7.21 Petitioner also submits that in the given situation, if the additional

time is not considered, it will generate a wrong message that

exercise of prudence in a crucial matter related with safety may

have cost implication for developers and thus will de-motivate

developers to exercise prudence in such matters.

Agitation in Ash dyke Area:

7.22 CSPGCL submitted that ash bund is one of the key project areas

whose completion is essential for commercial operation of the

project by discharge of ash. The awards of land acquisition were

passed on 30/05/2006, at that time the state’s R&R 2005 policy

was in force. However, in the year 2007 the state government

comprehensively revised the R&R policy. Therefore, the land

oustees of ash bund area started demand that their cases should

also be reviewed as per revised policy. Thus the agitation in the

ash bund area resulted in total work stoppage.

7.23 CSPGCL submitted that being an issue touching the life of

hundreds of Project Affected Persons (PAPs), the matter did not

remain a static legal issue but exploded in a sensitive political

issue involving law and order dimension too. It may be

appreciated that the human expectations are functions of social

and political spectrums and are not controllable for a project

developer. On one hand there was a settled legal agreement

wherein the liabilities of CSPGCL were already fulfilled and on the

other there were demand of the PAPs that they need to be

compensated on the same level at which other persons are being

compensated for similar projects. It may be appreciated that

tackling human sentiments and working out a path of

compromise always take considerable time and effort. It took

number of discussions (mostly informal) to consolidate the

issues. Then all out efforts were made to resolve the conflict.

Page 36 of 77

7.24 CSPGCL further submitted that land acquisition is done by a

settled process through revenue department of state.

Accordingly, help of revenue and administration authorities were

also sought. The issue was also deliberated in the periodic project

review meetings. Finally solutions were worked out and work got

restored, but even such restoration has its own glitches and even

subsequently, discussions continued to keep things under control.

7.25 CSPGCL submitted that as an evidence of continued high-level

persuasion and effort, a copy of MOM reached between a

delegation of land oustees (headed by Shri Banwarilal Agrawal

Hon’ble Ex- deputy speaker of Chhattisgarh Vidhansabha,

Chairman State Power Companies and Energy Secretary GoCG) is

submitted herewith.

7.26 CSPGCL submitted that finally one ash bund could be made ready

in July 2013 and subsequently COD was achieved in September

2013.

7.27 CSPGCL submitted that the issue of R&R is a broader issue which

is settled on policy framework drawn on social and political fabric

and is basically uncontrollable for a project developer.

7.28 CSPGCL further submitted that it may not be out of place to

mention that Seepat Phase-I project of NTPC, located in Bilaspur

district of Chhattisgarh, got delayed by about 40 months. NTPC in

its petition has mentioned that one of the factors resulting in

delay in execution was problem of work interruptions by land

oustees. It also, on record, has submitted that the problem could

be resolved only after intervention of Hon’ble Chief Minister of

Chhattisgarh. CERC has accepted the pleading of NTPC and has

allowed the capital cost (without deduction of capital cost on

account of time/ cost overrun). In the instant case too, State

Govt. has been quite considerate.

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7.29 CSPGCL submitted that owing to the reasons as stated in the

above foregoing paras, the time overrun is uncontrollable.

Comparison of Capital Cost:

7.30 CSPGCL submitted in response to query raised by Commission

vide its letter no. 672 dated 06/04/2015 to submit comparisons

of project cost with NTPC Mauda which is the latest submission,

available on public domain relating to Capital cost based on

petition filed by NTPC limited in August 2014 before Hon’ble CERC

for determination of Tariff for the period 01.04.2014 to

31.03.2019. NTPC on affidavit, has claimed the Capital cost of the

project on 31.03.2017 (cut-off date) as Rs. 6,696.53 crore. The

petitioner further clarifies that the additional capitalization in the

FY 17-18 and FY 18-19 quoted in the petition, has not been

accounted for the instant comparison, as the same is quoted for

the works related to rising of ash dyke, which is planned to be

taken up after cut-off date. In order to have comparison, only the

project cost up to cut-off date is being compared.

7.31 CSPGCL submitted that NTPC Mauda Capital cost for Rs. 6,696.53

crore is cost of two units of 500 MW each. Again, in order to be

fair, before venturing into comparison with Korba West TPP, it

may be appreciated that the cost of first unit need to be derived,

based on some just and logical rationale. The Hon’ble CERC vide

its order dated 04.06.2012 has provided benchmark capital cost

for thermal power projects. The benchmark cost provided in the

order is the hard cost, excluding, IDC, overheads and project

specific features. From a bare perusal of the CERC benchmark

cost order, it may be noted that for a new project comprising one

unit of 500 MW capacity, the benchmark hard cost is Rs 5.08

crore/MW, while for two units of 500 MW each, the benchmark

cost is Rs 4. crore/MW.

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S.N. Particulars One unit

Two Units

1. Hard cost, excluding IDC, Overhead , Project specific features etc (Rs Cr / MW)

5.08 4.71

2. Hard Cost in Rs crore 2540 4710 3. Marginal Cost of Unit-II in Rs crore

(Total cost of two units – Cost of Unit-I)

2170

4. Per MW Marginal Cost of Unit-II 4.34 5. % Unit-I cost in Total Cost of 1000

MW plant 53.93%

6. % of Unit-II Cost in Total Cost of 1000 MW plant

46.07%

7.32 CSPGCL further clarifies that based on the above assumption the

total project cost of Mauda Plant is segmented unit wise as

under:

S.N. Particulars Unit -I Unit -II

1. Total Project Cost (Rs Cr.) 6696.53 2 Percentage Cost of unit in the

Project cost (as derived from CERC benchmark cost order)

53.93% 46.07%

3 Unit wise Capital Cost (Rs Cr.) 3611.29 3085.24

7.33 The petitioner submitted that the above cost of Rs 3,611.29 crore

is the capital cost inclusive of initial spares. Again, to be fair in

comparison, CSPGCL understands that the above cost will have to

be re-appropriated considering cost of initial spares, taxes and

duties and others suitably to arrive at the project cost of unit – I,

so that the same can be compared with project cost of Rs

3,696.18 crore of Korba West TPP. The NTPC petition, is an

aggregated tariff petition, it does not contain, the breakup of

project cost and the initial spares. In absence of specific data in

the NTPC petition, to be conservative, in its approach, the

maximum permissible value of initial spares may be presumed,

so that it can be said with certainty that the computed value is

the minimum value which must be assigned to Mauda Unit–I.

Page 39 of 77

CSPGCL states that the Mauda Project achieved CoD on

30.03.2014 and as per the prevailing CERC MYT Regulation 2009-

14 the maximum allowable cost of initial spares was 2.5% of the

project cost. Accordingly, to derive the project cost of Unit-I, the

total capital cost of Unit-I is grossed down by 2.5% (max.

allowable initial spares). Thus, the derived project cost of the

units comes out as under :

Capital Cost assigned to unit-I : Rs. 3611.29 Cr

Max. Initial Spares : 2.5%

Minimum Project Cost of Unit-I

{Capital cost / 1+2.5%)}

: Rs. 3523.21 Cr

7.34 CSPGCL submitted that in comparison to above project cost of

Korba West TPP, up to cut-off date is estimated to be Rs 3,696.18

crore. Thus, apparently, between the two projects, there is a

project cost difference of Rs 172.97 crore.

7.35 CSPGCL submitted that the reasons for this project cost

difference are due to the difference in financing pattern. The

audited IDC on Korba West TPP is 705.68 crore based on 90: 10

debt equity financing. The Mauda project was financed at 70:30

debt equity ratio. Again, in fair comparison, the IDC at Korba

West TPP needs to be scaled down to 70:30 project cost

financing. In a simplistic manner, using pro-rata algorithm, the

IDC at hypothetical 70:30 debt equity ratio and corresponding

project cost is computed and tabulated as under:

IDC at 90:10 debt : equity ratio : Rs 705.68 Cr

Project Cost without IDC : Rs. 2990.5 Cr.

Hypothetical pro-rata IDC at 70:30 : Rs 548.86 Cr.

The hypothetical project cost at 70:30 : Rs 3539.36 Cr.

Page 40 of 77

7.36 CSPGCL submitted that as per GOI Mega Power policy framework,

Mauda Project being a 1000 MW project decided on ICB route was

entitled for tax concessions, while Korba TPP had no such benefit.

The taxation policy and incentives thereon, are a government

prerogative and for CSPGCL they stand uncontrollable.

7.37 CSPGCL submits that clearly, on a very simplistic basis too, it can

be said, that had the Korba West TPP would have also been

financed on 70:30 debt equity ratio, on account of lower IDC and

taxation difference, it would have resulted in lower capital cost of

about Rs 3,438.36 crore, which is less than the computed project

cost of Mauda Unit-I of Rs 3,523.21Crore. However, it raises a

question, that under such situation, whether, financing on D:E

ratio of 90:10 was beneficial to end consumer or not ? The

question is answered in subsequent para.

7.38 CSPGCL further stated that while working out the ex-bus tariff of

any power station, there are three main component of AFC which

are related to Capital cost of the project. These are Return on

Equity, Interest on Loan, and Depreciation. A comparison of the

effect of financing on theses three components is undertaken. For

the purpose of comparison, to be conservative in the estimates,

the grossed up rate of ROE, even considering the Minimum

Alternate Tax (instead of Corporate Tax), taken as 20.3785%.

The Interest rate is considered at 13% and weighted average

depreciation for thermal projects is considered at 5.28% (in-line

with the industry trend).

Page 41 of 77

The comparison under two scenarios is as under:

(Rs in Cr.)

Particulars Scenario – I Debt : Equity

ratio 90:10

Scenario – II Debt : Equity

ratio 70:30

Project Cost 3696.18 3539.36

Debt 3326.56 2477.55

Equity 369.62 1061.81

Interest 432.45 322.08

ROE (@20.8375%) 75.32 216.38

Depreciation 195.16 186.88

Total (AFC related

to capital cost) 702.93 725.34

7.39 CSPGCL submitted that thus with 90:10 Debt equity ratio,

Consumer gains significantly. Though the capital cost appears

higher, yet even the first year AFC is about 22.00 crore lower

than the project which gets financed at 70:30 ratio. From second

year onwards, with reduction in loan, every year, the gain to

consumer increases and at the end of loan tenure, it reaches to

more than Rs. 130.00 Cr per annum. It also partly explains that

why inspite of huge financial muscle, resulting in far cheaper

global sources of finances, NTPC’s Mauda tariff is higher than the

CSPGCL’s Korba West TPP.

7.40 The petitioner also submitted that, as Mauda BTG prices formed

the basis for negotiated prices of BTG of Korba West TPP, as

desired, a comparison of the order values of Mauda BTG and

Korba West TPP is also submitted. They also stated that a senior

representative from CEA has also been nominated in the

negotiation committee.

7.41 CSPGCL submitted in response to the discussions held during TVS

one such issue is cost of Land at Mauda, it was stated that Mauda

cost included cost of land, while in case of Korba TPP the same

was not inclusive, hence Korba West TPP may not be compared

Page 42 of 77

with Mauda Project. It is submitted that while Mauda project

included land cost, Korba West TPP included the cost of Long

Distance Coal Conveyor system (one of the longest in the India).

The cost of LDCC is substantial almost equal to the cost of land in

Mauda. Thus, the land factor has been adequately countered by

the LDCC cost. Further, the LDCC is going to benefit the

consumer substantially, as the cost of transport of coal through

LDCC is substantially lower than the cost of coal transport by any

other means, which is resulting in lower ECR than many other

projects.

7.42 CSPGCL submitted that regarding loan swapping though it tried

for refinancing but it was suggested by the expert agency in

banking arena, that switchover of loan may be possible/

beneficial only after completion of loan drawl. Thus, it was

advised that as normally bankers don’t feel comfortable with such

high debt equity ratio, in all probability, any changeover move in

between, would have resulted in refinancing of only the loan

already disbursed by PFC, without any recourse to balance loan.

Such a situation would have resulted in starvation of funds and

stalling the project execution. This would have not only delayed

the project, but would have compromised the commission’s

direction too.

7.43 In response to the Commission’s direction on comparison of hard

cost with bench mark cost worked out by CERC vide its order

dated 04/06/2012 for TPP with coal as primary fuel, CSPGCL

submitted that while comparing of hard cost of Korba West TPP

i.e. Rs. 4.76 crore/MW against benchmark capital cost (hard cost)

of Rs. 4.92 crore /MW.

Page 43 of 77

COMPARISON OF HARD COST OF 1X500 MW KORBA WEST TPP

WITH RESPECT TO CERC NORMS AS SUBMITTED BY CSPGCL

(Rs. In crore)

SN Head as

per DPR

PARAMETERS VALUE Change in

cost due

to

PVC/chan

ge in

scope

TOTAL Cost / MW

(Rs. In

crore/MW)

1 ORDER VALUE

Plant and equipments : The hard cost with

Dec 11 level works out to be Rs. 2350 by prorate basis for PVC. And adding TG

initial spares as 33 Crs as per order the hard

cost per MW as Rs. 4.76 Crs. As

against Rs. 4.92

Crs./MW for TPP and Rs.

5.08 Crs./MW for greenfield projects

BTG supply 942 66 1008

BTG service (Election) 143 53 196 BTG service (Freight) 26 26

BOP 993 139.02 1132.02 Additional cost for external CHP modification

15.96 15.96

BTG civil including steel and cement

246 13.27 259.27

Taxes and duties 183.45 183.45 TOTAL 2533.

5

287.25 2820.7

2 Less External CHP and taxes and duties 402.45 30.66 433.11 Hard cost with June 12 level 2388

3 Other project specific expenses like preliminary and civil works, project management charges, training cost/cost of overhead construction, contingencies, consultancy and engineering charges, other miscellaneous expenses, working capital margin, IDC etc.

622.55 875.48

TOTAL 3156 3696.18

As per CERC order dated 04.06.2012 total hard cost with Dec. 2011 as base: INCLUDES : Steam generator/boiler island, turbine generator island, associated auxiliaries transformers, switchgears, cables, cable facilities, grounding & lighting packages, control and instrumentation, initial spares of BTG, balance of plant including cooling tower, water system, coal handling plant, ash handling plant, fuel oil unloading & storage, mechanical miscellaneous packages, switchyard, chimney, emergency DG set. EXCLUDES: MGR, Railway siding, unloading equipment at jetty, and rolling stock, locomotive, transmission line till the point.

8. Component wise analysis and decision of the Capital Cost

of the Project

8.1 Cost of the project.

8.1.1 The petitioner submitted that earlier, in the year 2008 the then

CSEB decided to install a new 500 MW unit in the premises of

existing 4X210 MW HTPS Korba West plant. For any

infrastructure project, the civil work precedes all the other

Page 44 of 77

erection and commissioning activities. The Civil works were

awarded to BHEL on 31.12.2008 and accordingly the same has

been considered as zero date for the project.

8.1.2 The CSPGCL submitted that the detail proposal for capital cost

approval, amounting to Rs 3,156 crore (exclusive of PVC and

initial spares), of Korba West 1X500 MW project was part of the

Business plan submitted to the Commission in 2010. Copies of

the orders for BTG and BOP along with PFC loan agreement and

all other related documents were submitted before the

Commission. After due process, in the order dated 1st June,

2010 (Petition no. 8 of 2010 (M)), the Commission considered

the estimated cost of Rs. 3,156 crore.

8.1.3 The Petitioner submitted that the Commission has approved in-

principle project cost for Korba West TPP. However, the cost so

considered was an initial estimate exclusive of price variation

and cost of initial spares. Further, in the above cost, while the

cost of BTG and BOP was considered on the basis of orders, cost

such as Interest During Construction (IDC), Overheads and

working capital margin were notionally estimated.

8.1.4 The Component wise comparison of originally approved cost vis-

à-vis actual cost and reasons for variance is submitted in

subsequent paragraphs.

8.2 Land & Site Development including Preliminary & Enabling

expenses:

8.2.1 The Petitioner submitted that it had estimated an amount of Rs.

57.19 crore towards land & site development including

preliminary & enabling expenses. As against this, the revised

estimated expenditure on account of these heads is Rs. 41

crore. The revised estimates are lesser than the original

Page 45 of 77

estimates and closer to the actual. The main sub

components are land cost, costs of Rehabilitation &

Resettlement (compensation to land oustees at NAREGA rates &

welfare works at ash bund affected villages) and other

enabling expenses (i.e., project manager office, tower &

distribution transformer shifting, colony electrification,

construction power, store shed, shifting of 33 kv lines,

diversion of ash pump line, construction of boundary wall,

scrap yard, construction of diversion road and boundary wall of

steel scrap yard, strengthening of railway track, etc.).

Commission View:

8.2.2 It is observed that during the filing of business plan petition for

approval, the CSPGCL had estimated land cost with

rehabilitation and resettlement at Rs. 24.19 crore and estimated

expenses towards preliminary investigation and site

development was Rs. 33.00 crore. However, upto COD of the

project, CSPGCL submitted that actual cash expenditure

towards land with rehabilitation settlement is Rs. 17.54 crore

and preliminary investigation and site development cost is Rs.

21.83 crore. In addition, CSPGCL also submitted that the un-

discharged liability amounts to Rs. 1.63 crore. Accordingly, the

actual cash expenditure upto the COD is approved as Rs. 39.37

crore. Also, Rs. 1.63 crore is approved for meeting the un-

discharged liability to be capitalized within cut-off period on

actual basis after prudence check.

8.3 BTG including BTG Civil works

8.3.1 Plant and Equipment Cost:

8.3.1.1 The petitioner submits that proposal for developing 500 MW

Korba West Project was approved by the Commission with

total project cost of Rs. 3,156 crore. This includes the plant &

Page 46 of 77

equipment cost of Rs. 2,533 crore. In addition, they also

submit that the said approval was exclusive of price variation

and initial spares.

8.3.1.2 The Petitioner submits that as submitted in the Business Plan

Petition No. 8 of 2010 (M), the main Boiler- Turbine-

Generator (BTG) E&M package for the project was awarded to

BHEL on the negotiated rates derived on the basis of Mauda

project of NTPC. The rates for BTG package for the

Mauda were derived through International Competitive

Bidding (ICB). Petitioner also submitted that the Electricity

Act, 2003 envisages that the rates derived through bidding are

considered as fairly competitive and acceptable. Besides this,

the contract for BTG civil portion was awarded to BHEL on cost

plus basis and the cost of civil works was derived by BHEL on

competitive bidding basis. Though the order values were

exclusive of taxes, duties and Price variation, however, the

formula and methodology for computation of PV clause was

specified in respective orders.

8.3.1.3 CSPGCL submitted that the Balance of Plant (BOP) component

for the TPP was awarded through the International

Competitive Bidding (ICB), which ensures that the cost

reasonableness remain undoubted. The BOP cost discovered

through ICB was Rs 993.00 crore. This was also part of the

original plant & equipment cost estimate at Rs 2,533.00 crore

approved by the Commission. It also submitted that since the

approval granted by the Commission was based on the

ordering cost hence the same did not factor in the impact of

price variation. However, as submitted in pre-para, in the LOI

considered for the approval, the formula and methodology for

computation of PV clause was clearly specified.

Page 47 of 77

8.3.1.4 CSPGCL submitted that during the construction, erection and

commissioning, the price indices moved significantly. Being a

high value & long period contract, like any other contract of

this nature in India, contract has Price Variation Clause (PVC)

in the orders considered for the approval. The PVC clause is

clearly stipulated in all the BTG and BOP orders. Prices are

subject to variation in accordance to formula adopted as per

standard industry practice and national level recognised price

indices. As per terms of contracts, allowable price variation is

limited to the contractual work completion period. Hence, time

overrun do not burden the project cost with undue Price

variation. The inflationary trend resulted in increased hard cost

due to significant PVC. Accordingly, states that based on the

actual (detailed justification and limiting value detailed in

subsequent para), impact of price variation deserves to be

included to arrive at the revised base hard cost.

8.3.2 BTG, Electricals and Stations C&I (BTG Supply):

8.3.2.1 Petitioner submits that the contract entered with the M/s BHEL

stipulate that Prices will be subject to price variation clause as

per the PV formula subject to ceiling of 15% for supply.

However, IEEMA indices to be used for electrical and C&I.

Accordingly, the revised estimated cost pertaining to the BTG

supply amount to Rs. 1,008 crore as against the price of Rs.

942 crore stipulated in the award of work considering the

applicability of the price variation clause as per contract.

Moreover, the revised estimated increase in the cost amounts

to only 7% which is well within the ceiling of 15% prescribed

in the Contract.

Page 48 of 77

Commission’s view

8.3.2.2 The submission of CSPGCL has been examined in detail. It is

observed that based on ICB route followed by NTPC for their

Mauda Project, BHEL was awarded the BTG contract for supply

of BTG electrical and station, C&I package. Subsequently the

price were negotiated by a committee which included one

senior representative of CEA and the cost of BTC equipments

were approved as Rs. 942 crore. The contracted price was

subject to price variation at ceiling of 15%.

8.3.2.3 It is also observed that as per the LOI the BHEL has to

complete the scope of work within 42 months from the zero

date i.e. 31/12/2008. As per the contract, in case BHEL failed

to achieve the targeted date, the liquidated damage clause

had to be applied. The expected commissioning date as per

business plan order is June 2012. However, as per the

submission made by the petitioner the commissioning was

achieved on 22/03/2013. Hence, it is noted that the contract

was delayed by 9 months.

8.3.2.4 It is observed that as per CSPGCL submission, they have

considered Rs. 65.94 crore towards PV, as such the contract

value is revised to Rs. 1,007.94 crore. This implies that total

increase in contract value is 7% which is well within the limit

of 15% price variation cap as stipulated in LOI.

8.3.2.5 Further, it is felt that liquidated damage should be applicable

on the total contract. Commission has detailed its approach on

liquidator damage in subsequent section of this order.

Page 49 of 77

8.3.3 Transportation, Insurance, installation, testing &

commissioning, guarantee tests:

8.3.3.1 CSPGCL submitted that for Transportation, Insurance,

installation, testing & commissioning, guarantee tests Prices

will be subject to price variation clause as per the PV formula.

Further the price of the said award of work was considered as

Rs. 26 crore towards freight and Rs. 143 crore towards

erection. The Petitioner submits that there is no revision in the

cost pertaining to freight and shall remain Rs. 26 crore only.

However, it is expected that the revised estimated expenses

for BTG erection would amount to Rs. 193 crore on account of

increase in cost due to PV formula. In erection contracts, as

the prime factor is related to labours payments, hence as per

industry practice, the PV clause do not contain rate ceiling in

terms of percentage rather it has time ceiling in terms of

schedule completion.

Commission’s view

8.3.3.2 Commission is of the view that the cost towards freight as

approved in the business plan was Rs. 26 crore and as there is

no change in the freight cost. However, the cost towards

erection as approved in the business plan was estimated to be

Rs. 143 crore which has now been revised to Rs. 193 crore.

According to petitioner prime factor in increase of 35% in cost

in erection contract was basically due to labour payment cost.

The PV clause does not specify ceiling in terms of percentage

rather it has time ceiling in terms of schedule completion of

work by labours. Considering the petitioners submission in

terms of ceiling of price variation that in case of erection

contract which is mostly related to labours, hence PV in terms

of percentage should not be ceiling on the contrary the time

Page 50 of 77

ceiling in schedule completion should be applicable. As per the

terms of LOI, the liquidated damage clause should have been

applicable and same is detailed in subsequent section of this

order.

8.3.4 BTG Civil including taxes:

8.3.4.1 The Petitioner submits that vide Amendment No. 1 to

notification of award issued on 11 April, 2008, stipulated that

M/s BHEL shall place order for associated civil works for BTG

and electrical equipments and stipulated that BHEL shall

process the contract of award. The contract placed for

associated civil works also had the clause of Price Variation

and accordingly it is estimated that the total expenses towards

BTG Civil works amount to Rs. 264 crore as against Rs. 254

crore estimated earlier (PV less than 4%).

Commission’s view:

8.3.4.2 The petitioner's submission indicates that by considering the

inflation indices, there is an increase of only 4%. The total cost

incurred by the CSPGCL is Rs. 264 crore as against Rs. 254.45

crore which includes Rs. 8.45 crore towards taxes and duties

as per submission made by CSPGCL in table for comparison of

hard cost vis-à-vis CERC benchmark cost.

8.3.4.3 The Commission considers the revised estimates of the

petitioner for BTG civil including taxes as Rs. 264 crore. This is

inclusive of Rs. 13.27 crore due to PV and Rs. 4.73 crore

towards taxes and duties.

8.3.4.4 Since the awarded work of BTG to BHEL is still under process,

Commission observes that liquidated damage clause should be

applicable and is detailed in subsequent section in this order.

Page 51 of 77

8.3.4.5 The total cost considered in this order towards BTG including

BTG civil are as under:-

Rs. in crore

Particular As per

Approved Business

plan

Revised

estimate by

petitioner

Estimated

Cost

BTG Equipment 942.00 1007.94 1007.94 BTG service (erection)

143.00 193.00 193.00

BTG service (freight)

26.00 26.00 26.00

BTG Civil 254.45 264.00 264.00 Total BTG 1365.45 1490.94 1490.94

8.3.4.6 However, upto COD CSPGCL submitted that actual cash

expenditure towards BTG including plant and equipment and

civil work at Rs. 1291.97 crore. In addition, CSPGCL also

submitted the un-discharged liability of Rs. 198.97 crore.

Break up of cost consider for this order is tabulated below:

Actual cash expenditure upto COD 1291.97

Un-discharged liability & provision after COD 198.97

Total BTG 1490.94

8.3.4.7 Thus, the Commission approves the actual cash expenditure

upto the COD as Rs. 1291.97 crore and allows Rs. 198.97

crore for meeting the un-discharged liability to be capitalized

within cut off period on actual basis after prudence check.

8.4 Balance of Plant (BOP):

8.4.1 CSPGCL submits that BOP contract consist of two parts one

includes Design, Engineering, Manufacturing Shop Fabrication,

Assembly, Inspection and Testing at supplier’s/sub-contractor’s

works, packing, forwarding to site all equipment/ BOP. As per

Page 52 of 77

Contract, the prices shall be adjusted in accordance with the

conditions of contract related to PV formula. Further, the PV

formula had a ceiling of 15% for supply during the contract

period. The other part included Civil works, structural steel

fabrication and erection, architectural and other building works,

roads and drains etc. ( including supply of steel, cement and

other construction materials) complete taxes and duties,

transportation, insurance, installation, testing & commissioning,

guarantee tests for complete BOP. As per Contract, the prices

shall be adjusted in accordance with the conditions of contract

related to PV formula. The PV formula had a ceiling of 15% for

civil works but without ceiling for erection during contract

period. Further, the price of the said award of works related to

BOP was considered as Rs. 993 crore, the revised estimated

cost pertaining to the BOP amounts to Rs. 1,132 crore. Thus,

the revised estimated increase in the cost amounts to 14%

which is within the ceiling of 15% prescribed as submitted by

the petitioner.

Commission’s view

8.4.2 The BOP work was awarded to Techpro Systems Ltd. As per the

LOI, the Techpro System Ltd. has to complete the scope of work

within 30 months from the zero date i.e. 10/12/2009 and in

case contractor fails to achieve the target date, the liquidated

damage clause had to be made applicable.

8.4.3 The CSPGCL’s submission shows that total increase in contract

value is by 14%, which is well within the limit of 15% price

variation cap as stipulated in LOI.

8.4.4 The applicable liquidated damage has been detailed in

subsequent section of this order.

Page 53 of 77

The total BOP consider in this order are as follow:

Rs. In crore

S.no Description As per order

Revised amount

Estimated Cost

1.a BOP equipment including taxes and duties

Indigenous 543.50

654.77 654.77 CIF

30.00

1.b Inland transportation including insurance for BOP equipment

7.00 7.00 7.00

1 Total BOP equipment 580.50 661.77 661.77

2.a BTG service (civil) 376.50 470.25 470.25 2.b BTG service transportation

including erection 36.00

2 Total BOP service 412.50 470.25 470.25

Total BOP (1+2) 993.00 1132.02 1132.02

However, upto COD CSPGCL submitted that actual cash

expenditure towards BOP is at Rs. 802.86 crore. In addition,

CSPGCL also submitted the un-discharged liability of Rs.

343.16 crore. Break up of cash expenditure made against BoP

and provisions made are as follow:

(Rs. in Crore)

Actual cash expenditure upto COD 802.86

Un-discharged liability & provision after COD 343.16

Total BOP 1132.02

8.4.5 Thus,the Commission approves the actual cash expenditure

upto the COD at Rs. 802.86 crore and allow Rs. 343.16 crore for

meeting the un-discharged liability to be capitalized within cut-

off period on actual basis after prudence check.

Page 54 of 77

8.5 Cost due to Change of Scope:

8.5.1 Petitioner submits that during finalisation of arrangement of coal

transportation arrangement, SECL has changed the loading

point. Accordingly, the external CHP scope has extended. The

change in scope has resulted in increase in estimated cost by

about Rs 14 Cr. Such changes during project execution are

inevitable. As, this change was triggered because of the decision

of SECL and not the CSPGCL, hence it was uncontrollable.

8.5.2 Petitioner further submitted during the TVS that the Korba West

Project has been given coal linkage from Kusmunda Mines of

SECL as the life of the existing coal supply bunker is nearing its

end SECL plan to construct new coal supply bunker. As per the

latest available information SECL has already invited tender and

likely to award contract for construction of bunker in April 2015

and the same is expected to be complete in FY 2017-18 only

once the construction of bunker at SECL end is completed,

CSPGCL will have to connect its LDCC conveyer system to the

new bunker. CSPGCL further submits that provision of Rs. 14

crore of expenses had already been made for such inter

connection in its revised cost estimation of Rs. 3,696.18 crore.

It is further submitted that cut-off date for this project may

kindly be relaxed from 31/03/2016 to 31/03/2018. CSPGCL

submitted that it shall not make any claim for additional CAPEX

beyond the already submitted revised capital cost with this

petition. It is further submitted that the extended capitalization

shall be beneficial for end users consumer too as the actual

tariff will be lower than earlier estimate explained in elsewhere

in this petition.

Page 55 of 77

Commission’s view

8.5.3 It is observed that the total cost towards connection of LDCC

conveyer system from existing to the new bunker will be

capable of catering coal to both power plants Korba West (Ext)

as well as HTPS and the cost towards this amounts to Rs. 14

core. In view of this it appears proper to allow this cost on the

basis of capacity (in MW) of both the plant proportionately.

Accordingly, 40% will be allocated to Korba West (Ext).

8.5.4 The submissions made by the petitioner shows that this task of

LDCC installation and commissioning may not be completed till

the cut-off date i.e 31/03/2016. From the submission of utility it

appears that this work is beyond the control of CSPGCL and

hence leave is granted for capitalization beyond the cut-off date.

8.5.5 Therefore, the total expenses of Rs. 14 crore as estimated by

CSGPCL towards change of loading point has been considered.

At this point, Commission is of the view to allow Rs. 14 crore or

the actual expenditure whichever is less. Out of total

expenditure, 40% of the expenditure shall be capitalized for

Korba West TPP and balance shall be capitalized in HTPS.

Accordingly for capital expenditure of Korba West 40% of Rs. 14

crore which corresponds to Rs. 5.6 crore has been considered.

8.6 Taxes and Duties:

8.6.1 The Petitioner submits that the contract price for BTG (supply,

erection & civil), was excluding taxes and duties and as per the

contract terms are , payable extra as actuals, for which about

Rs. 167 crore is considered in the revised estimate as against

the original estimate of Rs. 175 crore.

Page 56 of 77

Commission’s view

8.6.2 Taxes and duties are beyond the control of the petitioner. In

view of this revised estimates submitted by the CSPGCL has

been permitted.

Total taxes and duty consider in this order:-

Rs. in crore

Particular As per Approved Business plan

Estimated Cost

Taxes and duties 175.00 166.80

CSPGCL submission shows that actual cash expenditure

towards taxes and duties upto COD is Rs. 149.52 crore. In

addition, un-discharged liability of Rs. 17.28 crore is also likely

to be incurred. Break up of approved taxes and duties paid and

provisions made are as follow:

Actual cash expenditure upto COD 149.52

Un-discharged liability & provision after COD 17.28

Total Taxes and duties 166.80

8.7 Start-up Fuel as Working Capital Margin:

8.7.1 CSPGCL submitted that the working capital margin was

tentatively estimated at Rs. 35 crore. With the rise in coal

and oil cost, the actual net working capital margin incurred

was Rs. 68.63 crore (net of fuel cost incurred Rs. 84.84 crore

and revenue from sale of infirm power Rs. 16.22 crore). It is

also submitted that the pre-operative expenses of Rs. 35 crore

in the business plan was just a notional estimation. However, in

real scenario in the pre-operative period numerous trial-run are

needed for testing and commissioning of individual equipment.

It is also noted that considerable cost escalation in fuel price

leads to increase in the pre-operative expenses. However, the

Page 57 of 77

rate of sale of infirm power remain constant at the rate of Rs. 1

per unit as per the order of the Commission.

8.7.2 CSPGCL also submits that in the Statement of Reasons of

CSERC (MYT Regulations, 2012) has clearly established the

methodology of treatment of actual fuel cost incurred before

COD and actual revenue earned from infirm power. Accordingly

requested to consider the difference of the actual fuel cost

incurred and actual revenue earned for sale of infirm power i.e.,

Rs. 68.63 crore for the purpose of capital cost.

Commission’s view

8.7.3 The petitioner was directed to submit the month wise volume of

unit generated before COD and also the month wise fuel

consumption. The data submitted by CSPGCL for period upto

the COD of project is as under:-

Month Net generation

(in MU)

Billed amount

(Rs. In crore)

Apr’13 1.59 0.159

May’13 8.87 0.887

Jun’13 49.15 4.915

Jul’13 -- --

Aug’13 69.57 6.957

Sep’13 upto 04/09/13 33.01 3.301

Total 162.18 16.218

Page 58 of 77

Detail of month-wise fuel consumption

Month Coal consumption HFO HSD

MT Rs. KL Rs. KL Rs.

Apr’13 10278 0.98 -- -- 1351.71 8.66

May’13 13059 1.15 -- -- 1359.54 8.71

Jun’13 44350 4.15 -- -- 2038.91 13.06

Jul’13 -- -- -- -- -- --

Aug’13 60681 6.00 713.20 3.63 2538.62 16.26

Sep’13 upto 04/09/13

25495 2.56 60.20 0.31 66.78 0.43

Total 153863 14.78 773.40 3.94 10324.31 66.13

8.7.4 Considering the facts and data submitted, the total expenditure

towards start up fuel consumption is Rs. 84.8507 crore whereas

revenue earned from sale of infirm power is Rs.16.218 crore.

Thus the net expenditure upto COD of Rs. 68.63 crore is allowed

to capitalize.

Sl. No. Particulars Amount in Rs. Crores up to COD

1. Cost of coal consumed 14.78

2. Cost of HFO consumed 3.94

3. Cost of HSD consumed 66.13

Sub total 84.85

4. Less: Cost of power sold @ Rs. 1/unit for 162.18 MU

16.218

5. Total cost to be capitalized 68.63

8.8 Overheads including Contingency and Other Miscellaneous

Expenses:

8.8.1 CSPGCL submits that these charges pertain to expenses

incurred by it towards employee working in the project site,

Administrative & General (A&G), costs of training, project

Page 59 of 77

consultancies, cost of construction of residential quarters and

other miscellaneous expenses of similar nature, which have

been capitalised on actual basis. It also includes provision for

contingencies, which invariably occur during such long gestation

capital intensive infrastructure projects. The revised aggregate

estimated value under these heads is 121 Cr against the original

estimate of 134 crore.

8.8.2 CSPGCL further state that out of the above Rs. 121 crore, the

major subheads are:-

overheads (Employee, A&G, legal, water charges etc)

58 crore

Project consultancies 9 crore

Residential quarters 16 crore

Miscellaneous (plantations, overflow arrangement of ash water etc.)

1 crore

Contingencies 37 crore

Total 121 crore

8.8.3 CSPGCL submitted that overheads per-se amounts to lower than

3% of the revised estimated hard cost. Similarly, the

consultancy expenses are much less than 0.5% of project cost.

Further, as the cut-off period is 31 March, 2016 as per CSERC

(MYT Regulations, 2012) and the completion of the project

additional capital expenditure is also envisaged by that date,

therefore the Petitioner might have to incur some expenses/

variations which are not envisaged at present. In view of this,

contingency amounting to Rs. 37 crore has been envisaged. It is

important to note that once the project is completed and in case

there is no further unforeseen expenses, the contingency would

be wiped off.

Page 60 of 77

Commission's view

8.8.4 According to the approved business plan, the overhead

expenses was estimated to the tune of Rs. 134 crore. The

breakup of cost as submitted by CSPGCL is as under:-

Rs. in crore

S. No.

Particular As per business

plan

Actual as on

COD

Provision after

COD

Estimated Cost

1. Establishment including residential quarter

74.21 72.79 3.19 75.98

2. Design & engineering

7.98 7.59 1.05 8.64

3. Contingency 51.81 -- 36.71 36.71

134.00 80.38 40.95 121.33

8.8.5 The actual cash expenditure incurred upto the date of COD is

Rs. 80.38 crore is hereby approved. However for provisions of

expenditure after COD, CSPGCL is directed that the actual

expenditure incurred after cutoff date should be submitted for

final approval of capital cost.

Actual cash expenditure upto COD 80.38

Provision after COD 4.24

Total overhead, contingency and other misc. expenses

84.62

8.8.6 Based on the above, the total cost excluding IDC considered and

approved upto COD by Commission is summarized as under:-

Page 61 of 77

S. No. Detail of Capital Cost

As per

Business

plan

08/2010

Actual

cash

expendit

ure as on COD

Liabiliti

es/Pro

vision

after COD

Total

1 2 3 4 5 = 3+4

1.1 Land with R&R 24.19 17.54 0.43 17.97

1.2 Preliminary Investigation and Site

development 33.00 21.83 1.20 23.03

1 Total Land Cost 57.19 39.37 1.63 41.00

2.1.1.1 BTG Equipment 942.00 1007.94

2.1.1.2 BTG Tansportation 26.00 26.00

2.1.1.3 BTG Installation 143.00 193.00

2.1.1.4 BTG Civil (including Taxes) 254.45 264.00

2.1.1 BTG 1,365.45 1,291.97 198.97 1,490.94

2.1.2.1.1 BOP Equipment (indigenous) 543.50 484.95 169.82 654.77

2.1.2.1.2 BOP Equipment (CIF) 30.00

2.1.2.1.3 BOP Equipment

(Transportation) 7.00 5.72 1.28 7.00

2.1.2.1.4 BOP Equipment (Ext. CHP) 5.60 5.60

2.1.2.1 BOP Equipment 580.50 490.67 176.70 667.37

2.1.2.2.1 BOP Services (Supply) 376.50 312.19 158.06 470.25

2.1.2.2.2 BOP Services (Transportation) 36.00

2.1.2.2 BOP Services 412.50 312.19 158.06 470.25

2.1.2 BOP 993.00 802.86 334.76 1,137.62

2.1 Total Plant & Equipment including Civil work

2,358.45 2,094.83 533.73 2,628.56

2.2 Taxes & Duties 175.00 149.52 17.28 166.80

2 Total Plant & Machinery including Taxes & Duties

2,533.45 2,244.35 551.01 2,795.36

3 Start up Fuel 35.00 68.63 0.00 68.63

4.1 Establishment including residential

Quarter 74.21 72.79 3.19 75.98

4.2 Design & Engineering 7.98 7.59 1.05 8.64

4.3 Contingency 51.81 0.00 0.00 0.00

4 Total Overhead 134.00 80.38 4.24 84.62

Total Capital Cost (excluding

IDC) 2,759.64 2,432.73 556.88 2989.61

Page 62 of 77

8.9 Interest during Construction (IDC):

8.9.1 CSPGCL submitted that in the Business Plan petition 08 of 2010,

IDC has been considered on a notional basis, which deserves

review in a realistic manner as normally considered for project

financing purposes.

8.9.2 CSPGCL submitted that increase in IDC is attributable to the

change in interest rates & change in loan amount. At the time

of earlier estimates, the interest rate was assumed as 11%,

however with inflationary pressures in economy, rates increased

in the range of 11.5% to 13%. CSPGCL further submitted that,

PVC has increased the project cost, hence, forced to draw the

loan higher than the earlier anticipated value. Thus, increase in

IDC is the consequential effect of the above factors which were

beyond control of CSPGCL.

8.9.3 CSPGCL submitted that Rs. 705.68 crore was capitalised

towards IDC after getting rebate of 2% amounted to Rs. 14.39

crore.

Commission’s view

8.9.4 CSPGCL was directed to submit the loan agreement executed

with PFC. In response to this, CSPGCL has submitted a copy of

loan agreement. The document on record reveals that loan

amount has been enhanced from Rs. 2,078.00 crore to Rs.

2,840.22 crore and thereafter the loan amount was further

revised to 3,369.98 crore. The project cost has been financed

on the basis of debt: equity ratio of 90:10.

Page 63 of 77

8.9.5 CSPGCL submission on loan drawal is tabulated as under:-

FY Date/Quarter Loan drawal

proposed in

the Business

Plan

Actual Loan drawl

as submitted

2008-09 69.16 2009-10 Q-I 26.11

Q-II 52.83

Q-III 204.99

Q-IV 206.67

Total 453.07 490.60 2010-11 Q-I 82.50

Q-II 109.45

Q-III 203.48

Q-IV 232.75

Total 905.51 628.17 2011-12 Q-I 141.61

Q-II 204.49

Q-III 194.38

Q-IV 335.80

Total 1058.09 876.28 2012-13 Q-I 65.55

Q-II 0.00

Q-III 0.00

Q-IV 243.36

Total 420.00 308.91 2013-14 Q-I 122.30

Q-II (upto COD) 153.82

Total 0.00 276.12

Loan drawl up-to COD 2,649.26

Loan to be drawl after COD 679.92

Total Debt 2,836.68 3,329.18

Equity 319.63 367.00

Project Cost excluding initial

spares

3,156.31 3,696.18

8.9.6 According to approved business plan (petition no. 08 of 2010),

commissioning of project was scheduled in June 2012. However,

the actual commissioning was achieved on 22nd March 2013 and

COD was achieved on 5th September 2013. Hence,there is total

delay of total 8 months and 21 days. CEA’s report on thermal

Page 64 of 77

projects report on country published on 26th March 2015 also

indicates that CSPGCL has reorted the same to CEA.

8.9.7 CSPGCL submitted that the delay in execution of the project

was solely out of its control. CSPGCL further submitted that the

COD was achieved within stipulated time. However, Commission

while going through the CERC Regulation namely Grant of

Connectivity (second amendment), Regulation 2012 it is noted

that amendment 8 of Principal Regulation stipulated as:-

“Notwithstanding anything contained in clause (6) of this

Regulation and any provision with regard to sale of infirm

power in the PPA, a unit of a generating station including a

captive generating plant which has been granted

connectivity to the grid shall be allowed to inject infirm

power into the grid during testing including full load testing

before its COD for a period not exceeding six months from

the date of first synchronization after obtaining prior

permission of the concerned Regional Load Despatch

Centre:”

Considering the Regulations notified by CERC, the COD

should have been achieved before December 2012 against

the actual COD achieved on 5th September 2013.

8.9.8 It is observed that all other costs except IDC are within the

variations of maximum ceiling of 15%. However the major

reason of increase in cost of capital is basically due to IDC.

Further it is being observed that the delay in project execution

has put a considerable impact on IDC. Hence before taking a

decision on amount of IDC, it appears proper, to examine the

reason for delay in detail.

Page 65 of 77

8.9.9 Before entering into any deliberation on the reasons for delay it

is deemed fit that the first the factual matrix regarding due date

of COD is laid down clearly.

8.9.10 The capital investment of the project was approved by the

Commission after due proceedings vide the order dated

01/06/2010. As per the said order, commissioning of the project

was scheduled in June 2012. The synchronization with grid has

taken place on 18th March 2013 and the commissioning of the

project was achieved on 22nd March 2013. The same

commissioning date has been reported to CEA also. As per

IEGC, under normal circumstances, COD has to be achieved

within six months form synchronization. The actual COD was

attained on 5th September 2013. Thus it is observed that time

between synchronization to COD is less than 6 months and

there is no delay in considering time span from commissioning

to COD.

8.9.11 The time gap between the “scheduled commissioning” as

approved in the Business plan order 01.10.2010 and actual

Commissioning is the period from 30th June 2012 (42 months

from order to BHEL for civil works) to 22nd March 2013. Thus

the delay is computed to be 265 days (approximately 9

months).

8.9.12 In reference to issues raised during TVS and the reply to

objections raised during hearing, CSPGCL has submitted that

the delay was not on account of factors attributable to it and

has pleaded for allowing the same. Per contra, the objectors

have pleaded that the entire cost of delay should be borne by

the utility. In view of the rival contentions, the Commission has

deliberated the issue in detail.

Page 66 of 77

8.9.13 CSPGCL in its detailed submissions submitted that though detail

analysis is usually taken at the time of contract closure,

however, prima-facia the delay can be attributed to two main

factors. One pertains to the delay in placement of order for

chimney and the other relates to the problems faced in land

acquisition for ash pipeline and ash dyke.

8.9.14 Documents submitted by CSPGCL reveals that the chimney work

was awarded to BHEL on cost plus basis. BHEL floated a tender

and based on the past credentials and experience, M/s GDCL

amongst other bidders full filled the laid down criterions and

after commercial bid opening it was selected by BHEL as the L -

1 Bidder. CSPGCL also consented for the same on 16th Sept

2009. Meanwhile on 23rd September 2009, the chimney under

construction at nearby BALCO powerhouse collapsed. As the

agency executing the chimney works of BALCO was also M/s

GDCL, as a precautionary measure, CSPGCL withdrew its

approval of work order of M/s GDCL and asked BHEL to award

work to some other qualified agency. As per CSPGCL

submission, M/s BHEL was also advised to ensure that all

measures to ensure safety must be taken. The documents

submitted indicates that BHEL went for retendering in October

2009 and after completion of due process, finally the order for

chimney construction was placed on M/s Parasad & Co. on 04th

March 2010.

8.9.15 From analysis of sequence of events it is noted that the BALCO

chimney accident was a fatal accident in the history of Indian

Power Sector in which many lifes were lost. Implications of such

a major accident and that too in nearby area cannot be ignored

or overlooked.

Page 67 of 77

8.9.16 The reports available on records indicates that though in the

initial stages M/s BALCO management attributed the whole

accident to lightening, soon after, reports surfaced it appeared

that the accidents was not a result of ‘Act of God’ rather it was a

manmade disaster.

8.9.17 NIT, Raipur in its investigation and various reports available in

this regard have shown doubts on faulty design, substandard

material and poor workmanship.

8.9.18 The judicial committee appointed by Government of

Chhattisgarh (Sandeep Bakshi Committee), in its report tabled

on the floor of Legislative assembly has also indicated M/s GDCL

(amongst others) responsible for this severe mishap.

8.9.19 In such a scenario, CSPGCL’s decision in barring award of work

to M/s GDCL which was the agency carrying out the construction

work at nearby BALCO site appears correct. Approximate 15

days time was taken to firm up such decision (23nd September

2009 i.e date of accident to 9th October 2009 i.e date of written

communication to BHEL) also indicate that the decision was not

a panic reaction but was a deliberated and thoughtful decision in

the prevailing circumstances at that time.

8.9.20 BHEL carried t out the retendering process. Again, looking to

the time required for review of scope and specifications which

would have been required in the aftermath of BALCO accident

and the procedural part for such tenders, approximately five

months time do not appear inordinate delay.

8.9.21 In view of the above, the time period from 16th September 2009

i.e. the date of consent for award of work to M/s GDCL and 4th

March 2010 i.e. the date of award of work of chimney to the

other agency, (about 169 days) qualifies as the delay

Page 68 of 77

attributable to uncontrollable factors. As detailed in the

subsequent para also, it is made clear that any LD on account of

delay in supply / construction of chimey will be pass though to

the beneficiary.

8.9.22 The second prime reason for project delay has been attributed

to the land acquisition issues. There is no denial that land

acquisition has become a big issue for all infrastructure projects.

It is also true that the issue is no more a pure administrative

and legal issue. It has far bigger factors, some of which fall

beyond the competence and purview of a project developer. But

at the same time it is also true that sensitivity of land issue is

not an overnight development and project developers are

expected to exercise due diligence and prepare pro-active

strategies to mitigate such threats. It cannot be termed totally

uncontrollable factor, particularly for a project like Korba West

TPP where the land acquisition needed was comparatively much

lower and as there was enough time available (from start date)

for laying of ash pipe line and construction of ash dyke, it would

be unfair to burden the consumer with 100% cost of delay.

8.9.23 It may be purposeful to mention a Judgment in Appeal No. 72

of 2010 of Hon’ble ATE which reads 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 contracts,

delay in award of contracts, delay in providing inputs like

making land available to the contractors, delay in payments

to contractors/suppliers as per the terms of contract,

Page 69 of 77

mismanagement of finances, slackness in project

management like improper co-ordination between the

various contractors, etc.

ii) due to factors beyond the control of the

generating company e.g. delay caused due to force majeure

like natural calamity or any other reasons which clearly

establish, beyond any doubt, that there has been no

imprudence on the part of the generating company in

executing the project.

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

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

over run has to be borne by the generating company.

However, the Liquidated Damages (LDs) and insurance

proceeds on account of delay, if any, received by the

generating company could be retained by the generating

company. In the second case the generating company could

be given benefit of the additional cost incurred due to time

over- run. However, the consumers should get full benefit

of the LDs recovered from the contractors/suppliers of the

generating company and the insurance proceeds, if any, to

reduce the capital cost. In the third case the additional cost

due to time overrun including the LDs and insurance

proceeds could be shared between the generating company

and the consumer. It would also be prudent to consider the

delay with respect to some benchmarks rather than

depending on the provisions of the contract between the

generating company and its contractors/suppliers. If the

time schedule is taken as per the terms of the contract, this

may result in imprudent time schedule not in accordance

with good industry practices.”

“8.6 ....

Page 70 of 77

We agree with the State Commission that the infusion of

debt & equity has to be more or less on pari passu basis as

per normative debt equity ratio. However, the increase in

IDC due to time over run has to be allowed only according

to the principles laid down in para 7.4 above. Accordingly,

the State Commission is directed to re-determine the IDC

for the actual period of commissioning of the project and

then work out the excess IDC for the period of time over

run on a prorata basis and limit the disallowance to 50% of

the same on account of excess IDC. This question is

answered accordingly.”

8.9.24 On the basis of above judgement of Hon’ble ATE ,the

Commission is of the view that extra IDC on account of the

delay (of about 96 days i.e total delay of 265 days minus delay

of 169 days on account of chimney) would be shared between

the generating company and the beneficiary. Accordingly the

cost has to be shared between the generating company and the

beneficiaries in ratio 50:50. In such a case, the extra IDC

needs to be computed considering the impact of the delay in

the commissioning of the project only (i.e. 96 days).

8.9.25 The Commission has recomputed IDC due to time over run of

96 days considering the approved cost of Rs. 2,432.73 crore

(which is exclusive of IDC) with Debt: Equity ratio of 90:10,

based on the actual loan drawal pattern of Rs. 2,649.26 crore

upto COD and actual interest rates submitted by CSPGCL.

Commission considers actual disbursement for re-computation of

IDC as base since the disbursement was made on actual bills

submitted to PFC for payment as loan.

Page 71 of 77

Assumptions for Computation of IDC

Particulars As per Petition Cost as on COD Project Cost (Rs. crore) 3,696.18 2432.73 Debt Equity ratio 90:10 90:10 Loan component (Rs. crore)

2649.26 2189.46

Draw down schedule Actual Actual Interest Rate Actual Actual

8.9.26 The Project cost including IDC approved by the Commission is

shown in the Table below:

IDC As submitted by Petitioner IDC re-calculated

Quarter Gross

Interest Rebate

Net

Interest

Gross

Interest Rebate

Net

Interest

April-09 0.53 0.01 0.52 0.46 0.01 0.45

July-09 2.54 0.05 2.48 2.24 0.04 2.19

October-09 3.81 0.08 3.73 3.42 0.07 3.35

January-10 6.23 0.13 6.10 5.65 0.11 5.53

April-10 14.39 0.31 14.09 12.96 0.26 12.70

July-10 17.85 0.38 17.46 16.36 0.33 16.03

October-10 21.21 0.46 20.76 19.81 0.40 19.41

January-11 25.21 0.55 24.66 24.22 0.48 23.73

April-11 30.39 0.66 29.72 29.40 0.59 28.82

July-11 36.33 0.79 35.54 35.49 0.71 34.78

October-11 42.84 0.92 41.92 42.32 0.85 41.47

January-12 49.67 1.06 48.62 49.71 0.99 48.72

April-12 56.89 1.19 55.69 57.40 1.15 56.25

July-12 69.45 1.31 68.14 70.63 1.41 69.22

October-12 70.36 1.33 69.03 73.71 1.47 72.24

January-13 71.13 1.34 69.79 76.10 1.52 74.57

April-13 72.13 1.36 70.77 79.07 1.58 77.49

July-13 81.04 1.54 79.50 75.40* 1.51 73.89

Upto 4.09.2013 48.08 0.91 47.17 -- -- --

Total 720.07 14.39 705.68 674.34 13.49 660.85

Note: * Considering IDC upto Jun 2013 only.

Page 72 of 77

8.9.27 The total interest during construction re-computed at Rs.

660.85 crore after considering 2% rebate allowed by PFC as per

the submission of CSPDCL. The balance of Rs. 44.83 crore i.e.

(705.68-660.85) to be share in ratio 50:50 between CSPGCL

and beneficiary as per Hon’ble ATE judgment. Hence total

amount of IDC allowed to capitalise in this order upto date of

COD is Rs. 683.27 crore i.e. (660.85 + 44.83/2).

8.9.28 CSPGCL had submitted that while issuing BOP contract to M/s

Tecpro, 10% interest bearing initial advance was given against

bank guarantee. CSPGCL has earned an interest income of Rs.

44.22 crore on such advance up to COD, thus the net IDC on

the net IDC to be capitalized till date of COD is considered at

Rs. 639.05 crore (i.e. 683.27-44.22).

8.9.29 The total final capital cost as approved by Commission in this

order is tabulated below:

(Rs. in crore)

Description

Approved

Cost as on COD

Cost

consider after COD

Estimated

Cost

Land including Re-settlement

39.37 1.63 41.00

BTG including Civil work

1291.97 198.97 1490.94

BOP 802.86 329.16 1132.02

Change in scope of work

-- 5.60 5.60

Taxes and Duties 149.52 17.28 166.80

Start-up Fuel as working capital Margin

68.63 -- 68.63

Overhead 80.38 4.24 84.62

IDC 639.05 -- 639.05

Total Project Cost 3071.78 556.88 3628.66

Page 73 of 77

8.10 Initial Spares:

8.10.1 CSPGCL submitted that as per Regulation 18.3 of CSERC MYT

Regulation 2012, in case of coal based thermal power stations,

initial spares to the tune of 2.5% of project cost are allowed. It

is further envisaged that 50% of the initial spares may be

capitalised by 31st March 2015 and the balance are expected to

be capitalised in FY 15-16.

Commission View:

8.10.2 Commission is of view that the initial spares shall be allowed as

per applicable Regulation. The CSERC (MYT Regulation, 2012)

stipulates that in case of coal base thermal power stations,

initial spares to be allowed to the tune of 2.5% of Rs. 3,628.66

crore i.e. Rs. 90.72 crore. This amount shall be further adjusted

after finalization of LD clause as per LOI due to delay in project

execution by contractors as narrated below.

8.11 Liquidated Damages

8.11.1 CSPGCL submitted that the orders contain Liquidated Damages

(LD) clause. CSPGCL submitted regarding actual LD imposition,

that as per provisions of the contract and as per standard

practice, the Liquidated Damages (LD) is finalized in affirmation

of a detailed procedure. Accordingly, leave is humbly craved for

submission of LD details as and when the same gets settled.

8.11.2 CSPGCL submitted that even after making all diligent

efforts within its purview, towards pursuing the contractor for

expeditious commissioning of the Unit, the Unit could not be

commissioned in the envisaged time frame.

Page 74 of 77

8.11.3 CSPGCL submitted that as per the Contract, in case the

Contractor fails to achieve the COD of the Unit within the

stipulated time period due to reasons attributable to him, it

shall levy LD on the contractor as per terms of LOI subject to

maximum 10% of the contract price with applicable price

variation. CSPGCL submitted that it had not levied any

Liquidated Damages against the contractors as contract shall

not be finalised and recovery shall be done on closing of the

Contract.

Commission’s Analysis

8.11.4 It is observed that CSPGCL has not yet levied Liquidated

Damages on the contracts as the contracts have not yet been

closed. The Commission therefore at this stage has not

considered the LD. The Commission directs the Petitioner to

submit a separate report regarding the actual amount of the LD

recovered from the contractors upon finalisation of the

contracts so that the same can be considered while approving

the final Capital Cost after finalisation of Contracts.

8.12 Means of Finance

8.12.1 CSPGCL submitted that the total cash expenditure as on COD is

Rs. 3,138.41 crore. CSPGCL submitted that it had tied up long

term debt of Rs. 3,369.98 crore from Power Finance

Corporation (PFC). CSPGCL submitted that out of the total

sanctioned loan of Rs. 3,369.98 crore, loan amount of Rs.

2,649.26 crore was drawn till COD. CSPGCL submitted that

there was a liability/ provision of Rs. 601.99 crore (including

the retention amount) as on COD. CSPGCL submitted that

GoCG has provided an equity contribution of Rs. 367 crore

invested through CSPHCL at Debt: Equity Ratio of 90:10.

Page 75 of 77

Commission View:

8.12.2 Based on analysis and observations mentioned above, the

estimated project cost considered in this petition is as below:

Rs. in crore

Description As per

petition

Approved

Cost on COD

Un-

discharged Liabilities

Estimated

Cost

Land including Re-settlement

41.00 39.37 1.63 41.00

BTG including BTG Civil 1490.94 1291.97 198.97 1490.94 BOP 1132.02 802.86 329.16 1132.02 Change of Scope of work 14.00 -- 5.60 5.60 Taxes and Duties 166.80 149.52 17.28 166.80 Start-up fuel as Working Capital Margin

68.63 68.63 -- 68.63

Overhead 121.34 80.38 4.24 84.62 IDC 661.46 639.05 -- 639.05 Capital Cost

(excluding initial spares)

3696.18 3071.78 556.88 3628.66

Initial Spares 92.40 -- 90.72 90.72 Total Cost (including initial spares)

3788.59 3071.78 647.60 3719.37

Hence, considering the financing at Debt:Equity ratio of 90:10

the loan portion worked out for total project at Rs. 3,347.43 and

balance to be treated as equity.

9. Summary of our findings:

Conclusion as per our observation in relevant paras of above

order are as under:

1. Land cost including preliminary and enabling expenses is

approved as Rs. 39.37 crore.

2. BTG including BTG Civil is approved as Rs. 1291.97 crore.

3. BOP is approved as Rs. 802.86 crore.

4. Taxes and duties are approved as Rs. 149.52 crore.

Page 76 of 77

5. Start-up fuel as working capital margin is approved as Rs.

68.63 crore.

6. Overhead is approved as Rs. 80.38 crore.

7. IDC is approved as Rs. 639.05 crore.

8. Total capital cost approved as on COD is Rs. 3071.78 crore.

Sd/-

(Vinod Shrivastava) MEMBER

Sd/-

(Narayan Singh) CHAIRMAN

Page 77 of 77

Annexure – I

List of persons who presented during Hearing on 31st March 2015

S. No. Name of the person

1 Shri Satyanarayan Sharmaji (MLA)

2 Shri M.S. Ratnam

3 Er. Shyam Kabra

4 Shri Foruque Masood

5 Shri Raza Ahmed

6 Shri A.K. Saxena

7 Shri B.R. Chandrakar

8 Shri Rajkumar Gupta

9 Shri Purushotam

10 Shri Gaindlal Patel

11 Shri Santu Lal

12 Shri Prasann Taunk

13 Shri I.K. Verma

14 Shri Krishana Dewangan

15 Shri Kewal Verma

16 Shri Gyandas

17 Shri R.A. Verma

18 Shri A.K. Saxena

19 Shri Santosh Singh

20 Shri M.S. Chauhan

21 Shri O.P. Ojha

22 Shri M.R. Bagade

23 Shri H.K. Shridhar

24 Shri S. Dubey

25 Shri S.K. Thawait

26 Shri S.K. Tiwari

27 Shri Vinay Kumar Pandey

28 Shri Sandeep Shukla

29 Shri Vivek Sen