1 | P a g e

BEFORE THE HARYANA ELECTRICITY REGULATORY COMMISSION BAYS NO 33-36 SECTOR – 4 PANCHKULA – 134112, HARYANA

CASE NO: HERC/PRO – 05 OF 2014

DATE OF FINAL HEARING: 15.12.2014

DATE OF ORDER: 23.01.2015

IN THE MATTER OF:-

Filing of Generation Tariff Application by Lanco Amarkantak Power Ltd.

(LAPL) pursuant to the Judgment dated 03.01.2014 of the Hon’ble Appellate

Tribunal for Electricity, New Delhi.

Lanco Amarkantak Power Ltd. (LAPL) PETITIONER

AND IN THE MATTER OF

1. The Managing Director Haryana Power Generation Corporation Limited

(HPGCL), Panchkula.

2. The Chief Engineer Haryana Power Purchase Centre (HPPC)

3. PTC India Limited (PTC)

4. Chhattisgarh State Power Trading Company (CSPTC)

RESPONDENTS

Quorum Shri Jagjeet Singh, Chairman Shri M.S. Puri, Member

2 | P a g e

On behalf of HPGCL/HPPC

Shri M.G. Ramachandran, Advocate Shri U.K.Agarwal, SE/HPPC Shri Ravi Juneja, AEE/ HPPC Shri Pawan Bains, AEE/ HPPC

On behalf of LAPL On behalf of PTC India Ltd.

Shri Sanjay Sen, Sr. Advocate Shri Deepak Khurana, Advocate Shri V.Ravindran, CEO, LAPL Shri S.K. Bhardwaj, LAPL Shri Anil Sharma, LAPL

Ms. Pallavi Mohan, Advocate

ORDER

1. BRIEF FACTS OF THE CASE:-

1.1 PTC India Ltd (PTC) had filed Petition No. 12 of

2010 dated 12.05.2010 seeking directions from the

Commission to amend the Power Sale Agreement (PSA)

between them and Haryana Power Generation Company

Limited (HPGCL) on behalf of UHBVNL & DHBVNL (the

Distribution licensees in Haryana).

1.2 HPGCL had filed another petition dated 22.07.2010

seeking directions against the Applicant LAPL and PTC in

connection with supply of power from Lanco Amarkantak

Power Plant Unit – 2 (hereinafter referred to as LAPL).

1.3 The aforesaid petitions were disposed of by the

Commission vide Order dated 02.02.2011.

3 | P a g e

1.4 Aggrieved by the Order dated 2.02.2011 passed by

the Commission, LAPL filed an appeal bearing No.15 of

2011 before the Hon’ble Appellate Tribunal for Electricity

(hereinafter referred to as APTEL).

1.5 The Hon’ble APTEL, vide interim Order dated

23.03.2011 directed LAPL to supply 35% of the power

from LAPL Unit - 2 to the Chhattisgarh State Power

Trading Company and balance power to Haryana. The

appeal was disposed of by Order dated 04.11.2011. The

Hon’ble APTEL continued the interim Order while

remanding back the matter to the Commission for

deciding the rights of Chhattisgarh State Power Trading

Company. Aggrieved by the Order of the Hon’ble APTEL

dated 04.11.2011, LAPL filed civil appeal No. 10329 of

2011 in the Hon’ble Supreme Court.

1.6 The Hon’ble Supreme Court passed an interim

Order dated 16.12.2011 holding, inter-alia, as under:-

“…. Without prejudice to the rights and contentions of

the parties and pending further Orders, the State

Electricity Regulatory Commission, Haryana will

fix/approve the tariff for sale and purchase of power for

the period in questions about which there is a dispute

between the appellant and PTC. The State Electricity

4 | P a g e

Regulatory Commission, Haryana will decide the dispute

uninfluenced by the observations made in the impugned

Orders passed before today, by the Appellate Tribunal

and/or any other Authority in this case. All arguments

on both sides are kept open. Liberty is given to the

parties to make a proper application supported by

relevant documents before the State Electricity

Regulatory Commission, Haryana, within four weeks……”

In view of the Order of the Hon’ble Supreme Court

LAPL filed a petition in the Commission for tariff

determination i.e. fix/approve the tariff payable by PTC

for the sale of power by LAPL for the period in question

i.e. for the power supplied from 7.5.2011 uninfluenced by

the observations made in the impugned Orders passed by

the Hon’ble APTEL and/or any other Authority in this case.

Accordingly LAPL had sought tariff computed in

accordance with Central Electricity Regulatory

Commission (Terms & Conditions of Tariff ) Regulations,

2009 for the power supplied by them to Haryana as per

the Order dated 23.03.2011 of the Hon’ble APTEL and

continued by the Order dated 16.12.2011 of the Hon’ble

Supreme Court.

5 | P a g e

The Commission, after hearing the Petitioner and

the Respondents, passed Order dated 17.10.2012. The

operative part of the said Order is reproduced below:-

“The Commission is of the view that the entire project was

conceived on the basis of coal linkage available to LAPL

from SECL. However, the fact cannot be denied that there

are some temporary disruptions in coal supply which may

not continue in future. Additionally, during the prolonged

proceedings before the Commission the Petitioner could

not place on record any material that could establish the

fact that they made bona – fide efforts to secure coal

linkage as envisaged at the project planning stage that

formed the basis of the contracted levellised tariff also

approved by the Commission. Thus the Commission, for the

purpose of tariff determination for the disputed period, has

considered weighted average cost of SECL coal to the

extent of 71% as per the details filed by the Petitioner and

29% weightage to the cost of coal from other sources.

The consumption of secondary fuel oil has been considered

at 2.0 ml/kWh as per HERC Regulations, 2008 and the

same has been valued as per data provided by the

Petitioner which has been taken at the face value. Further

the GCV of coal has been considered as per the DPR despite

the fact that the Petitioner is also using imported coal with

6 | P a g e

significantly higher GCV which in effect would reduce the

coal requirement of the Petitioner. Further the Plant Load

Factor has been retained at 80% as per the DPR which is

also in line with HERC Regulations, 2008.

In view of the above, the tariff worked out by the

Commission at generator’s bus for the disputed period

beginning 7th May, 2011, for supply of LAPL Unit – 2 power

to Haryana, based on the norms approved in this Order is

as under:

I) Tariff 7th May, 2011 to 31st March, 2012:-

Rs. 2.52/kWh.

II) Tariff FY 2012-13:- Rs. 2.46/kWh.

However, as the tariff worked out as above is more than

the levellised capped tariff, the capped tariff of Rs.

2.32/kWh shall prevail. The benefit of any difference vis-

à-vis the capped tariff shall be passed on to the Consumers

through FSA mechanism. As the capped tariff does not

include Income Tax/MAT the same shall be paid to LAPL in

addition to the capped tariff on the ROE allowed by the

Commission in this Order.

7 | P a g e

The Commission notes that the levellised capped tariff of

Rs. 2.32/kWh is at the Generator’s bus bar, hence after

considering inter – state, intra – state transmission

charges and losses the landed cost of power to the

Discoms in Haryana, without statutory levies like MAT,

ED etc., would be in excess of Rs. 2.81/kWh”.

1.7 Aggrieved by the aforesaid Order of the

Commission LAPL preferred Interlocutory Application

dated 27.12.2012 in the Hon’ble Supreme Court. The

Hon’ble Supreme Court disposed of the said Interlocutory

Application vide its Order dated 19.02.2013 directing LAPL

to file statutory appeal in the Hon’ble APTEL against the

Order dated 17.10.2012 passed by this Commission.

Accordingly LAPL filed statutory appeal in the Appellate

Tribunal for Electricity, New Delhi (APTEL). The Hon’ble

APTEL, vide its judgment dated 03.01.2014 was pleased to

allow the appeal and set aside the Order dated October

17, 2012 passed by the Commission. The Hon’ble APTEL

vide its judgment dated January 03, 2014 further directed

the Commission to re-determine the tariff by way of

interim arrangement de hors the PPA, pending disposal of

the Civil Appeal No. 10329 of 2011 in Hon’ble Supreme

Court in the light of directions and finding given by the

Hon’ble APTEL in its aforesaid judgment within two

8 | P a g e

months from the date of communication of the aforesaid

judgment to the Commission. Further, LAPL was directed

by the Hon’ble APTEL to submit additional details and

documents for the consideration of the Commission for

fixing the interim adhoc tariff for supply of power by LAPL

pursuant to aforesaid Order of the Hon’ble Supreme Court

( Paras 63 and 69 of the APTEL judgment).

In compliance of the judgment dated January 03,

2014, LAPL submitted the details and documents for

consideration of the Commission for fixing the interim

tariff as directed by the Hon’ble Tribunal with a

disclaimer that the submission of the details and

documents does not amount to acceptance or

submission to the jurisdiction of this Commission and is

without prejudice to all rights and contentions in Civil

Appeal No. 10329 of 2011 pending before the Hon’ble

Supreme Court.

The Commission, in Order to have the benefit of

the views of the contesting parties on the details/data

submitted by LAPL, scheduled a hearing of the parties on

21.02.2014. Upon hearing the parties the Commission

passed the following interim Order:-

9 | P a g e

“The Ld. Counsel Shri Deepak Khurana submitted that they

have received a copy of the reply dated 18.02.2014 filed

by HPPC only yesterday i.e. 20.02.2014. Hence he sought

short adjournment to go through the reply filed by HPPC

and submit a rejoinder to the same. The representative of

the Respondent while agreeing to the adjournment sought

submitted that due to pre-occupation of their counsel the

case may be listed for hearing on 12.03.2014 afternoon

which was agreed to by the Petitioner. Upon hearing the

parties the Commission Orders that the Petitioner may file

a rejoinder by 3.03.2014 along with a copy to the

Respondent. In case this does not happen the Commission

may be informed accordingly. No further adjournment

shall be allowed in the matter”.

The case was listed for further hearing on 12th March,

2014, all parties were informed accordingly. The notice

of hearing was also posted on the website of the

Commission under heading “Schedule of Hearings”.

Upon hearing the parties following interim Order was

passed by the Commission.

“The Ld. Counsel for the Petitioner Shri Sanjay Sen

concluded his arguments including the issues raised by

the Respondent HPPC in their written reply. The Ld.

10 | P a g e

Counsel for the Respondent (HPPC) Shri Ramachandran

argued at length vehemently contesting the

completeness and credibility of the data/information

provided by the Petitioner in their petition as well as the

rejoinder for re-determination of interim adhoc tariff for

supply of power by Lanco Amarkantak Power Limited –

Unit 2 (LAPL) in terms of judgment dated 3.01.2014

passed by Hon’ble Appellate Tribunal for Electricity in

appeal bearing no. 65 of 2013. He also raised several

legal issues in the hearing. The Ld. Counsel for the

Petitioner replied at length to the issues raised in the

hearing and suggested that the Commission may give

him further opportunity to complete his reply on

25.03.2014 which was agreed to by the Respondent.

Acceding to the above request of the Petitioner and

agreed to by the Respondent the Commission posts the

case for further hearing on 25.03.2014 at 3.00 P.M”.

1.8 The case was called for hearing on

25.03.2014, after hearing the parties the Commission

passed the following Order:-

“In the hearing held on 25.03.2014 the parties again

made detailed submissions and there were wide

difference of opinion between the parties on the

information provided by the Petitioner regarding the

11 | P a g e

Capital Cost, apportionment of Capital Expenditure

between different Units of LAPL, infirm power and the

liability of the Petitioner regarding the increase in Capital

Cost on account of claimed Force Majeure events with

reference to the agreement of the Petitioner with the

Supplier.

Upon hearing the parties the Commission feels that the

Respondent must put up their demand for information

on the above issues in a highly specific manner and the

same should be provided by the Petitioner accordingly.

Moreover, it was felt that, with the consent of both

parties, external help shall be required to have an

unbiased verification of figures and cost apportionment

formula which may even require visit to the LAPL power

plant. Accordingly, after both the parties had given their

consent, the Commission Orders as under:-

i) Direction to the Petitioner (LAPL):

a. To file an affidavit certifying that the following

facilities/assets (include details of the assets) which were

created for LAPL Unit -1 and Unit – 2 and/or Unit -1 or

Unit – 2 are not being used or will not be used for LAPL

Unit – 3 or Unit – 4.

12 | P a g e

b) The following facilities/assets created for LAPL Unit

-1 and Unit – 2 or for Unit – 1 or Unit – 2 are being used

or shall be used for LAPL Unit – 3 or Unit – 4 jointly or

separately and the amount mentioned below against

each facilities/assets have been booked to LAPL Unit – 3

or Unit – 4 jointly or separately.

c) To submit the details of prudence in claiming and

recovery of Liquidated Damages (LD) in terms of contract

with the plant/machinery suppliers due to time over –

run in commissioning LAPL Unit – 2, if any. Further, in

case such claims were permissibly, the details of the

amount realized may be provided.

d) To submit the terms of agreement with the

auditors who have verified and certified the cost overrun

claimed.

ii) Direction to the Respondent (HPPC):

a) To submit a comprehensive list of additional

data/information required to the Petitioner along with a

copy to the Commission within three days (LAPL to

provide the details within a week).

13 | P a g e

Additionally, the Commission observes that given the

fact that certain key data i.e. project cost relevant to

LAPL Unit – 2, segregation/allocation of common service

cost, sale of infirm power, and realization of linkage coal,

submitted by LAPL which has significant bearing on

re – determination of tariff was vehemently contested by

the Respondent i.e. HPGCL/HPPC. Thus, all such data, as

agreed by both the parties, would have to be

independently verified and smoothened out by an

independent Chartered Accountant (including physical

verification) having exposure in power sector preferably

large power plants and not in any way connected to

either LAPL and/or Haryana Power Utilities. In this

regard the Commission shall identify an independent

Chartered Accountant (cost to be borne equally by both

the parties) and subject to acceptance of both the

parties appoint him to carry out the necessary

verification/segregation and submit a report to the

Commission within three weeks from the date of

additional data/details to be made available by LAPL.

The Chartered Accountant so appointed may visit the

power plant, if necessary, after informing both the

parties of the visit schedule”.

14 | P a g e

1.9 In compliance to the Order (supra) HPPC

filed an affidavit dated 1.04.2014 stating as under:-

“Pursuant to the directions give by the Hon’ble

Commission at the hearing on 25.03.2014, and without

prejudice to the rights and contention of HPGCL/HPPC

the following Interrogatories are served on Lanco, for

information and details with supporting documents”.

1.10 LAPL vide their letter dated 9.04.2014

provided their reply to the above mentioned

Interrogatories.

1.11 The Commission, after obtaining concurrence of HPPC and LAPL, appointed E&Y to undertake independent verification of the project cost and related matters of LAPL Unit – 2. The scope of assignment, including site visit, was as under:

Review of project cost: Review of project cost of Unit 2 of LAPL from audited accounts/EPC contracts/purchase Orders provided by LAPL.

Financial impact due to IDC: Financial Impact of delays in terms of Interest during Construction on the capital costs caused due to Force Majeure is to be ascertained.

Identification of common Assets: Identification of common use assets namely, coal handling &

15 | P a g e

transportation, water treatment plant, ash handling plant, auxiliaries and electrical switchgear.

Cost allocation of common assets: Cost allocation of such common use assets identified above, to Unit 2. The cost allocation of common use assets shall be done on the basis of the costs provided/certified by LAPL.

Land acquisition cost: Estimation of land acquisition costs as well as site development which shall be apportioned to Unit 2.

Estimation of cost of coal: Estimation of the cost of the coal used in LAPL (Unit 2) during FY 2011-12 and FY 2012-13 from the audited accounts/contracts, considering coal available from CIL, coal procured through e-auction, coal purchased from open market and imported coal. Cost shall be worked out on the basis of coal prices and GCV mentioned in the audited accounts/contracts.

Surplus generated from infirm power: The surplus generated from sale of infirm power from Unit 2 after accounting for fuel costs is to be determined.

1.12 On receipt of report dated 8.06.2014

from E&Y the Commission scheduled a hearing on

28.07.2014. In the hearing held on 28.07.2014 the Ld.

Advocate Shri M.G. Ramachandran, appearing for HPPC

raised the following issues:

Conflict of interest of E&Y with the Lanco Group,

16 | P a g e

No site visit undertaken by E&Y as per Order of

the Commission.

Lack of details on the issue of water intake

system of LAPL Unit -2, site plan including railway

siding, sub – stations etc.

After hearing the parties the Commission passed

an Order dated 28.07.2014. The operative part of the

said Order is reproduced below:-

“Upon hearing the arguments of the parties, the

Commission makes it clear that this Commission in the

hearing held on 22.07.2014 has adopted the draft report

dated 8.07.2014 submitted by E&Y. However, it is up to

this Commission what weightage is to be assigned to the

findings of E&Y on various issues keeping in mind the

arguments of the parties as well as the records available

in this Commission. The Commission has noted the reply

of the representative of E&Y to the various queries of the

Commission in the hearing held on 28.07.2014. The

same, in brief, is reproduced below:

i) Whether all details provided by LAPL to the

interrogatories of HPPC dated 1.04.2014 has been taken

into account while submitting the draft report. This was

17 | P a g e

replied to in affirmative by E&Y. It was further submitted

that only the information relevant for preparing the

report was finally considered.

ii) On the issue of verification of the details of Capital

Cost as submitted by LAPL it was submitted by E&Y that

the same have been cross – checked with EPC/PO.

iii) Whether the details of common assets and sharing

thereto was verified. This was also replied to in

affirmative and it was added that the same has been

cross –checked with the layout plan of the projects. It

was also submitted by the Consultant that none of the

common assets of Unit 1 and Unit 2 is being utilized for

Unit 3 and Unit –4 except railway line/siding to a minor

extent.

iv) On the issue of verification of IDC with regard to force

majeure, delay in commissioning and non –availability of

long term Open Access, it was submitted by E&Y that the

impact of the same shall be separately given.

v) on the issue of capitalizing A&G and other direct

expenses after February, 2010 i.e. the date of

capitalization, E&Y submitted that the same is

18 | P a g e

permissible given the fact that the HERC Regulations

provide that any revenue earned on account of sale of

infirm”.

Subsequent to the hearing held on 28.07.2014 E&Y

submitted an addendum to their report dated 8.07.2014

and also undertook cite visit along with the officials of

HPPC, LAPL and HERC. E&Y submitted their report on the

outcome of the site visit as well as provided an affidavit

on the issue of conflict of interest.

2.0 Previous Orders of the Commission:-

2.1 The Commission while considering the PSA

with PTC for 300 MW power from LAPL (with PPA as

annexure) filed by HPGCL for approval of the Commission

passed Order dated 31/10/2007 expressing its inability to

approve the same in the format submitted therein i.e.

levellised capped tariff with pool tariff mechanism as the

same was in violation of section 62(6) of the Electricity

Act, 2003.

2.2 A review petition was filed by HPGCL against

the Order dated 31.10.2007 passed by this Commission.

After hearing the parties i.e. HPGCL, PTC and LAPL and

after considering the fresh supporting documents

19 | P a g e

submitted by the parties, the Commission vide Order

dated 6/02/2008 approved the PSA with levellised

capped tariff of Rs. 2.32/kWh at the Generator’s bus for

the entire term of the agreement, the pooled tariff

mechanism was dispensed with.

2.3 Further, on petition filed by PTC dated 12th May,

2010 seeking appropriate directions from the

Commission to amend PSA and petition dated 22nd July,

2010 filed by HPGCL seeking directions from the

Commission to restrain LAPL from revising the agreed

tariff under PPA dated 19th October, 2005 and from

restraining LAPL from selling the contracted power in

favor of HPGCL to a third party, the Commission after

hearing the parties i.e. HPGCL, PTC and LAPL (WRLDC was

not present), passed Order dated 02/02/2011 as under:-

i) The Power Purchase Agreement dated 19th October,

2005 as amended by HERC Order dated 6th

February,2008 remains valid and in force and cannot

be revised at this stage.

ii) 300 MW of contracted power should go to HPGCL

and M/s Lanco Amarkantak Private Limited is

restrained from selling the same to a third party.

iv) WRLDC to make payment for infirm power since

the date of synchronization of LAPL Unit – II from the

20 | P a g e

UI pool to HPGCL instead of M/s Lanco Power Private

Limited. HPGCL and PTC should immediately take up

the matter with CERC for appropriate directions to

WRLDC regarding payment of UI charges to HPGCL

since in such cases only CERC has the competence to

issue directions.

2.4 An appeal (No. 15 of 2011) was filed by LAPL in the

Hon’ble APTEL against HERC Order dated 2.02.2011

wherein the Hon’ble APTEL vide judgment dated

4/11/2011 upheld the jurisdiction of the Commission.

2.5 Against the above Order of Hon’ble APTEL, LAPL

filed a CWP in the Supreme Court. The Hon’ble Supreme

Court in Civil Appeal No. 10329 of 2011 filed by LAPL

Ordered that the interim Order of APTEL would continue

and the Commission shall fix/approve the tariff

uninfluenced by the observations made in the impugned

Orders passed by APTEL and/or any other Authority in

this case. Further liberty was given to the parties to

make a proper application supported by relevant

documents before HERC within four weeks. Additionally,

the Hon’ble Supreme Court observed that “all

arguments on both sides are kept open”. Consequently,

all the proceedings in the matter were stayed by the

Commission.

21 | P a g e

3. LAPL Petition for Re-determination of Tariff :-

3.1 In pursuance of the Order of the Hon’ble Supreme

Court giving liberty to LAPL to make a proper

application supported by relevant documents before

HERC within four weeks, LAPL filed the present tariff

petition. As per the tariff petition LAPL has supplied

power during the period commencing 7th May, 2011

and is required to continue supplying power till the

disposal of the civil appeal No.10329 of 2011 by the

Hon’ble Supreme Court.

Accordingly the Petitioner has made the following

submission in their petition for determination of tariff.

3.2 FIXED COSTS:-

i. Capital Cost as at the end of 6.5.2011 is Rupees

1668.37 crores netted off for revenue earned on

account of UI the Capital Cost claimed by the Petitioner

is Rs. 1356.77 Crores.

ii. Project Loan: The loan drawn for the Project

claimed by the Petitioner is Rs. 1025.18 crores,

constituting 75.56% of the claimed capital cost.

22 | P a g e

iii. Return on Equity has been computed by the

Petitioner at 15.5% for the 24.44% equity based on

Regulation 15 of the CERC Regulations 2009.

iv. Income Tax has been proposed at the prevailing

MAT rate of 20.01% (18.50% base rate + 5% surcharge +

3% cess) based on Regulation 15(4) of the CERC

Regulations 2009.

v. Interest on Loan: has been claimed based on the

actual interest payments made to the lenders in line

with Regulation 16 of CERC Regulations 2009. Interest

on Loan for the balance period of 2011-12 and FY 2012-

13 has been estimated on the basis of prevailing

interest rates and in accordance with the terms of loan

agreements executed with the lenders.

vi. Depreciation: has been computed after excluding

the cost of margin money, expenses for start-up fuel,

training expenses etc. in accordance with Regulation 17

of CERC Regulations 2009. Rates for Depreciation have

been considered in accordance with the rates specified

in Appendix III of the CERC Regulations 2009.

23 | P a g e

vii. Operation and Maintenance expenses have been

claimed as Rs. 17.88 lakhs/MW and 18.91 lakhs/MW as

applicable for a 300 MW set for the years 2011-12 and

2012-13 respectively in accordance with Regulation

19(a) of CERC Regulations 2009.

viii. Interest on Working Capital has been computed

by the Petitioner in accordance with Regulation 18(3) of

CERC Regulations 2009 considering applicable SBI PLR

for the relevant period. The Working Capital covers the

following components in accordance with the CERC

Regulation 18(1)(a):

a. Cost of Coal for 2 months b. Cost of Secondary Fuel Oil for 2 months c. O&M expenses for 1 month d. Maintenance Spares at 20% of O&M expenses and e. Receivables for 2 months

ix. For the period May 2011 to December 2011, the

Interest on Working Capital has been computed based

on actual landed cost of fuel and Gross Calorific Value

(GCV) of fuel actually fired during the month. For the

period commencing from January 2012 onwards the

cost of fuel has been considered based on the landed

cost incurred and GCV of fuel actually fired during the

previous 3 months period of October 2011 to December

24 | P a g e

2011 and no fuel price escalation has been considered

as has been provided under Regulation 18(2) of CERC

Regulations 2009.

x. Secondary Fuel Oil expenses have been proposed

as a part of Fixed Costs in accordance with Regulation

14 of CERC Regulations 2009 and Normative Specific

Fuel Oil consumption of 1.0 ml/kWh has been

considered as provided under Regulation 26(iii)(a) of

CERC Regulations 2009. For the period May 2011 to

December 2011, the actual landed cost of secondary

fuel oil for the month has been considered. For the

period commencing from January 2012 onwards the

cost of secondary fuel oil has been considered based on

the actual average landed cost incurred during the

previous 3 months period of October 2011 to December

2011 has been considered as has been provided under

Regulation 20(2) of CERC Regulations 2009.

xi. The Petitioner has submitted that as per the

Implementation Agreement signed with Government of

Chhattisgarh, the Petitioner has submitted that they are

under an obligation to supply 5% of net power

generated at Energy Charges. Accordingly, the Fixed

25 | P a g e

Charge per kWh has been grossed up taking the above

5% power into consideration.

3.3 ENERGY CHARGES:-

3.3.1 The Petitioner has computed energy charges in

accordance with the formula specified in the Regulation

21(6)(a) of CERC Regulations 2009.

Normative Gross Station Heat Rate of 2401 Kcal/kWh

has been adopted as per Regulation 26(ii)(B) of CERC

Regulations 2009 applicable for Pressure Rating of 170

kg/cm2 as indicated below:

Max Design Unit Heat Rate : 2294 Kcal/kWh

Less 40 Kcal/kWh for electrical: 2254 Kcal/kWh Operated boiler feed pump (as per Regulation 26(B)(a)

Gross Station Heat Rate: 1.065 x Design Heat Rate: 1.065 x 2254 : 2401 Kcal/kWh

3.4.1 Auxiliary Energy Consumption:- In accordance with

Regulation 26(iv) of CERC Regulation 2009, the

Normative Auxiliary Consumption has been

considered by the Petitioner at 9% since the Unit has

electrically driven boiler feed pump and uses

induced draft cooling towers.

26 | P a g e

3.5.1 Landed cost and the GCV of coal for the period

commencing from May 2011 to December 2011 has

been considered by the Petitioner based on actual

receipts and consumption respectively. Landed cost

of coal has been computed in accordance with

Regulation 21(7) of CERC Regulations 2009 adopting

normative transit and handling loss of 0.8%.

3.6.1 Further the Petitioner has requested that Energy

Charges for the period January 2012 to March 2012

of 2011-12 and FY 2012-13 may be allowed to be

recovered in accordance with the CERC formula.

3.7.1 With regard to the tariff computed for the period

from 7th May 2011 to December 2011, the Petitioner

has submitted that the Letter of Assurance (LoA)

issued by South Eastern Coalfields Ltd.(SECL) vide

letter dated 18.9.2006 guarantees coal supply to the

extent of 1.445 Million Tons Per Annum (MTPA).

However, due to various directions issued by

Government of India pursuant to new coal

distribution policy, the actual coal supply has been

reduced progressively and stands at the current

allocation of 0.94 MTPA against the requirement of

about 1.62 MTPA for meeting 85% PLF.

27 | P a g e

3.8.1 A table indicating the progressive reduction in

coal allocation by SECL submitted by the Petitioner is

as follows:-

Reference Period Annual Quantity

MoU dated 15th Mar 2010

2009-10 18 lakh tons

MoU dated 27th Jul 2010

2010-11 13 lakh tons

MoU dated 30th Aug 2011

2011-12 (from September

2011 to December 2011)

9.4 lakh tons

The Petitioner has submitted that the current

allocation of coal from SECL would only be adequate

to operate the plant at about 45% to 50% PLF, which

would further depend upon the quality and quantity

of coal that may be actually supplied. Further they

have submitted that after the expiry of the MoU for

the FY 2010-11 in March 2011, the MoU for FY 2011-

12 was not executed/extended immediately, a fresh

MOU for FY 2011-12 was signed only on 30.08.2011

and the coal supply commenced from September

2011. No coal was supplied by SECL during the

period April 2011 to August 2011. Therefore, the

power plant had to be operated with the linkage

coal stocks whatever were available and

supplemented by procurement of costlier coal from

28 | P a g e

alternate sources like Imported Coal, e-auction coal

and coal procured from open market. It was

submitted that the cost of coal from alternate

sources is more than 3 times of the cost of linkage

coal supplied by SECL.

The following data was presented by the

Petitioner to show the availability of linkage coal

supply during the period May 2011 to December

2011:

Month Linkage Coal Supply from SECL (in MT)

May 11 - June 11 -

July 11 - August 11 -

Sept 11 59,169

Oct 11 76,926 Nov 11 72,421

Dec 11 88,680

The Petitioner further submitted that to

bridge the shortfall in domestic coal supply, the

Ministry of Power (MoP) has been directing various

power plants in the Country to procure imported

coal. In the process similar directions were also

issued to them vide Ministry of Power letter dated

11.6.2010 directing the Petitioner to procure 3

29 | P a g e

lakhs tons of imported coal. Further in the minutes

dated 18.04.11 of the Standing Linkage Committee

(Long Term) for Power under the Ministry of Coal,

Government of India, it was decided that the

model FSA formulated by CIL/SECL under New Coal

Distribution Policy envisages supply of 50%

domestic coal and balance 50% would be supplied

from imported coal, if available. From the

aforesaid minutes, it is thus evident that the

operation of power plant on purely domestic coal

is no more possible and procurement of imported

coal is inevitable which results in increase in cost of

generation.

3.9.1 That apart from the tariff claimed under the

present application, the Petitioner has submitted

that they are paying Electricity Duty & Cess to the

Government of Chhattisgarh for the Auxiliary

Consumption of the Project. LAPL has prayed that

they should be allowed to recover the Electricity

Duty & Cess paid to the Government of Chhattisgarh

in proportion to the power actually supplied to

Haryana.

a) In view of the above submissions LAPL has

prayed as under:-

30 | P a g e

The Commission may fix/approve the tariff in

accordance with the CERC Regulations 2009 for the

power supplied by the Applicant to PTC in terms of

the APTEL Order dated 23.03.2011 during the period

7th May 2011 to December 2011, in Rupees per unit,

as indicated below:-

Month May 11 June 11 July 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec-11

Fixed Cost 1.85 1.86 1.87 1.96 1.90 1.88 1.87 1.85 Variable Cost 0.98 1.17 2.00 3.12 2.03 1.96 1.63 1.31

Total Cost 2.83 3.02 3.87 5.08 3.93 3.84 3.50 3.16

b) Fix/Approve tariff for the power proposed

to be supplied by the Applicant to PTC in terms of

Appellate Tribunal Order dated 23.3.2011 during the

balance period of FY 2011-12 and FY 2012-13 in

accordance with the regulations of CERC 2009, in

Rupees per unit, as indicated below:

Period Jan 12 to Mar 12 FY 2012-13

Fixed Cost 1.85 1.84

Variable Cost As per CERC Regulations 2009

c) Direct PTC to pay the difference in the tariff

paid by PTC for supply of power from 7th May, 2011

onwards at the tariff as per the CERC Regulations,

31 | P a g e

2009 within a period of two weeks from the date of

the Order.

d) Pass such Orders as the Commission may

deem fit and proper and necessary in the facts and

circumstances of the case.

4. The Commission, after considering the written as well as oral submissions of the parties and after perusing the records available in the Commission passed an Order dated 17.10.2014. The operative part of the said Order is as under:-

“ Based on the Submissions/arguments of the

parties the Commission has framed the following

issues for its consideration:-

A. Whether the Commission is competent to

adjudicate on the issue of allocation of power

from 300 MW LAPL Unit – 2 to CSPTC and

Haryana at this stage.

B. Whether capital cost as per Company’s Auditor’s

certificate has to be accepted by the Commission

for the purpose of tariff determination.

C. Whether performance parameters, both financial

and technical, has to be reckoned with as per

32 | P a g e

CERC 2004 Regulations or CERC 2009 Regulations

or some other norms.

D. Whether the Commission can determine the tariff

afresh irrespective of the fact that the tariff with

a levellised cap has already been agreed upon by

the parties for 25 years.

E. Whether the levellised cap tariff of Rs. 2.32/kWh

can be ignored.

8. In Order to find a reply to the issue framed at Para

9 ‘A’ The Commission has perused its own Order dated

02/02/2011 wherein it was held by us that 300 MW of

contracted power should go to HPGCL and M/s LAPL is

restrained from selling the same to a third party. The

Commission observes that this Order of the Commission

was subject matter of Appeal (No. 15 of 2011) before the

Hon’ble APTEL. The Commission has further considered the

submissions of CSPTC including their arguments in the

hearing before the Commission and is of the view that as

per the Hon’ble APTEL’s Interim Order the Petitioner was

directed to supply 65% power to Haryana and the balance

35% power to CSPTCL. The said interim Order has been

continued by the Hon’ble Supreme Court. Thus till further

Orders are passed by the Hon’ble Supreme Court of India

33 | P a g e

and/or till the disposal of C.A. 10329 of 2011, the

Commission is not going into the merits of allocation of

power based on the PPA/PSA or MOU/Implementation

Agreement signed between the parties.

Based on the above discussions the issue framed by us at

Para 9 ‘A’ is answered in negative i.e. at this stage the

Commission is not going into the merits of allocation of

power between CSTPC and Haryana. Further the

Commission agrees to the contention of CSPTC that the

tariff determined by this Commission shall be applicable

to the power supplied by LAPL Unit – 2 to Haryana only.

9. In Order to settle the issue framed by us at Para 9 ‘B’

the Commission has perused the arguments of the parties

as well as the case laws cited by them. After careful

perusal of the case laws the Commission observes that the

issue has been well settled by the Judgment of the Hon’ble

APTEL in Appeal No. 94 of 2008 as well as the decision of

the Hon’ble Supreme Court in West Bengal Electricity

Regulatory Commission Vs. CESC Ltd. (2002) (81) SCC 715.

Hence in view of the settled law the issue framed by us

at Para 9 ‘B’ is answered in negative i.e. prudence check

has to be applied in all instances irrespective of the fact

34 | P a g e

that the Company’s Auditor and or any other authority has

certified/approved the capital cost. The cost efficiency and

timeliness of executing the project by a developer has to

be examined by the Commission, more so, from the

perspective of protecting the interest of electricity

consumers who have to ultimately bear the burden of all

such costs if they were to be considered as a pass through.

10. On the issue of applicability of CERC norms the

Commission finds that the Petitioner has vehemently

argued for adoption of norms in accordance with CERC

2009 Regulations while the Respondents are pressing for

adoption of norms as per CERC 2004 Regulations. The

Commission observes that the tariff in dispute was agreed

upon by the parties prior to the provisions of National

Tariff Policy notified by the Ministry of Power, Government

of India in pursuance of the provisions of Electricity Act,

2003, came into force. Further, the said PPA (and by

default the PSA) which specified all the normative details

as well as the agreed upon tariff was unilaterally

terminated by LAPL. The Order of the Commission dated

02/02/2011 was challenged by LAPL in the Hon’ble APTEL

and subsequently the Order of Hon’ble APTEL dated

04/11/2011 in the aforesaid matter was challenged in the

Hon’ble Supreme Court, where the matter is still pending

35 | P a g e

final disposal. In view of this the Commission is of the

considered view that if CERC Regulations (which also finds

a mention in the PPA/PSA) were to be sacrosanct, the

matter could have been referred to the CERC. However, it

was not to be and the Hon’ble Supreme Court gave the

liberty to LAPL to file a petition for determination of tariff

for the disputed period in HERC and at the same time

continued with the allocation of power i.e. 65% to

Haryana and 35% to CSPTC. Thus given the peculiarity of

the case the Commission is of the opinion that for the

disputed period beginning 07th May, 2011 (the date from

which supply of power commenced) till the case is finally

settled by the Hon’ble Supreme Court, the Commission

shall apply its own benchmark norms wherever applicable

and for other parameters i.e. capital cost, cost of coal etc.

the same shall be reckoned with after applying prudence

check in reference to the original scheme of the project

that had formed the basis of arriving at the tariff agreed

upon by the parties for a period of 25 years.

In view of the above discussions the issue framed by us

at Para 9 ‘C’ is answered in favor of adopting HERC’s own

benchmarks and subject to prudence check wherever

applicable.

36 | P a g e

11. In Order to find an answer to the issue framed at

Para 9 ‘D’ the Commission has carefully gone through the

Judgment dated 16.12.2011 of the Hon’ble Supreme Court

i.e.

“…. Without prejudice to the rights and contentions of the

parties and pending further Orders, the State Electricity

Regulatory Commission, Haryana will fix/approve the tariff

for sale and purchase of power for the period in questions

about which there is a dispute between the appellant and

PTC. The State Electricity Regulatory Commission, Haryana

will decide the dispute uninfluenced by the observations

made in the impugned Orders passed before today, by the

Appellate Tribunal and/or any other Authority in this case.

All arguments on both sides are kept open. Liberty is given

to the parties to make a proper application supported by

relevant documents before the State Electricity Regulatory

Commission, Haryana, within four weeks……”.

In view of the fact that the main proceedings

before the Commission was triggered because the PPA for

supply of power from LAPL Unit – 2 to PTC was unilaterally

terminated by LAPL and hence PTC was unable to meet its

obligations for onward supply of power from LAPL Unit – 2

to Haryana under the Power Sale Agreement (PSA) signed

with the Respondent i.e. HPGCL. The proceedings initiated

37 | P a g e

in the Commission by HPGCL seeking directions to PTC and

LAPL to honor their commitment under the concluded

PPA/PSA was contested by LAPL on the issue of jurisdiction

wherein the Commission held that it has the jurisdiction to

proceed in the matter. This view of the Commission was

also upheld by the Hon’ble APTEL on the basis of the fact

that there is a clear nexus between PPA & PSA as the later

does not survive without the former and LAPL was also a

party before the Commission in the proceedings for

approval of PSA between HPGCL and PTC. However, this

finding of the Commission as well as the Hon’ble APTEL

was agitated before the Hon’ble Supreme Court leading to

the passing of the above mentioned interim Order by the

Supreme Court.

Thus as the fact stands today LAPL is supplying

power from the same Unit – 2 to more than one state i.e.

Haryana and Chhattisgarh. As the sale to more than one

State has been adjudicated upon by the Hon’ble APTEL and

continued by the Order dated 16/12/2011 of the Hon’ble

Supreme Court notwithstanding the merit of MOU &

Implementation Agreement (IA) signed by LAPL and

Chhattisgarh Government arguments on which is still to be

decided by the Hon’ble Supreme Court. Therefore, as the

sale of power as on date, is to more than one State that

38 | P a g e

matter could have been remanded to CERC. However, the

Hon’ble Supreme Court has directed this Commission to

“fix/approve the tariff for sale and purchase of power for

the period in questions about which there is a dispute

between the appellant and PTC”. Consequently, the

Commission has very carefully examined the aforesaid

direction of the Hon’ble Supreme Court and observes that

the said Order directs the Commission to fix/approve tariff.

Further, a perusal of the arguments of LAPL as well as

HPGCL/HPPC and PTC establishes the fact that all of them

agree that tariff for Haryana has to be fixed/approved. The

only point of dispute is on the norms to be adopted and

applicability of capped tariff.

Additionally as per the judgments of Hon’ble Supreme

Court and Hon’ble APTEL cited by the Petitioner, it is quite

clear that the Commission can go beyond the terms of PPA

while determining tariff under section 62 of the Act.

However, such situations could be as under:

i) When the terms of PPA are in violation of the provisions

of the Act or the Regulations framed thereto.

ii) When the terms of the PPA are detrimental to the

consumers’ interest, and result in unreasonable price of

39 | P a g e

electricity to the consumers as provided under section

62(1)(a).

The present case is somewhat unique i.e. it is a case of

negotiated tariff agreed upon between the generator and

buyer. This is neither covered by the provisions of Section

62 nor fully covered by the provisions of Section 63 of the

Act. This Commission had approved the negotiated tariff

keeping in view the fact that it more than protected the

consumers’ interest by ensuring a reasonable price of

electricity. Thus, this case can be considered closer to the

situation envisaged in Section 63 of the Act as the

Commission adopted the tariff, though no bidding had

taken place. In such an event the judgments cited by the

Petitioner are clearly distinguished on the facts as those

judgments relate to cases which are covered under Section

62 of the Act.

In view of the above discussions the issue framed by us

at Para 9 ‘D’ is answered in affirmative. However, as per

the judgment of the Hon’ble Supreme Court the tariff

determined by the Commission shall apply only to the

disputed period beginning 7th May, 2011 and for power

supplied to Haryana.

12. The last issue framed by us at Para 9 ‘E’ has been

examined at length. The Commission observes that the

40 | P a g e

judgment of the Hon’ble Supreme Court, under which the

instant tariff petition has been filed by LAPL, nowhere

mentions that the capped tariff voluntarily agreed upon by

the parties in the concluded PPA/PSA should be

disregarded. Thus the Commission finds no merit in the

contention of the Petitioner that the tariff capping

arrangement ought to be dispensed with. Further the

Commission agrees with the fact, also upheld by Hon’ble

APTEL in Appeal No. 29 of 2011, that if Power Purchase

Agreement is not in conformity with the Electricity Act,

2003 it loses its legal force. On this issue the Commission

observes that the Petitioner, at no stage, has contested

the fact that the concluded PPA is in violation of any of the

provisions of the Electricity Act, 2003 and hence the same

needs to be disregarded.

Further the Commission has examined the contention of

the Petitioner that the Discoms have already adopted

CERC tariff and HPGCL is already recovering the same from

the consumers and observes that the facts are somewhat

different. HPGCL does not come in the picture at all as the

power procurement as well as distribution and retail

supply of electricity is done by the two distribution

licensees in Haryana. The power purchase cost including

that of power supplied by LAPL/PTC is approved by the

41 | P a g e

Commission on a projected basis at the beginning of the

year on the basis of the rates as per the PPAs or in its

absence the recent invoices raised by the suppliers of

power with some adjustments for any anticipated change

in the rates. However, the source wise power purchase

cost so approved by the Commission is trued up through

FSA mechanism so that no additional burden is imposed

on the electricity consumers. In the case of the Petitioner,

the Commission observes that in the ARR of the Discoms

for FY 2012-13 the rate allowed for PTC/Lanco

Amarkantak power was Rs. 3.52/kWh based on the

average rate from May 2011 to December 2011 as against

Rs. 3.701/kWh proposed by the Discoms, subject to

adjustments through FSA mechanism as the actual tariff

within a cap of Rs. 2.32/kWh was still to be determined.

Consequently, the contention of the Petitioner that CERC

tariff was already adopted by the Discoms is not true.

In view of the above discussions the Commission answers

the issue framed at Para 9 ‘E’ in negative i.e. the capped

tariff agreed upon by the parties cannot be ignored.

13. In view of the above discussions the Commission

considers it appropriate to proceed with tariff

determination of the tariff for the disputed period as

42 | P a g e

directed by the Hon’ble Supreme Court and in accordance

with the provisions of the Electricity Act, 2003.

14. For the fixation of tariff, the Petitioner has

submitted that the Commission may consider capital cost

of Rs. 1356.77 Crore as at the end of 06.05.2011 i.e. Rs.

1668.37 Crore netted off for revenue earned on account of

UI, which is the actual capital cost incurred and verified by

the auditor. Per Contra HPGCL/HPPC has argued that the

capital cost for determination of tariff ought to be

determined by the Commission after applying prudence

check on the actual capital cost claimed to have been

incurred by the Petitioner. The Petitioner should be

directed to file all the relevant documents and audited

amounts in regard to capital expenditure pertaining to the

second unit of 300 MW.

The Commission observes that the levellised tariff

approved by this Commission was based on an aggregate

project cost as per the Detailed Project Report finalized in

accordance with CERC norms which was Rs. 1340.041

Crore as against Rs. 1356.77 Crore now claimed by the

Petitioner. Further, there is no audited account specifically

available for Unit – 2 of LAPL from where 300 MW power

was contracted to Haryana. Additionally, there is nothing

on record available to the Commission to establish the fact

43 | P a g e

that the project developer exercised sufficient prudence to

efficiently execute the project within the cost and timeline

as originally envisaged. On the contrary the

Commissioning of the project was un-necessarily lingered

on which also invited adverse comments from the CERC.

In view of the above the commission considers it

appropriate to consider project cost of Rs. 1007.731 Crore

for the purpose of tariff determination for the disputed

period i.e. Rs. 1340.041 Crore less Rs. 332.31 Crore

revenue earned on account of UI.

15. On the issue of financial structure the Petitioner

has submitted that the Debt drawn for the Project was Rs.

1025.18 Crores constituting 75.56% of Capital Cost and

the balance 24.44% is the equity capital. Per Contra

HPGCL/HPPC has submitted that Debt: Equity ratio of

80:20 should be considered in relation to the Petitioner’s

project.

The Commission observes that the Debt: Equity ratio

envisaged in the original scheme was 80:20. As the tariff is

estimated on normative basis the same has been

considered irrespective of the actual draw down of debt as

claimed by the Petitioner. Even otherwise the actual draw

down of debt as claimed by the Petitioner is Rs. 1025.18

Crore against the project cost of Rs. 1007.731 Crore now

44 | P a g e

considered by the Commission for the purpose of tariff

determination which works out to more than 100% of the

Project Cost. Consequently, a normative Debt: Equity ratio

of 80:20 is being considered by the Commission for the

purpose of computing interest cost of normative debt and

ROE.

16. Return on Equity (ROE) has been claimed by the

Petitioner at 15.5% for the 24.44% equity based on

Regulation 15 of the CERC Regulations 2009. While

objecting to this HPGCL/HPPC has submitted that the

approved financial package in this case is 80% debt and

20% equity. Accordingly, HPGCL/ HPPC has proposed that

the capital cost duly scrutinized subject to prudence check

and approved, should be apportioned in 80:20 ratio and

ROE should be restricted to 20% of the Capital Cost.

The Commission has considered the submissions of the

parties on the issue of ROE and observes that HERC

Regulations, 2008 provides as under:-

(iii) Return on Equity:

Return on equity shall be computed on the equity base

determined in accordance with regulation 15 @ 14% per

annum.

Hence, for the purpose of tariff determination the

Commission has considered 14% ROE on 20% of the capital

45 | P a g e

cost approved by the Commission as against 15.5% claimed

by the Petitioner as this also formed the basis of arriving at

a levellised tariff approved by the Commission.

17. Interest on Loan: has been claimed by the

Petitioner based on actual interest payments made to the

lenders in line with Regulation 16 of CERC Regulations

2009. Interest on Loan for the balance period of 2011-12

and FY 2012-13 has been estimated on the basis of

prevailing interest rates and in accordance with the terms

of loan agreements executed with the lenders. On this

issue HPGCL/HPPC has submitted that the interest on

working capital should be calculated on normative basis

hence the actual amount of capital employed by the

generating company from time to time in regard to coal

consumption etc. is irrelevant and the working capital

needs to be uniform throughout the tariff period of

2009-14.

The Commission has considered the above submission and

counter submissions on the issue of interest on working

capital and is of the view that the financial closure of the

project is attained prior to the actual implementation of

the project. Hence, the project loan including working

capital loans are agreed upon with lenders upfront.

46 | P a g e

Consequently, in line with the DPR that formed the basis of

arriving at the levellised capped rate voluntarily agreed

upon by the parties, the Commission has considered

12.10% interest on term loan and 13.10% interest on

working capital loan on the normative debt and working

capital requirement approved by the Commission.

18. Operating & Maintenance Expenses (O&M): The

Petitioner has claimed O&M expenses of Rs. 17.88

lakhs/MW and Rs. 18.91 lakhs/MW as applicable for a 300

MW set for the years 2011-12 and 2012-13 respectively in

accordance with Regulation 19(a) of CERC Regulations

2009. While contesting this claim HPGCL/HPPC has

submitted that O&M expenses need to be ascertained in

terms of CERC Regulations, 2004 based on the capital cost

finally determined by the Commission. They have further

submitted that under the Tariff Regulations, 2009, the

O&M Expenses are on normative basis and need to be

allowed only on that basis. Any claim on the part of the

Petitioner contrary to the above is wrong.

The Commission has considered the above submissions

and observes that while the Petitioner has considered

O&M expenses as per CERC Norms, 2009, HPGCL/HPPC

has proposed that the same should be as per

47 | P a g e

CERC Regulations, 2004. The Commission is of the view

that the DPR envisaged Rs. 1.265 Million/MW O&M

expenses in accordance with CERC Regulations, 2004, and

hence the same has been retained by the Commission for

working out tariff in the instant case despite the fact that

as per HERC Regulations, 2008 the O&M amount works

out on the lower side.

19. Energy Charges:-

The Petitioner has proposed Normative Gross Station Heat

Rate of 2401 Kcal/kWh as per Regulation 26(ii)(B) of CERC

Regulations 2009 applicable for Pressure Rating of 170

kg/cm2 , while HPGCL/HPPC has submitted that the same

ought to be in line with CERC Regulations, 2004.

The Commission observes that the Station Heat Rate

(Kcal/kWh) envisaged at the DPR stage which formed the

basis of contracted tariff was 2500 Kcal/kWh. The

Commission observes that the SHR, due to inherent

improvement in technology, has witnessed substantial

improvement in the case of 300 MW thermal powerhouses

which is also reflected in the actual performance reported

by the Petitioner in the case of their Unit – 2. Thus the

Commission, for the purpose of determining tariff for the

48 | P a g e

disputed period, in line with HERC Regulations, 2008, has

considered SHR at 2410 Kcal/kWh i.e. 2450 Kcal/kWh

minus 40 Kcal/kWh as the boiler feed pump in the instant

case is electrically operated.

20. Auxiliary Energy Consumption:- The Petitioner has

proposed auxiliary energy consumption in accordance with

Regulation 26(iv) of CERC Regulation 2009, the Normative

Auxiliary Consumption has been considered at 9% since

the Unit has electrically driven boiler feed pump and uses

induced draft cooling towers. As the same is in line with

the original scheme of things as well as HERC

Regulations, 2008, 9% auxiliary energy consumption has

been retained by the Commission for the purpose of

tariff determination.

21. Landed cost and the GCV of coal: for the period

commencing from May 2011 to December 2011 the

Petitioner has proposed landed cost of coal based on

actual receipts and consumption respectively. It was

submitted by the Petitioner that Landed cost of coal has

been computed in accordance with Regulation 21(7) of

CERC Regulations 2009 adopting normative transit and

handling loss of 0.8%. The Petitioner has requested that

Energy Charges for the period January 2012 to March

49 | P a g e

2012 of 2011-12 and FY 2012-13 may be allowed to be

recovered in accordance with the CERC formula.

With regard to the tariff computed for the period from 7th

May 2011 to December 2011, the Petitioner has submitted

that the Letter of Assurance (LoA) issued by South Eastern

Coalfields Ltd.(SECL) vide letter dated 18.9.2006

guarantees coal supply to the extent of 1.445 Million Tons

Per Annum (MTPA). However, due to various directions

issued by Government of India pursuant to new coal

distribution policy, the actual coal supply has been

reduced progressively and stands at the current allocation

of 0.94 MTPA against the requirement of about 1.62

MTPA for meeting 85% PLF. The Commission observes that

as per norms approved by the Commission including

normative PLF of 80% the coal requirement works out to

1.32 MTPA. Consequently, as per submissions of the

Petitioner on availability of the SECL link coal to the extent

of 0.94 MTPA, the percentage of linked coal works to the

coal requirement estimated by the Commission works out

to about 71%.

The Commission is of the view that the entire project was

conceived on the basis of coal linkage available to LAPL

from SECL. However, the fact cannot be denied that there

50 | P a g e

are some temporary disruptions in coal supply which may

not continue in future. Additionally, during the prolonged

proceedings before the Commission the Petitioner could

not place on record any material that could establish the

fact that they made bona – fide efforts to secure coal

linkage as envisaged at the project planning stage that

formed the basis of the contracted levellised tariff also

approved by the Commission. Thus the Commission, for

the purpose of tariff determination for the disputed

period, has considered weighted average cost of SECL coal

to the extent of 71% as per the details filed by the

Petitioner and 29% weightage to the cost of coal from

other sources.

The consumption of secondary fuel oil has been

considered at 2.0 ml/kWh as per HERC Regulations, 2008

and the same has been valued as per data provided by

the Petitioner which has been taken at the face value.

Further the GCV of coal has been considered as per the

DPR despite the fact that the Petitioner is also using

imported coal with significantly higher GCV which in

effect would reduce the coal requirement of the

Petitioner. Further the Plant Load Factor has been

retained at 80% as per the DPR which is also in line with

HERC Regulations, 2008.

51 | P a g e

22. In view of the above, the tariff worked out by the

Commission at generator’s bus for the disputed period

beginning 7th May, 2011, for supply of LAPL Unit – 2

power to Haryana, based on the norms approved in this

Order is as under:

Tariff 7th May, 2011 to 31st March, 2012: Rs. 2.52/kWh.

Tariff FY 2012-13: Rs. 2.46/kWh.

However, as the tariff worked out as above is more than

the levellised capped tariff, the capped tariff of Rs.

2.32/kWh shall prevail. The benefit of any difference vis-

à-vis the capped tariff shall be passed on to the

Consumers through FSA mechanism. As the capped tariff

does not include Income Tax/MAT the same shall be paid

to LAPL in addition to the capped tariff on the ROE

allowed by the Commission in this Order.

The Commission notes that the levellised capped tariff of

Rs. 2.32/kWh is at the Generator’s bus bar, hence after

considering inter – state, intra – state transmission

charges and losses the landed cost of power to the

Discoms in Haryana, without statutory levies like MAT,

ED etc., would be in excess of Rs. 2.81/kWh” .

52 | P a g e

Aggrieved by the aforesaid Order dated 17.10.2012

passed by the Commission, LAPL preferred an appeal

bearing number 65 of 2013 before the Hon’ble APTEL. The

Hon’ble APTEL, vide its judgment dated January 03, 2014

was pleased to allow the ibid appeal and set aside the

Order dated October 17, 2012 passed by the Commission.

The Hon’ble Tribunal vide its judgment dated January 03,

2014 directed the Commission to re-determine the tariff

by way of interim arrangement dehors the PPA, pending

disposal of the Civil Appeal No. 10329 of 2011 in Hon’ble

Supreme Court in the light of directions and finding given

by the Hon’ble Tribunal in its aforesaid judgement within

two months from the date of communication of the

aforesaid judgment to the Commission. Further, as

directed by the Hon’ble APTEL LAPL submitted additional

details and documents to the Commission for fixing the

interim adhoc tariff for supply of power by LAPL pursuant

to aforesaid Order passed by the Hon’ble Supreme Court.

In compliance of the judgment dated January 03,

2014, following details and documents were submitted

without prejudice to all rights and contentions in Civil

Appeal No. 10329 of 2011 pending before the Hon’ble

Supreme Court.

53 | P a g e

A. Documents containing details of actual Capital Cost

incurred up to the date of COD of the project for Unit 2

supported by Auditor’s Certificate.

B. A statement showing lender wise loans drawn and

their outstanding loans as on COD is enclosed and

supported by Auditor’s Certificate.

C. A note on the cost of common facilities of Unit 1 &

2 of LAPL.

D. Regarding detailed reasons for time and cost

overrun of the project, it is submitted that LAPL had duly

exercised prudence to efficiently execute the project

within the cost and timeline as originally envisaged.

However, we would like to place on record that there

were unequivocally agreed Force Majeure conditions

that caused delay in commissioning the project. We

respectfully submit that the commissioning of the Project

was delayed due to occurrence of Force Majeure events

which were not within our reasonable control and could

not be prevented by taking reasonable care. We had duly

informed PTC India Limited time to time in this regard.

We would like to draw your kind attention that M/s

Dongfang Electric Corporation, China (DEC), was our

supplier of main plant equipment and BTG component of

project and manufacturing units of DEC were severely

damaged due to earthquake in China and DEC could not

supply the machines and equipments and vis a vis could

not be received by us in time. Further, due to new Visa

Policy enforced by Government of India in

September/October 2009 all the Chinese Engineers of

DEC, who were supervising the erection, testing and

54 | P a g e

commissioning activities at the project site were forced

to leave the country on or before 31-10-2009 that caused

non availability of Chinese Experts for supervising the

erection, testing and commissioning activities and has

resulted in delay in said activities. We had duly informed

PTC India Limited vide our letter dated 28-05-2008 and

subsequently submitted a report vide letter dated 5-12-

2008 with respect of aforesaid Force Majeure events.

The above said Force Majeure events were duly

acknowledged and accepted by PTC and accordingly filed

Case no. HERC/PRO -12 dated 13.05.2010 before the

learned Commission. It was submitted by LAPL that even

the Commission duly appreciated and acknowledged as

well as accepted the aforesaid Force Majeure events in

its Order dated 02-02-2011 and held that “Force Majeure

Event as claimed by PTC/LAPL did happen and the same

were not disputed by HPGCL”. That our lead lender PFC

has approved the Project cost overrun. Further, it may be

noted that the reasons for delay in commissioning of the

project of LAPL were reasonable and appropriate which

were noted by the majority judgment dated 09.02.2012

passed by Central Electricity Regulatory Commission

(Para 40 of the judgment). It was further clarified that

some alleged adverse comments about the

commissioning of the Project of LAPL were made in the

minority judgment dated 13.02.2012 of CERC which has

no effect in the eyes of law as it is a trite principle of law

that only majority judgment is binding. The approval of

project cost over-run by our lead lender PFC Letter of

PTC India Limited dated 28-05-2008, LAPL letter dated 5-

12-2008 , Copy of case no. HERC/PRO-12 dated

13.05.2010 filled by PTC, HERC Order dated 02-02-2011,

CERC Order for majority judgment dated 09.02.2012

55 | P a g e

were also provided.

E. It was submitted that bonafide efforts to secure

coal linkage from SECL as envisaged right from the project

planning stage was made by LAPL which is evident from

the various correspondences exchanged with South

Eastern Coal Limited/Ministry of Power/Central Electricity

Authority &Ministry of Coal which are annexed herewith

for your perusal and marked as Annexure – D. A

continuous effort is being made on regular basis for

getting the linkage coal supply from SECL. The

correspondence clearly shows that, LAPL had made

utmost efforts on their part to secure linkage coal for

operating the plant as was initially planned. However, on

account of circumstances beyond control and owing to

nationwide coal shortage being faced, LAPL had to

procure coal from sources other than linkage coal.

F. Details with respect of Cost of Coal, Secondary Fuel

Oil and Chemist certificates of “as fired GCV” of coal for

determining of variable charges were provided.

G. Auditor’s Certificate for Actual O&M Cost incurred

was enclosed.

H. Details and documents with respect to additional

inputs including documents in support of procurement of

Secondary fuel oil, Primary fuel was provided.

56 | P a g e

5. REPLY FILED BY HPPC:-

HPPC vide their memo no.Ch-10/HPPC/SEC&R-I/LTP-

II/LAK/Loose dated 18.02.2014. The same is as follows:

5.1 “At the outset, the Respondent No. 2 wish to

submit that the Respondent No. 2 (HPPC) intend to file

second appeal from the judgment and Order dated

3.1.2014 passed by the Hon’ble Appellate Tribunal in

Appeal No. 65 of 2013 under section 125 of the Electricity

Act, 2003 to the Hon’ble Supreme Court.

5.2 The present submissions made by the Respondent

No. 2 in response to the petition filed by Lanco are

without prejudice to the claims, rights and contentions of

the Respondent No. 2 in the second appeal against the

Order dated 3.1.2014 as well as in Appeal No. 15 of 2011

filed by Lanco and pending before the Hon’ble Supreme

Court.

5.3 In the Order dated 3.1.2014, the Hon’ble Appellate

Tribunal has held as under in regard to the capital cost

and other elements of tariff of the power generating unit

to be considered for the purpose of determination of

tariff and other tariff elements in Paras 58 to 64:-

57 | P a g e

“58. The Tariff Regulations, 2008 of the State

Commission specify the following norms:-

i) Capital Cost: Regulation 12 specifies

that the actual expenditure incurred on

the date of completion of the Project

shall form the basis for fixation of final

tariff.

ii) Target Availability/Plant Load Factor:

Target Availability/PLF shall be as per

Regulations 11(2).

iii) Sale of inform power. Any revenue

earned by the generating company from

sale of infirm power, shall be taken as

reduction in capital cost and shall not

be treated as revenue.

iv) Debt equity ratio: As per Regulations

15, in case of generating stations where

investment approval was accorded prior

to 1.4.2008 and which are to be

declared under Commercial Operation

during the period from 01.4.2008 to

31.3.2011 or the projects where the

investment approval is accorded on or

after 01.4.2008, debt equity ratio of

70:30 shall be considered. However, if

the deployment of equity is less than

30%, the actual debt and equity shall be

considered for determination of tariff.

v) Interest on loan: As per Regulation

16(i), the interest on loan capital shall

58 | P a g e

be computed loan wise on the loans

arrived at in the manner indicated in

Regulation 15.

vi) Depreciation: As per Regulation 16(ii),

the depreciation shall be calculated

annually, based on straight line method

over the useful life of the asset and the

rates prescribed in Appendix-II to the

Regulations. The residual life of the

asset shall be considered as 10% and

depreciation shall be allowed up to 90%

of the historical cost of the asset.

vii) Return on equity: Return on equity

shall be computed on the equity base

determined in accordance with

regulation 15 @ 14% per annum.

viii) Operation and maintenance expenses:

In case of generating station which has

not been in existence for three years,

or has been commenced after the

commencement of the Regulations of

2008, the O&M expenses shall be

considered at 1% of the capital cost as

admitted by the State Commission with

escalation factor of 4% per annum to

arrive at the allowable O&M expenses

for the relevant year.

ix) Interest on Working Capital: The norms

for working capital and interest thereon

shall be as per Regulation 16(vi).

x) Income Tax: The tax on income streams

of the generating Company from its

59 | P a g e

core business, shall be computed as

expense at rates applicable from time

to time and shall be recovered from the

beneficiaries as per Regulation 16(vii).

xi) Energy charges: Regulation 17 specifies

the method for calculation of energy

charges based on actual price and heat

value of fuel.

59. Let us now examine the findings of the State

Commission regarding various parameters of

tariff.

60. The Appellant had claimed capital cost of

Rs.1356.77 crores i.e. Rs.1668.37 crores

netted off for revenue earned on account of

UI as actually incurred and verified by the

auditors. The State Commission, however,

allowed net capital cost of Rs.1007.731 crores

i.e. capital cost of Rs.1340.041 crores as pear

the Detailed Project Report less Rs.332.31

crores earned on account of UI. The State

Commission has made the following

observation in this regard.

“The Commission observes that the levellised

tariff approved by this Commission was based

on an aggregate project cost as per the

Detailed Project Report finalized in

accordance with CERC norms which was

Rs.1340.041 Crore as against Rs.1356.77

Crore now claimed by the Petitioner.

Further, there is no audited account

specifically available for Unit-2 of LAPL from

where 300 MW power was contracted to

60 | P a g e

Haryana. Additionally, there is nothing on

record available to the Commission to

establish the fact that the project developer

exercised sufficient prudence to efficiently

execute the project within the cost and

timeline as originally envisaged. On the

contrary the Commissioning of the project

was unnecessarily lingered on which also

invited adverse comments from the CERC.”

61. The State Commission has deviated from its

own Regulations for determination of the

capital cost based on the actual expenditure

as no audited account was made available for

Unit-2 from which power was contracted to

Haryana. Further, there was nothing on

record to establish that the Appellant

exercised sufficient prudence to efficiently

execute the Project within the cost and time

line as originally envisaged.

62. Of course, we agree with the Haryana Power

(R2) that the State Commission has to apply

prudence check in determining the capital

cost based on the audited accounts. We find

from the impugned Order that adequate

materials were not available before the State

Commission to verify the capital cost

incurred on Unit No.2 of the Appellant and to

examine that the time and cost overrun was

not due to reasons attributable to the

Appellant and in the absence of the requisite

materials the State Commission approved the

capital cost as per the Detailed Project

Report.

61 | P a g e

63. Therefore, we direct the Appellant to submit

the necessary details of capital cost for unit

No.2 including apportionment of cost of

common facilities and detailed reasons for

time and cost overrun of the Project before

the State Commission to enable the State

Commission to apply prudence check and

determine the capital cost according to its

own Tariff Regulations. The State

Commission in turn shall determine the

capital cost as per its Regulations after the

requisite details are furnished by the

Appellant.

64. The State Commission has allowed debt

equity ratio of 80:20 as envisaged in the

original scheme. Further, the debt as claimed

by the Appellant was 1025.18 cores as against

the project cost of Rs.1007.737 crores as

approved by the State Commission. Thus, the

debt was in excess of the capital cost. As

held above, the State Commission has to

re-determine the capital cost based on the

details to be furnished by the Appellant.

Accordingly, the debt equity ratio is also

required to be re-fixed according to the

Tariff Regulations of 2008.”

The Respondent (HPPC) submitted that In terms of

the above Order, in the previous proceedings, Lanco

admittedly had defaulted in not placing adequate

material before the Commission to verify the capital cost

related to Unit No. 2 of the generating station at

62 | P a g e

Amarkantak. The Hon’ble Appellate Tribunal has directed

the Petitioner to submit necessary details of the capital

cost for Unit No. 2 including the apportionment of the

cost of common facilities as well as detailed reasons for

time and cost overrun of the project to enable the

Hon’ble Commission to apply prudent check as per the

applicable Regulations.

The Respondent further submitted that despite specific

directions of the Hon’ble Tribunal, the Petitioner has not

furnished the requisite details relating to the capital cost

of Generating Unit No. 2 along with the Auditor’s

Certificate as well as the basis of apportionment of the

common assets and facilities. In the absence of the

above details, it is respectfully submitted that the

capital cost and other related tariff elements cannot be

effectively determined by the Commission as per

directions of the Hon’ble Appellate Tribunal due to

deliberate failure on the part of the Petitioner to give

the requisite details with supporting Auditor’s

Certificate.

In the written submissions filed by the Respondent

No.2 in Case No. 1 of 2012 on 24.7.2012, the answering

Respondent had clearly raised various defects in the

Tariff Petition then filed by the Petitioner. At Para 11 of

63 | P a g e

the written submissions, it was stated by Respondent

No.2 as under:

1. At the hearing it was specifically pointed out that there are defects in the tariff petition filed. The Hon’ble Commission had also specifically observed the absence of particulars in regard to common facilities. Even after the above, the reply filed by Lanco on the last date of the hearing i.e. on 19.7.2012 does not give all the requisite formats. In the circumstances Lanco is in serious default in filing the tariff petition and could be called upon to file all the requisite formats. It is not open to Lanco to selectively choose some format and that too in such modified form as it considers and require the Hon’ble Commission to determine the tariff based thereon.

The Respondent No.2 submitted that even in the

present petition filed by Lanco in pursuance to the Order

passed by the Hon’ble Appellate Tribunal on 3.1.2014,

Lanco has not furnished the requisite details to enable

the Hon’ble Commission to properly apply prudence

check and decide on the appropriate capital cost.

The Respondent No.2 submitted that the generating

station of Lanco planned to be established at Amarkantak

consist of two units of 300 MW each and two Units of 660

MW each aggregating to 1920 MW. The answering

Respondents have to get power from only the Generating

64 | P a g e

Unit No-2 of 300 MW. The Generating Unit No-2

constitutes only 15.62% of the total capacity of the

generating station. There are number of common

facilities including the Land, Service Buildings, MGR

Workshop Buildings, Off Site buildings, Administrative

buildings, Field Hostel, Residential and Service Buildings,

Township, Boundary Wall, Sewerage and Efficient

Treatment Plants, Power Station Switchyard, Air-

conditioning System, Coal Handling System, Permanent

Roads, Drains, Rain Water Harvesting, Fire Station and

related expenditure, Fuel Oil and Ash Handling System

and various other assets which are related to all the

generating units and is not restricted to Unit No. 2 or for

that matter Units 1 and 2 alone. Since these and other

common facilities relate to the entire project of 1920

MW, the cost of which common facilities to the extent of

15.62% alone can be apportioned to Unit No. 2 as per the

practice prevalent including the terms of the Tariff

Regulations notified by the Central Commission.

In the petition filed, Lanco has not furnished the

requisite details in regard to the common facilities.

Lanco has only apportioned the common facilities

amongst Units 1 and 2 without considering the impact of

such common facilities qua Units 3 and 4 of 660 MW

each. The apportionment between Units 1 and 2 is also

65 | P a g e

in an arbitrary manner undertaken at the whims of

Lanco. There is no Auditor’s Certificate verifying the

apportionment or the basis of apportionment.

The Auditor’s Certificate dated 12.1.2014 attached to

the petition, in fact, is not a Certificate approving the

apportionment of capital cost but a disclaimer by the

auditor who is suppose consider to the capital cost. The

Letter stipulated stipulating clearly the following:

“............the Capital Cost given in the

‘Annexure I”, which is prepared by the

management of the company..........”

“e) We have checked the underlying arithmetical

computation of the amounts included in the

‘Annexure I”, as prepared by the management of

the Company.”

“f) In view of the procedures do not constitute

either an audit or a review made in accordance

with generally accepted auditing standards in

India, we do not express any assurance on the

information.”

“g) Had we performed additional procedures or

had we performed an audit or review of the

financial statements in accordance with generally

accepted auditing standards in India, other matters

might have come to our attention that would have

been reported.”

“h) We have no responsibility to update this report

for events and circumstances occurring after the

date of this report.”

66 | P a g e

“i) Our report is solely for the purpose as set forth

in the paragraph 2(a) of this report and for your

information and is not to be used for any other

purpose or to be distributed to any other parties.”

In view of the above specific stipulation in the

Auditor’s Certificate which are in the nature of

disclaimer and not authenticated verification, the

apportionment of capital cost etc cannot be considered

as certified by the authority. The authenticity of the

apportionment or even the methodology of the

apportionment has not been certified by the Auditor.

The answering Respondents submits that there are no

details of the total capital expenditure incurred on

common facilities/shared facilities duly supported by

Auditor’s Certificate confirming such capital expenditure

and there are no details as to why the common facilities

cannot be related to the entire 1920 MW capacity of the

generating station. All the four units are being

established at the same place and as per the Project

Report developed by Lanco. The expenditures are

incurred for common facilities in respect of the entire

generating station.

In terms of Regulation 4 of the Tariff Regulations,

2009, the Commission has to determine the tariff in

respect of Unit No. 2 and for the above purpose the

capital cost of the project need to be broken into

67 | P a g e

distinctive units and to the extent on common facilities.

There has to be an appropriate apportionment on the

basis of the installed capacity of the four generating

units. The petition filed by Lanco is not in accordance

with the above Regulation. The answering Respondents

further submit that in terms of Regulation 7 the capital

cost need to be determined after the Hon’ble

Commission has applied the prudent check. This is

specifically provided for in Regulation 7 (1) of the Tariff

Regulations, 2009. It is, therefore, not correct on the

part of Lanco to seek that whatever capital cost has been

disclosed by Lanco need to be accepted based on the

auditors’ certificate. There is need to go into the

details.

The Commission is fully empowered to and has the

statutory function to undertake the prudence check.

Such exercise of powers by the Hon’ble Commission

notwithstanding any approval of the capital cost by the

Central Electricity Authority or by the Auditors etc have

been now well settled. In the case of West Bengal

Electricity Regulatory Commission v CESC (2002) 81 SCC

715 the Hon’ble Supreme Court held as under:-

“96.The High Court further came to the conclusion that in view of the fact that there is no challenge to the accounts of the Company by the consumers, the said accounts of the Company should be

68 | P a g e

accepted by the Commission. Here again we are not in complete agreement with the High Court. There may be any number of instances where an account may be genuine and may not be questioned, yet the same may not reflect good performance of the Company or may not be in the interest of the consumers. Therefore, there is an obligation on the Commission to examine the accounts of the Company, which may be genuine and unchallenged on that count still in the light of the above requirement of Section 29(2)(g) to (h). In the said view of the matter admitting that there is no challenge to the genuineness of the accounts, we think on this score also the accounts of the Company are not ipso facto binding on the Commission. However, we hasten to add that the Commission is bound to give due weightage to such accounts and should not differ from the same unless for good reasons permissible in the 1998 Act.”

Similarly, in the case of Kerala State Electricity

Board v Kerala State Electricity Regulatory Commission,

Appeal No. 177 of 2009 dated 13.1.2011the Hon’ble

Appellate Tribunal for Electricity has held as under:-

“20. At the outset, it shall be stated that the State Commission while examining the accounts is not bound by the audited accounts. The accounts may be genuine as per the Auditor’s Report. But, it is the State Commission which has to examine the accounts to ascertain the performance of the licensee in relation to the desirability of the expenditure in the interest of the consumers. This point has already decided by the Judgment of this Tribunal in Appeal No. 94 of 2008 as well as the decision of Hon’ble Supreme Court in West Bengal

69 | P a g e

Electricity Regulatory Commission vs. CESC Ltd. (2002) (8)SCC 715.

21. Let us refer to the relevant observations made

by this Tribunal in Appeal No. 94 of 2008:

“In the truing up process the actual expenditures are examined and the expenditure with various heads are trued up. So far as the effect of audit is concerned, it establishes the genuineness of accounts and expenditure incurred. The Commission has to allow only as much expenditure as pass through as meets the targets set by it or is found to be prudent and necessary”

22. This decision was given by this Tribunal on the strength of the ratio decided by Hon’ble Supreme Court. We will now refer to the relevant observations made by the Hon’ble Supreme Court in the decision referred in (2002) (8) SCC 715.

“In this process, the Commission, in our opinion, is not bound by the Auditors’ Report….. There may be any number of instances where an amount may be genuine and may not be questioned, yet the same not reflect good performance of the company or may not be in interest of the consumers. Therefore, there is an obligation on the Commission to examine the accounts of the company which may be genuine and unchallenged on that count still in the light of the above requirements of Section 29(2) (g) to (h). In the said view of the matter admitting that there is no challenge to the genuineness of the accounts, we think on this score also the accounts of the company are not ipso facto binding on the Commission.”

70 | P a g e

23. The above observations would reflect the ratio

decided by Hon’ble Supreme Court. What is to be

seen in this Appeal where each item of expenses

allowed or disallowed by the State Commission is

correct or not in the facts of the case and the

materials placed before of the Commission.”

Accordingly, the mere fact that the auditor has

given a letter as per the books of account or even when

the Auditor duly certifies the account does not mean that

the Commission will not exercise prudence check. The

prudence check need to be applied by the Commission is

to be in detail as higher capital cost would increase the

tariff for the consumers at large. The Commission

exercises the prudence check in all cases in Order to

ascertain not only the veracity of the claim of the

Petitioner/Generating Company but also to seek whether

all such capital expenditure have been incurred

reasonably or prudently. If the Commission comes to the

conclusion after applying the prudence check that any

such capital expenditure, though actually incurred was

not prudent or expedient, such part of the capital

expenditure will have to be rejected. The scrutiny of the

capital expenditure by the Commission is, therefore, an

absolute necessity which cannot be avoided by Lanco by

not giving the requisite particulars and satisfying the

claim. The Commission as well as the other Regulatory

71 | P a g e

Commissions has been exercising such prudence checks

including by appointment of consultants and through

verification by the staff of the Commission. It is,

therefore, not correct on the part of Lanco to seek

admission of the capital expenditure incurred only on the

basis of the auditor’s certificate.

The prudence check is also required to be

undertaken by the Commission in Order to determine

whether any part of the capital expenditure involve

minor assets or assets not relevant for the generation of

electricity. Accordingly, the expenditure being

supported by accounting vouchers for the purpose of the

Companies Act is not sufficient. The Generating

Company is required to establish to the satisfaction of

the Commission the need for capital expenditure,

incurring of such capital expenditure in a structured

manner and the total expenditure being reasonable and

just.

After the Commission undertakes complete scrutiny

of the capital expenditure, the Commission could come

to the decision as to what part of the capital expenditure

should be admitted as capital cost of Unit 2 including by

appropriate apportionment of the common/shared

facility in the proportion of MW capacity of Unit 2

72 | P a g e

vis-a-vis the total capacity of the power station. The

above is also a direction of the Hon’ble Tribunal in the

judgment dated 3.1.2014 passed in Appeal No. 65 of

2013.

While deciding the capital cost, the entire infirm

power including the power sold under Unscheduled

Interchange prior to the Commercial Operation Date i.e.

the date from which the Petitioner is supplying power,

the answering Respondents in pursuance to the earlier

Order dated 02.02.2011 passed by this Commission need

to be deducted. As per the financial statements of Lanco

filed for the year ended 31.03.2009, for the period 2009-

10 and for the period 2010-11, the sale of power from

Units 1 and 2 before the declaration of the date of

commercial operation aggregate to Rs. 1889.10 crores. In

addition, there has been sale of infirm power during the

period 01.04.2011 to 06.05.2011 the details of the same

have not been disclosed by Lanco. In the Financial

Statements providing for the income from sale of

electrical energy. Lanco has not given the details of the

breakup of the above, namely, what part of the sales

pertain to Unit -1 and what part pertains to Unit - 2.

It is, therefore, incumbent for Lanco to provide

details of the sale of infirm power and sale of power

under unscheduled interchange changes, namely, the

73 | P a g e

aggregate quantum of such sale both from Units 1 and 2

and out of the above, the amount realized from the sale

of infirm power and unscheduled interchange Charges

considered for reduction of the capital cost of Unit No. 1.

The balance after adjustment for Unit 1 held to be

accounted as pertaining to Unit No. 2. This revenue need

to be adjusted for reduction in the capital cost for the

purpose of determining the cost to be considered for

tariff. The deduction of revenues from infirm power/UI

Charges from the capital cost is a significant aspect of

capital cost determination and the benefit of the same

should go to the consumers in the State of Haryana. The

Commission may, therefore, direct a detailed

investigation into the quantum of infirm power sold by

Lanco from Amarkantak Project, verification of the above

quantum vis-a-vis Unit 2 and then determine the

reduction in the capital cost pertaining to Unit 2. In the

facts and circumstances of the case the submissions of

Lanco on the quantum of sale of infirm power at Rs.

311.60 crores is erroneous.

The approved financial package of the project

admittedly, is 80% debt and 20% equity. Accordingly, the

capital cost duly scrutinized subject to prudence check

and approved, will have to be apportioned in the form of

debt to the extent of 80% and equity to the extent of

74 | P a g e

20%. It is not open to Lanco to claim equity to be at

24.52% when the approved financial plan for equity is

only 20%. The excess of equity above 20% should be

treated as notional loan and not as equity. Accordingly,

the tariff filing made by Lanco on the basis of

apportionment the debt and equity in the ratio of 75% -

25% is wrong. The entire tariff calculation based on the

above wrong differentiation and equity ratio assumed by

Lanco is defective and need to be rejected. Once the

capital cost determined as per prudence check and

infirm power and UI revenues are deducted, the cost is

apportioned in the debt equity ratio of 80% - 20%, the

return of equity is to be restricted to 20% of the capital

cost. The balance 80% will have to be serviced as

borrowings/loan.

In terms of the Tariff Regulations, 2009 of the

Central Commission the servicing of the loan is equated

with the depreciation amount and on a normative basis.

The actual repayment of loan or the terms and conditions

entered into by Lanco with its Lenders on repayment of

loan are not relevant. What is, however, relevant is the

interest to be calculated on the normative repayment

i.e. on reducing balance as per the normative repayment

at the weighted average of the actual interest paid to

the Lenders. Accordingly, Lanco is required to give the

75 | P a g e

details of the depreciation claimed by Lanco, its

apportionment to the capital cost of Unit 2 from the

beginning. Any depreciation taken by Lanco on or after

1.4.2009 will be treated as normative repayment to the

banks. The interest for the subsequent period will have

to be determined after adjusting the normative

repayment. Lanco has not given such particulars in Order

to determine the normative loan, depreciation adjusted

and the balance to be serviced from time to time.

In the Order dated 2.2.2011 this Commission while

dealing with the Force Majeure pleaded by the Petitioner

specifically rejected the claim for compensation in terms

of tariff hike i.e. IDC and IEDC specifically holding as

under:-

“A perusal of the above provision makes it clear

that in an event of Force Majeure the parties are

entitled for some relief in terms of extension in

time for carrying out their respective contractual

obligations. As far as the issue of compensating (in

terms of tariff hike) for any consequential

appreciation in Capital Cost is concerned, the

Commission could not find any enabling provision

in the PSA/ PPA. Hence the second issue of

whether any relief other than extension in time

due to any Force Majeure event is admissible is

answered in negative i.e. no relief other than

extension in time as explicitly provided in the

PSA/PPA is admissible”.

76 | P a g e

The above decision of this Commission was not

interfered with by the Hon’ble Appellate Tribunal for

Electricity in the judgment dated 3.1.2014. In view of

the above, the Petitioner cannot claim either IDC or IEDC

or any other compensatory payment by way of cost

overrun or time overrun on account of the delay resulting

from the alleged Force Majeure Event of earthquake in

China or the Visa Policy of the Government of India. This

issue stands settled and cannot be re-opened at this

stage. It is, however, submitted that the alleged

reasons, namely, earthquake in China and Visa Policy of

the Government of India are not Force Majeure making it

impossible for Lanco to complete the construction of Unit

No. 2. In particular, the Visa Policy of the Government

of India cannot be construed as Force Majeure as

sufficient manpower has been available in India for

commissioning Unit No. 2. The claim for IDC and IEDC

i.e. time overrun and cost overrun can be considered

only in regard to the matters other than those resulting

from the alleged Force Majeure Event. The allegations

to the contrary are wrong and are denied.

A perusal of the documents on record, as filed by

the Petitioner, clearly shows that the claim of the

Petitioner for the delay in the commissioning is only on

77 | P a g e

account of Force Majeure Event of earthquake in China in

May 2008. The other reason given for the delay in the

Lenders Engineers Report is that the commissioning was

delayed due to the usage of rotor of Unit No. 2 in Unit

No. 1 allegedly to optimize the commissioning time of

the unit. This cannot be a ground for claiming the cost

overrun in respect of Unit No. 2. Any claim on account of

excess expenditure should be entirely to the account of

Unit No. 1 and no part of such expenditure should be

added on to Unit no. 2. Furthermore, the allegations of

Force Majeure of Visa Policy of the Government of India

not permitting the Chinese workforce have been raised as

an afterthought.

The Fixed Charges as per the Tariff Regulations,

2009 determined based on the capital cost will be on an

annual basis and thereafter apportioned 1/12th for each

month. The fixed charges claimed by Lanco in the

petition are varying from month to month and that also

significantly. This is not in accordance with the Tariff

Regulations, 2009. The annualized fixed charges need to

be determined and then divided into monthly fixed

charges on mathematical basis for recovery purposes.

The scheme adopted by Lanco in determining the fixed

charges on month-wise basis is completely contrary to

the Tariff Regulations, 2009.

78 | P a g e

The interest on working capital to be determined is

on normative basis. The reference to the period to be

taken for the purpose of actual consumption, coal price

etc is January 2009 to March 2009. Once the interest on

working capital is determined on a normative basis, the

actual amount of capital employed by the generating

company from time to time in regard to the coal

consumption etc is totally irrelevant. The interest on

working capital is not dependent on the actual working

capital incurred by the generating company irrespective

of whether the generating company incurs the working

capital or not, the normative working capital as

determined under the Regulations is alone admissible. In

the present case, the claim of Lanco of different working

capital every month or on the basis of coal value being

more in certain months are contrary to the Tariff

Regulations, 2009.

In addition, Lanco has not given details as to why

the coal consumption in a particular month is of higher

value. In any event, the Tariff Regulations, 2009 having

provided for the interest on working capital to be

determined on a normative basis, it is not open to Lanco

to claim interest on working capital allegedly on the

actual working capital incurred by it and that too on

79 | P a g e

month to month basis. The interest on working capital

need to be uniform throughout the tariff period of 2009-

14.

The Operating and Maintenance Expenses need to

be ascertained in terms of Tariff Regulations, 2004 based

on the capital cost finally determined by the

Commission. Under the Tariff Regulations, 2009, the O &

M Expenses are on normative basis and need to be

allowed. Any claim on the part of Lanco contrary to the

above is wrong.

As regards the coal, the Respondent had agreed to

purchase power from the second unit of Lanco Project

based on the coal linkage which Lanco had from Coal

India and/or its subsidiary. It is the obligation of Lanco

to arrange for the above coal. Lanco cannot demand

energy charges based on any coal used by it other than

through procurement of coal under a regular Fuel Supply

Agreement with Coal India and/or its subsidiary.

The Respondent craves leave to refer to make

further submissions on the documents on record at the

time of the hearing. The Respondent also submits that

this Hon’ble Commission should direct the Petitioner to

80 | P a g e

furnish all the requisite details before dealing with

various aspects.

6. REJOINDER FILED BY LAPL:

In response to the above reply filed by HPPC, LAPL filed a

rejoinder, the same are as under:-

The contents of para no.1 of the reply need no response being

matters of record. 2. The contents of para no.2 of the reply merit no response by the Petitioner. 3. The contents of para no. 3 of the reply need no reply being reproduction of certain paras of the judgment dated 03.01.2014 of the Hon’ble Appellate Tribunal for Electricity (‘Hon’ble APTEL’) passed in the Appeal no. 65 of 2013. 4. The contents of para no. 4 of the reply are denied as wrong, incorrect, baseless and misleading. It is denied that the Petitioner defaulted in placing on record the adequate material before this Hon’ble Commission to verify the capital cost related to the Unit-II. In this regard, the Petitioner craves leave to refer to the judgment of Hon’ble APTEL at the time of hearing of the matter. It is submitted that the Petitioner had placed adequate materials before this Hon’ble Commission to verify the capital cost relating to Unit-II. There was no Order/direction of this Hon’ble Commission directing the Petitioner to file any other document in support of cost overrun and time overrun during the hearing of the tariff petition CASE NO: HERC/PRO – 1 OF 2012 apart from the materials already placed by the Petitioner. Therefore, there was no occasion for the Petitioner to provide any additional documents to verify the capital cost related to Unit-II of the Petitioner. In any event, the allegation of the Respondent No. 2 is

81 | P a g e

irrelevant in view of the judgment dated 03.01.2014 of the Hon’ble APTEL. The Petitioner has complied with the said directions of the Hon’ble APTEL and has submitted the necessary details of the capital cost and is willing to provide any other necessary document/information which this Hon’ble Commission may deem fit and necessary for determining the tariff. 5. The contents of para no. 5 of the reply are denied as incorrect, false and misleading. It is denied that the Petitioner has not furnished the requisite details relating to the capital cost of the generating Unit-II along with the Auditor’s certificate. It is denied that the Hon’ble APTEL has directed the Petitioner to submit details of basis of apportionment of the common assets and facilities and what has been directed by the Hon’ble APTEL is necessary details of capital cost for Unit-II including apportionment of cost of common facilities only. In this regard, it is submitted that the Petitioner along with its letter dated 13.01.2014 has already filed:- (a). The filled up tariff filing formats containing detailed breakup of capital cost incurred upto the date of COD of Unit-II supported by the Auditor’s certificate in accordance with Haryana Electricity Regulatory Commission (Terms and Conditions for Determination of Generation Tariff) Regulations, 2008 (‘HERC Tariff Regulations, 2008’) along with other documents; [page no. 254 to 284 of Vol.-I along with letter dated 13.01.2014] (b). Statement showing lender wise loans drawn and their outstanding loans as on COD certified by the Auditor; and [page no. 74 to 75 of Vol.-I along with letter dated 13.01.2014]. (c). Note giving details of the cost incurred on common facilities of Unit-I & Unit-II of the Petitioner [page no. 76 of Vol.-I along with letter dated 13.01.2014]. It is submitted that the cost incurred on Unit-II on common facilities is for the augmentation/ modification/addition to the existing facilities of Unit-I. The cost incurred on the common facilities of Unit-II has been included in the total capital cost which is duly certified by the Auditor of the Petitioner [page no. 71 to 73 of Vol.-I along with letter dated 13.01.2014]. However, to avoid any

82 | P a g e

unnecessary objections from the Respondent No.2 a duly certified cost incurred on common facilities of the Unit-I & Unit-II of the Petitioner by its Auditor is being filed with this Rejoinder. It is denied that there is any failure on part of the Petitioner to provide any document and/or requisite details as alleged. It is wrong and denied that the capital cost and other related tariff elements cannot be effectively determined by this Hon’ble Commission as alleged. The Auditor certificate dated 18.02.2014 certifying the costs incurred on the common facilities of Unit-I and Unit-II of the Petitioner is annexed hereto and collectively marked as Annexure-P-1. 6. The contents of para no. 6 of the reply are denied being wrong, incorrect, false and misleading, save and except being matters of record. It is submitted that alleged defects raised by the Respondent No.2 has no relevance in the present proceedings more specifically after passing of the judgement dated 03.01.2014 of the Hon’ble APTEL which sets aside the Order dated 17.10.2012 of this Hon’ble Commission passed in CASE NO: HERC/PRO – 1 OF 2012. 7. The contents of para no. 7 of the reply are denied being wrong, incorrect, false and misleading. It is wrong and denied that the Petitioner has not furnished the requisite details to enable this Hon’ble Commission to properly apply prudence check and decide on the appropriate capital cost. It is submitted that the application has been filed duly adopting the Tariff formats in accordance with HERC Tariff Regulations, 2008. All the relevant information has been furnished in the applicable filled up tariff formats supported by Auditor’s certificates. Thus, the Petitioner submits that it has furnished all the details to the Hon’ble Commission for the purpose of re-determination of tariff as per the directions of the Hon’ble APTEL in Appeal no. 65 of 2013 and the Petitioner is ready to furnish any further information/document as per the direction of this Hon’ble Commission. 8. The contents of para no. 8 of the reply are denied being wrong, incorrect, false, baseless and misleading. It is incorrect and denied that the common facilities/common assets are for the entire project

83 | P a g e

of the 1920 MW of the Petitioner. It is submitted that the present tariff re-determination to be carried out by the Hon’ble Commission is for a generating station consisting of a single unit (1x300 MW) i.e. Unit-II. It is denied that there are any common facilities (including the ones alleged to be common para-8 of the reply) between Unit-I and Unit-II on the one hand and Unit-III & Unit-IV on the other hand. It is submitted that Unit III & IV (2X660MW) are being set up separately from Unit-I & Unit-II and the said Units are in construction phase and are expected to be commissioned in FY 2014-15 whereas Unit-I & Unit-II are already operational In relation to Unit-I and Unit-II, it is stated that Unit-I was conceptualised, planned and achieved financial closure on 20.09.2005 much prior to financial closure of Unit-II. Further, Unit-II has been appraised separately by the lenders and its financial closure happened on 15.09.2006 i.e. about one year after the financial closure of Unit I. It is noteworthy that the two Units i.e. Unit-I & Unit-II were separately conceptualized, appraised and executed by augmentation/ modification/ addition to the existing facilities of Unit-I. The details of the common facilities of Unit-I and Unit-II and their respective cost incurred along with a brief explanation note has already been filed vide its letter dated 13.01.2014. It is denied that any common facility relate to all the units adding upto 1920 MW. It is denied that the proportion of Unit-II works out to 15.62%. It is denied that the tariff regulations notified by the Central Commission are applicable to the present proceedings. The Petitioner craves the leave to refer to and rely upon the judgment dated 03.01.2014 passed by the Hon’ble APTEL as well as the CERC Tariff Regulations, 2009 at the time of hearing of the present matter. The Petitioner submits that the capital cost incurred on Unit-II which was conceptualized, appraised and executed independently is available and the details of the same have already been provided by the Petitioner. Without prejudice to any of the contentions of the Petitioner if CERC Tariff Regulations, 2009 are to be applied then the apportionment of capital cost towards common facilities of Unit-II would be higher than what is claimed by the Petitioner, which according to the Respondent No.2 is acceptable to it.

84 | P a g e

9. The contents of para no. 9 of the reply are denied being wrong, incorrect, false, baseless and misleading. It is denied that the Petitioner has not furnished the requisite details in regard to the common facilities as alleged. It is denied that there are any common facilities between the Unit-I & Unit-II on one hand and the Unit-III & Unit-IV on the other hand. It is submitted that Unit-III & Unit-IV (2x660MW) of the Petitioner Company are under construction phase and are yet to be commissioned. It is wholly misleading and mischievous on the part of the Respondent No.2 to state that the common facilities are related to the entire 1920 MW. It is denied that the apportionment between the Unit-I & Unit-II is undertaken in arbitrary manner at the whims of the Petitioner as alleged or otherwise. In this regard, it is submitted that the cost incurred on common facilities is true and correct and as per the books and records of Petitioner Company. In so far as the objection of the Respondent No.2 as regards auditor’s certificate verifying the apportionment is concerned, as stated above the Petitioner is filing the certificate along with the rejoinder which is already marked as Annexure-P-1. It is incorrect on the part of the Respondent No.2 to state that the auditor’s certificate will verify the basis of apportionment. The Petitioner has given requisite details of the apportionment in accordance with the judgment dated 03.01.2014 passed by the Hon’ble APTEL. 10. The contents of para no. 10 of the reply are denied being wrong, incorrect, baseless and misleading, save and except being matters of record. It is submitted that the Auditor’s certificate dated 12.01.2014 is for certification of Capital Cost of Unit II and is not a Certificate for apportionment of Capital Cost as alleged. It is submitted that the Auditor’s Certificate dated 12.01.2014 issued by the Auditor contains, inter alia, the terms of reference and the work that had been carried out by them. The certificate is issued in accordance with the Regulations of Institute of Chartered Accountants of India (ICAI). Para 1 of the Auditor’s Certificate clearly states that Capital Cost given in the Annexure-I which is prepared by the management of the Petitioner Company as per the HERC Tariff Regulations, 2008 is in accordance with the books and records

85 | P a g e

maintained by the Petitioner Company. Further, it has been very clearly stated in Para 2(a), that the said Certificate has been issued at the request of the Petitioner for submission to Hon’ble Haryana Electricity Regulatory Commission (HERC) for re-determination of interim tariff for supply of power from Unit-II of the Petitioner. In Para 2(b), the Auditor has clearly stated that it has verified the books of accounts and other relevant records and documents of the Petitioner while certifying the Capital Cost in Annexure-I. It is submitted that the certificate issued by the Auditor certifying the capital cost, was an engagement performed in accordance with the Standard on Related Service (SRS) 4400 on “Engagements to Perform Agreed-upon Procedures regarding Financial Information” issued by the Institute of Chartered Accountants of India (ICAI). In terms of the engagement, the Auditor was required to certify the capital cost as given in the 'Annexure I' of the certificate dated 12.01.2014 in accordance with the books and records maintained by the Petitioner, verify the amounts pertaining to components of capital cost and to identify exceptions, if any and report in accordance with the SRS 4400 issued by the ICAI. Accordingly, the Auditor has issued the certificate dated 12.01.2014. As regards para (f) and para (g) of the certificate dated 12.01.2014, it is submitted that the said paragraphs are in accordance with Para 5 of SRS 4400 issued by the ICAI. The objective of the engagement is to report on factual findings of agreed upon procedures and therefore the Auditor has expressly stated this fact in Para (f). The reporting format has been adopted as per Para 18 of SRS 4400. Accordingly, the Auditor has mentioned para (f) of the certificate which is extracted from Para 18(i) of SRS 4400 and Para (g) of the certificate is extracted from Para 18(j) of SRS 4400. In this regard, it is submitted that the para (f) & para (g) of the Auditor’s Certificate dated 12.01.2014 has to be read as a whole and not in isolation. Similarly, with regard to para (i) of the certificate dated 12.01.2014, it is an extract from Para 6 of SRS 4400 which specifies that the certificate is also restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures may misinterpret the results which accordingly the Auditor has stated the fact in Para (i) of the Certificate. In sum and substance, the disclaimers as alleged by the

86 | P a g e

Respondent No.2 in the Auditor’s Certificate dated 12.01.2014 are strictly in accordance with the said ICAI Regulations. It is thus submitted that the said certificate is a certificate verifying and certifying the capital cost of the Unit-II and is not a disclaimer as alleged by the Respondent No.2. The alleged objection to the Auditor’s Certificate dated 12.01.2014 are misconceived as well as mischievous. The Standard on Related Service (SRS) 4400 on “Engagements to Perform Agreed-upon Procedures regarding Financial Information” issued by the Institute of Chartered Accountants of India (ICAI) is annexed herewith and marked as Annexure-P-2. 11. The contents of para no. 11 of the reply are denied being wrong, incorrect, false, baseless and misleading, save and except being matters of record. It is denied that the alleged stipulations in the auditor’s certificate are not authenticated verification as alleged by the Respondent No.2. The alleged objections raised by the Respondent No.2 are frivolous and mischievous in nature. In this regard the contents of para 10 above are reiterated and reaffirmed. In so far as the objection of the Respondent No.2 pertaining to the capital expenditure incurred on common facilities is concerned the Petitioner reiterates and reaffirms the contents of para 8 above. The Petitioner further reiterates that there are no common facilities between Unit-I& Unit-II on the one hand and Unit-III & Unit-IV on the other hand. The mere fact that all the four units are established/being established at the same place does not ipso facto mean than there would be common facilities amongst all the units. The contention of the Respondent No.2 that all the four units are established as per the Project Report developed by Lanco is vague and ambiguous and therefore denied. It is reiterated that Units-III & IV (2X660MW) of the Petitioner Company are being constructed and are yet to be commissioned and therefore it is misleading to state that the common facilities are related to the entire 1920 MW. It is denied that the expenditures are incurred for common facilities in respect of the entire generating station as alleged.

87 | P a g e

12. The contents of para no. 12 of the reply are denied being wrong, incorrect, false, baseless and misleading and irrelevant. It is submitted that as per the judgement dated 03.01.2014 of the Hon’ble APTEL, the Hon’ble Commission is required to apply HERC Tariff Regulations, 2008. Without prejudice to the fact that the CERC Tariff Regulations, 2009 is not applicable to the Petitioner in the present proceedings in so far as capital cost is concerned, it is submitted that the Regulation 4 of the CERC Tariff Regulations, 2009 is only applicable in case of an on-going project as well as in the event when the break-up of capital cost of a project being executed in different stages or units is not available. In the present case firstly Unit-II of the Petitioner is a completed project and not an on-going project. Secondly, it is submitted that the break-up of completed capital cost of Unit-II is available in present case. In this regard, it is reiterated that the Unit-II of the Petitioner was conceptualized, appraised and executed independently. Without prejudice to any of the contentions of the Petitioner if CERC Tariff Regulations, 2009 are to be applied then the apportionment of capital cost towards common facilities of Unit-II would be higher than what is claimed by the Petitioner, which according to the Respondent No.2 is acceptable to it. It is denied that the petition filed by the Petitioner is not as per the HERC Tariff Regulations, 2008. It is incorrect to state that the capital cost of the Unit-II of the Petitioner needs to be determined as per Regulation 7 of the Tariff Regulations, 2009. This contention of the Respondent No.2 is contrary to the judgement of the Hon’ble APTEL and therefore needs to be rejected.. 13-14 The contents of para no. 13-14 of the reply merits no response being extracts of judicial pronouncements. The Petitioner craves leave to refer to and rely upon the said judgments at the time of hearing for their true scope and effect. 15.The contents of para no. 15 of the reply are denied being wrong, baseless and misleading and irrelevant. It is submitted that undoubtedly the Hon’ble Commission is empowered to conduct prudence check in accordance with the applicable regulations. It is wrong on the part of the Respondent No.2 to state that the Petitioner

88 | P a g e

is avoiding any scrutiny or the Petitioner has not given any requisite particulars. Further the contentions raised in the para under reply are completely vague and ambiguous. The contention that the Petitioner is seeking admission of the capital expenditure incurred only on the basis of auditors’ certificates is incorrect and false. 16-17.The contents of para no. 16-17 of the reply are vague and ambiguous and therefore denied. It is correct that prudence check is to be conducted by the Hon’ble Commission in accordance with the regulations. However, the scope of the prudence check as projected by the Respondent No.2 is completely vague and absurd. The Petitioner has given all the requisite details in respect of all the capital expenditure. The Respondent No.2, apart from raising general objections, has failed to point any specific component of the capital cost in which, according to it, prudence check is required to be conducted. It is denied that the apportionment of common/shared facilities is to be in the proportion of MW capacity vis-a vis the total installed capacity. In this regard, the contents of para 8 above are reiterated. It is wholly misleading on the part of the Respondent No.2 to state that the above is a direction of Hon’ble APTEL. It is submitted that the completed capital cost of Unit-II computed in accordance with HERC Tariff Regulations, 2008 is Rs. 1356.11 crores as on 06.05.2011 (upto COD) which translates to Rs. 4.52 crore per MW which is fairly reasonable for a 300 MW coal based thermal power project. 18.The contents of para no. 18 of the reply are denied being wrong, incorrect, false, baseless and misleading. The averment of the Respondent No. 2 that as per financial statements of the Petitioner filed for the year ended 31.03.2009, for the period 2009-10 and for the period 2010-11, the sale of power from Unit I and Unit-II before the declaration of the date of commercial operation aggregate to Rs. 1889.10 crores is irrelevant for the computation of infirm power revenue generated from Unit II. The Petitioner submits this very objection was raised by the Respondent No.2 in the proceedings in CASE NO: HERC/PRO – 1 OF 2012 and was dealt it by the Petitioner. The said objection was rejected by the Hon’ble Commission in its

89 | P a g e

Order dated 17.10.2012. The Respondent No.2 admittedly has not challenged the same and therefore the Respondent No.2 is estopped from raising this objection. Without prejudice to the above, it is submitted that the Respondent No.2 is trying to mislead this Hon’ble Commission by quoting the consolidated financials of the Company, which includes gross revenue from sale of power from Unit-1 before and after COD of Unit I in addition to the sale of infirm power from Unit-2 before its COD 07.5.2011.It is submitted that Unit I was synchronized on 01.05.2009 and its COD was declared on 09.04.2010 whereas Unit II was synchronized on 22.02.2010 and its COD was declared on 07.05.2011. The net revenue generated from sale of infirm power after fuel expenses of Unit-II is (Rs. 311.28 Crores) from date of synchronization (22.02.2010) upto the declaration of COD (07.05.2011) which is reflected in the certificate issued by Auditor certifying the capital cost of Unit II. It is submitted that complete details in relation to Energy Export and Amount of infirm power solely pertaining to Unit 2 has been already submitted by the Petitioner before this Hon’ble Commission in CASE NO: HERC/PRO – 1 OF 2012 vide its tariff petition dated 12.01.2012 and the same are already on record as Annexure-4 of the tariff petition dated 12.01.2012. It is submitted that the benefit of reduced capital cost has been clearly passed on to the consumers of State of Haryana as the revenue generated from sale of infirm power from Unit-II has been deduced from the capital cost of Unit-II in accordance with HERC Tariff Regulations, 2008. Therefore, the submission of the Respondent No.2 that the sale of infirm power during the period from 01.04.2011 to 06.05.2011 has not been disclosed by the Petitioner is totally incorrect and baseless. It is submitted that on 25.03.2010 i.e. the day when the Unit-II touched full load the assets of Unit-II of the Petitioner were capitalized in the book of accounts. The financial statements-as at March 31, 2011 along with auditor’s report and financial statements-as at March 31, 2010 along with auditor’s report of the Petitioner have already been submitted by the Petitioner before this Hon’ble Commission vide its reply dated 19.07.2012 to the objections filed by the Respondent No.2 in CASE NO: HERC/PRO – 1 OF 2012 and the same are already on record as Annexure-B of the reply dated 19.07.2012. The financial statements as at

90 | P a g e

March 31, 2012 along with Auditor’s report is annexed herewith and marked as Annexure-P-3. The standalone financials of Unit II certified by the Auditor for the period as on 25.03.2010, as on 31.03.2010, as on 31.03.2011 and as on 07.05.2011 is annexed herewith and marked as Annexure-P-4 (Colly). 19.The contents of para no. 19 of the reply are denied being wrong, incorrect, false, baseless and misleading. It is reiterated that the Petitioner has given details of the revenue generated by the Petitioner from the sale of infirm power and sale of unscheduled interchange charges. It is denied that it is incumbent upon the Petitioner to give details of aggregate quantum of the sale of infirm power and sale of power under unscheduled interchange of Unit-I & Unit-II. It is wrong and denied that any revenue generated from sale of infirm power and unscheduled interchange charges under the Unit-I need to be adjusted for reduction in the capital cost for the purpose of determining the cost to be considered for the tariff. It is reiterated that the capital cost of the Unit-II as certified by the Auditor in the certificate along with the letter dated 13.01.2014 excludes the sale of infirm power and unscheduled interchange charges under the Unit-I. It is submitted that the contention of the Respondent No.2 regarding a detailed investigation into the quantum of infirm power sold by the Petitioner under the Unit-II is totally misconceived, mischievous and is a ploy to delay the present proceedings. It is denied that the quantum of sale of infirm power at Rs. 311.28 crores is erroneous as alleged or otherwise. 20. The contents of para no. 20 of the reply are denied being wrong, incorrect, false, baseless and misleading. The averment of the Respondent No.2 that debt-equity ratio should be as per the alleged approved financial package is incorrect and misconceived and is contrary to the judgment dated 03.01.2014 of the Hon’ble APTEL. As per which the debt-equity ratio has to be fixed according to the HERC Tariff Regulations, 2008. It is wrong and denied that the Petitioner cannot claim the actual debt and equity. In this regard, it is submitted that the HERC Tariff Regulations, 2008 clearly provides that where equity actually employed is less than 30%, the actual debt and equity

91 | P a g e

shall be considered for the determination of tariff. The actual debt outstanding in the books of accounts of the Petitioner as on COD is Rs. 968.402 crores duly certified by the Auditor vide its certificate dated 12.01.2014 and accordingly the Petitioner has considered the actual net outstanding loan as on COD as the debt for the project and the balance amount of the capital cost of the project is considered as equity. It is submitted that the Petitioner has commenced repayment of the term loan for the project before the COD and based on actual debt outstanding as on COD, the debt –equity ratio stands at 71.41%:28.59% which has been claimed by the Petitioner. It is denied that in the present case the capital cost will have to be apportioned in the form of debt to the extent of 80% and equity to the extent of 20%. It is denied that it is not open to the Petitioner to claim equity at more than 20%. It is submitted that the claim of the Petitioner is strictly as per the HERC Tariff Regulations, 2008. It is denied that the tariff petition made by the Petitioner on the basis of apportionment of the debt and equity in the ratio stated therein is wrong. It is denied that the tariff calculation is based on any wrong differentiation and equity ratio assumed by the Petitioner. It is denied that the tariff calculation based on above stated debt-equity ratio is defective and need to be rejected. It is submitted that the Regulation 15 (3) of the HERC Tariff Regulations 2008 clearly stipulates that the debt-equity ratio shall be based on actual deployment of funds subject to the condition that the equity deployed in excess of 30% of the capital cost shall be treated as normative loan. It is denied that the once the capital cost determined as per prudence check and infirm power and UI charges are deducted the cost is to be apportioned in the debt-equity ratio of 80%-20%. It is wrong and denied that the return of equity is to be restricted to 20% of the capital cost. It is wrong and denied that the balance 80% will have to be serviced as borrowing/loan. 21. The contents of para no. 21 of the reply are denied being wrong, incorrect, false, baseless, misconceived and misleading. It is submitted that as per the judgement dated 03.01.2014 of the Hon’ble APTEL the Tariff Regulations, 2009 of the Central Commission is of no relevance in the present proceedings in so far as interest on loan is concerned. It is submitted that the Respondent No.2 is trying to mislead the

92 | P a g e

Hon’ble Commission by referring to the Tariff Regulations, 2009 of the Central Commission for Interest on Loan component of the Tariff as against the applicable HERC Tariff Regulations, 2008. The Petitioner states that it has claimed interest on loan after COD on the actual loan outstanding as on COD after duly taking into account the normative repayment for the respective tariff periods. The objections raised by the Respondent No.2 are misconceived as the Petitioner has not claimed any depreciation before COD, which is in line with the HERC Tariff Regulations, 2008. It is denied that the Petitioner has not given any particulars in Order to determine the normative loan, depreciation adjusted and balance to be serviced from time to time. The Petitioner reiterates that it has already submitted all the necessary and relevant details in the applicable Formats required for determination of Interest on Loan, Depreciation and Advance against Depreciation in accordance with the applicable provisions of HERC Tariff Regulations, 2008. 22-23.The contents of para no. 22-23 of the reply are incorrect, false, misconceived, misleading and irrelevant. It is submitted that this Hon’ble Commission vide its Order dated 02.02.2011 had specifically held that the Force Majeure events as claimed by Petitioner therein i.e. PTC India Limited did happen which were not disputed by PTC and the Respondent No.2. The said findings were not challenged by the Respondent No.2 or Respondent No.1 and thus became final and binding on the said parties. Therefore, it is not open to the Respondent No.2 now to state that the reasons namely earth quake in China and the visa policy of the Government of India are not Force Majeure events as contended or otherwise. In so far as the contention of the Respondent No.2 that this Hon’ble Commission vide Order dated 02.02.2011 rejected the claim of compensation in terms of the tariff hike is concerned, it is submitted that admittedly the said finding of the Hon’ble Commission was based on the premise that there was no enabling provision for the same in the PSA/PPA. The said finding of the Hon’ble Commission cannot be considered at all as the Hon’ble APTEL vide its judgement dated 03.01.2014 has directed re-determination of tariff dehors the PPA.. As per the said judgment of the Hon’ble APTEL the tariff is to be determined in accordance with

93 | P a g e

the HERC Tariff Regulations, 2008. Without prejudice to the above, the second appeal arising out of the Order dated 02.02.2011 passed by this Hon’ble Commission being C.A. No. 10329 of 2011 is pending before the Hon’ble Supreme Court and therefore the above finding in respect of tariff hike is sub-judice. It is important to note that the present proceedings for determination of interim tariff originally arise out of the Order dated 16.12.2011 passed by the Hon’ble Supreme Court in the said Civil Appeal. It is thus incorrect and misconceived to state that the Petitioner cannot claim either IDC or IEDC or any other compensatory payment by way of cost overrun or time overrun on account of the delay resulting from the Force Majeure Event of earthquake in China or visa policy of the Government of India. It is also incorrect to state that the said issue stands settled and cannot be opened at this stage as alleged. It is denied that the reason of earthquake in China, visa policy of the Government of India etc are not Force Majeure events as alleged by the Respondent No.2. In any event the Respondent No.2 is estopped from raising the above contention. It is denied that the claim for IDC and IEDC i.e. time overrun and cost overrun can be considered only in regard to the matters other than those resulting from the Force Majeure Event. It is pertinent to mention that IDC is dependent on hard cost of the project which is decided along with the time duration of the Project and the applicable interest rate. It is submitted that the actual capital expenditure incurred upto the COD has to be considered as the completed capital cost in accordance with Regulation 12 of the HERC Tariff Regulations, 2008. Therefore, the Petitioner is entitled to the actual capital cost incurred by it. As stated above the increase in capital costs were on account of the reasons which were beyond the reasonable control of the Petitioner. It is submitted that the reasons of increase in capital cost have been duly explained in Para-B of its letter dated 13.01.2014 and the documents filed along with the same and the contents of which may be treated as part and parcel of the para under reply. It is further submitted that as per Regulation 12 of the HERC Tariff Regulations, 2008 the Petitioner is entitled to increase in capital cost since the same has been actually and bonafidely incurred by the Petitioner in executing the project.

94 | P a g e

24. The contents of para no. 24 of the reply are incorrect, false, misconceived, misleading. It is denied that the claim of the Petitioner for the delay in the commissioning is only on account of Force Majeure Event of earthquake in China in May, 2008. It is denied that the reasons stated for delay in commissioning of the Unit-II cannot be ground for claiming cost overrun in respect of Unit-II. It is submitted that on 12.05.2008, the manufacturing facilities of M/s Dongfang Electric Corporation, China (DEC), supplier of main plant equipment and BTG component of project were severely damaged due to a powerful earthquake rated at Richter scale 8.0 in China and DEC could not supply the machines and equipments to the Petitioner. This was admittedly a Force Majeure event. It is denied that the event of Force Majeure of Visa Policy of the Government of India not permitting the Chinese workforce has been raised as an afterthought. The force-majeure notices were issued by the Petitioner to the Respondent No.1 i.e. PTC India Limited immediately after the occurrence of the force majeure event in the year 2009 itself and therefore the allegation of the Respondent No.2 that it has been raised as an afterthought is patently wrong. It is denied that the delay in commissioning due to the usage of the rotor of Unit-II in Unit-I cannot be a ground for claiming the cost overrun in respect of Unit-II. It is submitted that the delay on this account was caused during the period of Force Majeure events. The Petitioner craves the leave of this Hon’ble Commission to treat the contents of para-B of the letter dated 13.01.2014 as part and parcel of the para under reply and the same are not repeated herein for the sake of brevity. 25.The contents of para no. 25 of the reply are incorrect, false, misconceived, misleading. It is reiterated that as per the judgment dated 03.01.2014 of the Hon’ble APTEL, the Tariff Regulations, 2009 of the Central Commission in so far as fixed charges is of no relevance in the present proceedings. As per the judgment dated 03.01.2014 of the Hon’ble APTEL, fixed charges are to be computed as per the HERC Tariff Regulations 2008. It is evident from the Tariff Formats filed by the Petitioner on 13.01.2014 which are in accordance with HERC Tariff Regulations, 2008 that the Petitioner has claimed annual fixed charges for FY 2011-12, FY 2012-13, FY 2013-14 and FY 2014-15. It seems

95 | P a g e

that the Respondent No.2 has raised these objections without going into the details submitted by the Petitioner. 26. The contents of para no. 26 of the reply are incorrect, false, misconceived, misleading. It is reiterated that as per the judgment dated 03.01.2014 of the Hon’ble APTEL the Tariff Regulations, 2009 of the Central Commission is of no relevance in the present proceedings in so far as interest on working capital is concerned. In the para under reply, the Respondent No.2 is again trying to mislead the Hon’ble Commission by referring to period of actual consumption, coal price etc. of January 2009 to March 2009. It is submitted that it commenced supply of power to the Respondent No.1 i.e. PTC India Limited w.e.f. 07.05.2011 pursuant to the interim Order dated 23.03.2011 passed by the Hon’ble APTEL. The Petitioner had been running its Unit II and supplying power to Respondent No.1 i.e. PTC India Limited by procuring the linkage coal supplied by SECL under MoU route and meeting its balance requirements of coal from alternate sources. That the linkage coal supplied by South Eastern Coalfields Limited (SECL) during the above period was widely varying and it was sufficient for only 27% PLF and hence the additional coal was procured from alternate sources which is much costlier than the linkage coal which had caused additional working capital expenditure and further the payment was not fully realized at par with the cost of generation from PTC India Limited. The tariff was to be determined based on the directions of the Hon’ble Supreme Court by its Order dated 16.12.2011 and now by the direction of Hon’ble APTEL for the power which had already been supplied based on costs actually incurred. The Petitioner submits that it is seeking reimbursement of the actual costs incurred by it in accordance with directions of Hon’ble APTEL. It is relevant to submit that to comply with the Order dated 16.12.2011 of the Hon’ble Supreme Court, the Petitioner was receiving widely varying quantum of linkage coal under MoU route from SECL, the coal procured from alternate sources also widely varied to run the Unit-II and supply power to the Respondent No.1 i.e. PTC India Limited . It is submitted that in the instant case, the Petitioner had to spend additional working capital to procure the coal from alternate sources varying on month to month basis based on the

96 | P a g e

quantum of linkage coal supplied. The tariff application containing the tariff filing formats filed on 13.01.2014 is based on the actual working capital expenditure incurred for the power already supplied for the past period and for the future period, the Petitioner has considered the normative working capital requirements in the computation of the tariff. It is further important to state that in the present facts and circumstances where the tariff is determined for a past and concluded period for which the data in respect of actual consumption of coal price, operation and maintenance expenses, cost of secondary fuel etc are already available then the interest of working capital is required to be determined on the said available data. It is denied that the actual amount of capital employed from time to time in regard to the coal consumption etc. is irrelevant as alleged. It is incorrect to state that the interest on working capital is not dependent upon the actual working capital incurred by the generating company irrespective of whether the generating company incurs the working capital or not. It is denied that the claim of the Petitioner of actual working capital every month or on the basis of coal value is contrary to HERC Tariff Regulations, 2008 or any other regulations. 27. The contents of para no. 27 of the reply are incorrect, vague, false, misconceived and misleading. The averment of the Respondent no.2 in relation to alleged coal consumption being higher in a particular month is completely vague. The Petitioner in its Tariff Filing Formats has given monthly as well yearly figures of coal consumption. The Petitioner submits that in certain months during the power supply period, the Petitioner did not receive any linkage coal as SECL had not supplied any linkage coal and the Petitioner had to procure the entire coal required for running the Unit-II from alternate sources including imported coal. In certain other months, the Petitioner had to depend entirely on procurement of coal from alternate sources including imported coal which led to higher outflow of working capital. It is reiterated that as per the judgement dated 03.01.2014 of the Hon’ble APTEL the Tariff Regulations, 2009 of the Central Commission is of no relevance in the present proceedings in so far as coal consumption is

97 | P a g e

concerned. It is denied that it is not open for the Petitioner to claim actual interest on working capital on month to month basis. 28. The contents of para no. 28 of the reply are incorrect, false, misconceived, misleading. It is denied that the operating and maintenance expenses need to be ascertained in terms of the Tariff Regulations, 2004 based on the capital cost determined by this Hon’ble Commission as alleged. In the para under reply, the Respondent No.2 is again trying to mislead the Hon’ble Commission by initially referring to the Tariff Regulations, 2004 and then referring to Tariff Regulations, 2009 pertaining to O&M expenses. It is reiterated that as per the judgement dated 03.01.2014 of the Hon’ble APTEL the Tariff Regulations, 2004 of the Central Commission is of no relevance in the present proceedings. Further, even otherwise the Tariff Regulations, 2004 cannot be made applicable to the tariff determination of the Petitioner since the said Regulations ceased to be effect from 01.04.2009 whereas O&M expenses in respect of the Petitioner case is for the year 2011-12. It is submitted that on 03.02.2014, the Petitioner has filed an application under Regulation 33 of the HERC Tariff Regulations, 2008 before this Hon’ble Commission inter alia seeking relaxation of Regulation 16(iv)(c) of the HERC Tariff Regulations, 2008 regarding O&M expenses and grant of O&M expenses as per CERC Tariff Regulations, 2009. In this regard, it is relevant to submit that the O&M expenses as per HERC Tariff Regulations, 2008 are much lower and practically not feasible for a generating station or Unit generating power. It is further submitted that the Respondent No.2 has also admitted that the O&M expenses needs to be paid to the Petitioner under CERC Tariff Regulations, 2009 on normative basis. It is further submitted that this Hon’ble Commission vide its Order dated 18.04.2011 passed in CASE No: HERC/PRO– 1 OF 2011 for generation tariff for the Respondent No.2 has noted that the HERC Tariff Regulations, 2008 in relation to Operation and maintenance expenses are outdated and not updated. Further, this Hon’ble Commission vide the said Order has not only deviated from the applicability of HERC Tariff Regulations, 2008 but has also allowed O & M Expenses as per CERC Tariff Regulations, 2009 for the generation tariff of the generating stations of the Respondent

98 | P a g e

No.2. In this regard, it is submitted that the Petitioner is therefore entitled to parity and is entitled to relaxation/variation of HERC Tariff Regulations, 2008 while re-determination of the interim tariff for its Unit-II. The relevant potion of the Order dated 18.04.2011 of this Hon’ble Commission is reproduced herein below: The Commission is of the considered view that adequate amount of O&M expenses is essential for deriving optimum efficiency from the plant and machinery. Hence, in the absence of updated HERC generation tariff regulations, CERC norms for unit size of 200 MW & above have been adopted for FY 2011-12. For the remaining generating stations of lower than 200 MW capacity, where CERC norm does not exist, the basis of estimating O&M expenses is the O&M expenses allowed by the Commission in FY 2009-10 escalated by 5.72% per annum to arrive at O&M expenses to be allowed in FY 2011-12. The escalation factor considered is as per CERC notification. Accordingly, the Commission allows O& M expenses @ Rs. 2.94 million/MW for PTPS (1-4), Rs. 2.034 million/MW for PTPS (5 to 8), Rs. 1.788 million/MW for DCRTPS and Rs. 1.308 million /MW for RGTPS (1&2). While the O&M expenses allowed by the Commission in the case of WYC & Kakroi have been approved as proposed by HPGCL. It is also important to state that pursuant to the passing of Order dated 18.04.2011, this Hon’ble Commission has passed similar tariff Orders for the Respondent No. 2 generating stations for the subsequent years wherein O&M expenses has been allowed in accordance with CERC Tariff Regulations, 2009 containing reference of Order dated 18.04.2011. Copy of relevant extract of the Order dated 18.04.2011 passed by the Hon’ble Commission in CASE No: HERC/PRO– 1 OF 2011 is annexed hereto and marked as Annexure P-5. 29. The contents of para no. 29 of the reply are incorrect, false, misconceived, misleading, save and except being matters of record. It is denied that the Petitioner cannot demand energy charges based on any coal used by it other than through procurement of coal under a regular Fuel Supply Agreement with coal India/its subsidiary is

99 | P a g e

contrary to the judgment dated 03.01.2014 of the Hon’ble APTEL. In terms of the said judgment the energy charges are to be calculated as per the HERC Tariff Regulations, 2008. Further, as per the directions of the Hon’ble APTEL the Petitioner has submitted the materials showing that it made bonafide efforts to secure coal linkage from SECL as envisaged at the project planning stage, along with the letter dated 13.01.2014. The Petitioner submits that since 07.05.2011 when the Petitioner commenced supply to the Respondent No.1 i.e. PTC India Limited, there have been frequent downward revisions in the supply of linkage coal by SECL. The Petitioner inspite of financial hardships had tried its best to operate its Unit-II and supply power to the Respondent No.1 i.e. PTC India Limited by procuring the ever increasing balance requirement of coal from alternate sources (where the cost of coal was at least 3 to 4 times higher than the cost of linkage coal) without realization of a just and equitable tariff which was not even meeting its generation cost. It is an admitted position that the Petitioner was facing severe hardship on account of the increasing burden due to coal costs (in view of the reduced quantities of coal being supplied by the government undertakings in light of the New Coal Distribution Policy). It is submitted that the coal linkage from the SECL to the Petitioner had decreased from what was originally envisaged with the SECL i.e. 100% linkage coal which is evident from the following: Letter of Assurance dated 18.09.2006 issued by SECL guaranteeing coal supply to the extent of 1.445 MTPA; MoU dated 15.03.2010 with SECL for the period 2009-2010 for coal supply of an annual quantity of 18 lakh tons; Letter dated 11.06.2010 by the Ministry of Power directing the Petitioner to procure 3 lakh tons of imported coal. MoU dated 24.07.2010 for the period 2010-2011 for coal supply of an annual quantity of 13 lakh tons with SECL; Minutes dated 18.04.2011 of SLC, Ministry of Coal envisaging supply of only 50% of domestic coal.

100 | P a g e

MoU dated 30.08.2011 for the year 2011-2012 for coal supply of an annual quantity of 9.4 lakh tons. Letter dated 10.07.2012 from SECL by which SECL had reduced the coal supply to 91% of 0.94 MTPA (i.e. 71,283 per month). Copy of the Letter of Assurance dated 18.09.2006, MoU dated 15.03.2010, MoU dated 24.07.2010, MoU dated 30.08.2011, Letter dated 11.06.2010 & Minutes dated 18.04.2011 of SLC have already been submitted by the Petitioner vide its tariff petition 12.01.2012 before this Hon’ble Commission in CASE NO: HERC/PRO – 1 OF 2012 and the same are already on record at page nos. 224-250 of the tariff petition dated 12.01.2012. Copy of the letter dated 10.07.2012 from SECL have already been submitted by the Petitioner vide its reply dated 19.07.2012 to the objection of the Respondent No.2 before this Hon’ble Commission in CASE NO: HERC/PRO – 1 OF 2012 and the same is already on record as Annexure-G of the reply dated 19.07.2012 of the Petitioner. As a matter of fact, there was no coal supply during the period from May 2012 to June 2012 and the coal allocation vide SECL letter dated 10.7.2012 was further reduced to an annual quantity equivalent to 0.86 million tons per annum (MTPA) from 0.94 MTPA. It is further submitted that, the coal supply was further reduced by SECL to 46216 metric tonnes per month (equivalent to 0.55 MTPA) vide letter dated 28.09.2012. The month wise supply of Linkage Coal from SECL was as under:

Month

Linkage Coal Supplied from SECL (in MT)

Coal Requirement for 100% PLF (in MT) @3300 kCal/kg

Supplied Coal Sufficient for % PLF

Weighted Average GCV (Kcal/Kg)

May-11 0 1,61,719 0% 3146

Jun-11 0 1,56,502 0% 3273

101 | P a g e

Jul-11 0 1,61,719 0% 3127

Aug-11 0 1,61,719 0% 3295

Sep-11 59,169 1,56,502 38% 3,348

Oct-11 76,926 1,61,719 48% 3,132

Nov-11 72,421 1,56,502 46% 3,321

Dec-11 88,680 1,61,719 55% 3,354

Jan-12 76,780 1,61,719 47% 3,487

Feb-12 74,172 1,51,285 49% 3,411

Mar-12 76,648 1,61,719 47% 3,350

Apr-12 74,601 1,56,502 48% 3,181

May-12 3,800 1,61,719 2% 3,265

Jun-12 0 1,56,502 0% 0

Jul-12 66,090 1,61,719 41% 2,952

Aug-12 63,847 1,61,719 39% 3,176

Sep-12 0 1,56,502 0% 3167

Oct-12 39,739 1,61,719 25% 2,976

Nov-12 44,809 1,56,502 29% 3,023

Dec-12 43,999 1,61,719 27% 2,929

Jan-13 44,439 1,61,719 27% 3,270

Feb-13 41,151 1,46,069 28% 3,581

Mar-13 39,961 1,61,719 25% 3,421

Total/ Average

9,87,232 36,56,934 27% 3,256

102 | P a g e

It is further relevant to submit that the cost of imported coal is about five times the cost of linkage coal after proportionally adjusting the benefit of higher GCV. That in the absence of the 100% linkage coal the Petitioner had to resort to procurement of the imported coal and therefore the Petitioner is entitled to actual cost incurred in procuring coal for generating the power at Unit-II. 30. In response to para no. 30 the Reply it is reiterated that the Petitioner has furnished all details as per the directions of the Hon’ble APTEL and is willing to provide any other information and/or document in the event the Hon’ble Commission directs so. The Petitioner prays that the re-determination of tariff be done at its earliest convenience of this Hon’ble Commission keeping in view the fact that the Petitioner had been supplying power since 07.05.2011 to the Respondent No.1 i.e. PTC India Limited as per the Orders passed by the Hon’ble APTEL and the Hon’ble Supreme Court of India, however, the Petitioner has so far not been able to recover its cost of generation. The total outstanding for power supplied upto March, 2013 is approximately Rs. 195 crores (approx) (without interest). Further, the Petitioner is facing severe financial hardship in meeting the interest and loan repayment obligations to various banks and financial institutions and the assets/project is likely to be treated as Non Performing Asset (NPA) by the Lenders and financial Institutions. In this regard, it is significant to submit that the financial position of Petitioner has become precarious over time by erosion of more than 70% of net worth of the Project. It is relevant to submit that as per the statement of accounts of Unit-II of the Petitioner, the accumulated losses since the date of commencement of sale of power to the Respondent no.1 upto 31.12.2013 is Rs. 317.73 Crores considering billed tariff in accordance with CERC Tariff Regulations, 2009. The Petitioner states that a just and equitable viable tariff as decided by this Hon’ble Commission shall allow the Petitioner to supply power on continuous basis to the Respondent No.1 PTC India Limited.

103 | P a g e

As per the directions of the Commission HPPC submitted a detailed

interrogatories seeking details from LAPL which was duly provided.

Additionally, LAPL provided the detailed site plan map, water intake

system as well as the details of the railway drawings. A copy of the

plant outlay and railway drawing was also made available to the

officials of HPPC who had undertaken the site visit

An affidavit dated 9.04.2014 was also filed by LAPL, on the directions

of the Commission, stating as under:

“2. I say that the following facilities/assets which were created for the

Unit -1 and Unit - 2 and/or Unit -1 or Unit - 2 of the Petitioner

Company (LAPL) are not being used or will not be used for the Unit -

3 or Unit - 4 of the Petitioner Company (LAPL).

a) Service building including MGR Workshop

b) Off Site Building

c) Administrative Building

d) Field Hostel, Residential and Service Building Township

e) Sewerage & Effluent Treatment Plant

f) Power Station Switchyard

g) Air Conditioning System

h) Coal Handling System

i) Permanent Road, Drain, Rain Water Harvesting, Fire Station

and Related

j) Fuel Oil Handling System

104 | P a g e

k) Ash Handling System

l) Cooling Water System Including Cooling Tower

m) Water Treatment Plant

n) Compressed Air System

o) Work Shop Equipment's

p) Laboratory Equipment's

q) Transmission Lines

r) Ventilation System

s) Emergency D.G Sets

t) Interior Communication Equipment's

u) Permanent Railway Siding

v) River Water Intake System

w) Weather Monitoring/Recording System and High Masts

Lighting

x) Land - Unit-I : 566.89 Acres, Unit-2: 200 Acres, Unit-3&4 :

570.71 Acres

3. I say that the following facilities/assets created for the Unit -1 and

Unit-2 or for Unit - 1 or Unit - 2 of the Petitioner Company (LAPL)

are being used or shall be used for the Unit - 3 or Unit - 4 of the

Petitioner Company (LAPL) jointly or separately and the amount

mentioned below against each facilities/assets have been booked to

the Unit - 3 or Unit - 4 of the Petitioner Company (LAPL) jointly or

separately:

105 | P a g e

a) Cost of Boundary Wall Separately booked: - Unit -1: Rs. 5.567

Crs., Unit-2: Rs. 2.56 Crs., Unit 3&4: Rs. 6.93 Crs. (cost

envisaged).

4. I say that facts stated above have been derived from the records of

the Petitioner Company maintained in the normal course of

business and believed by me to be true and correct”.

The above statement was verified by the officials of HPPC and E&Y

including officer/Technical Consultant of the Commission, who had

undertaken site visit of the power plants on 16th and 17th August,

2014. The outcome of the site visit as submitted by E&Y is as under:

“Following points stand clearly established: 1. Balance of Plant (BOP) facilities of the existing 2x300MW plant is shared between Units 1 & 2. These are as follows: i. Coal Handling Plant ii. Fuel Handling System iii. Ash Handling Plant iv. Fire Detection & Fire Fighting System v. Raw Water Intake Station vi. Clarified Water System vii. DM Water Plant viii. 400kV Switchyard ix. Miscellaneous auxiliary units not specifically listed above. 2. The capacities of existing facilities designed for 2x300 MW generation capacity does not allow them to be used for a much larger 2x660MW capacity of the new plant. The layouts of the existing plant

106 | P a g e

(Units 1&2) and that of the new plant (Units 3&4) also do not allow the existing BOP facilities for units 1&2 to be used for units 3&4. 3. The only physical connection between electrical/mechanical /coal/water systems of the existing plant and the new plant is the planned interconnection between the two 400kV switchyards, which are separated by a fence and have their own control rooms and evacuation arrangements. This connection gives a flexibility of operation and does not amount to sharing the assets of the existing plant (Units 1&2) with the new plant (Units 3&4). 4. Land: Unit 2 has been built partly on the green belt area for Unit 1. Additional land has been acquired to leave mandatory green belt for units 1&2 taken together. Since 200 acres has been attributed to Unit 2 and 566.89 acres to Unit 1, the cost of land considered for Unit 2 is less than half of the total for Units 1& 2 taken together. It is our understanding that in a similar manner, part of the green belt earmarked for Unit 2 hasbeen used for Units 3&4.Later an equal amount of the land which was taken from Unit 2 green belt area for Units 3&4 was transferred back to unit 2 from the land acquired for Units 3&4. Hence, total land allocated to Unit 2 remained 200 acres and no part of that was used by Units 3&4. 5. Boundary Wall: It is understood that additional boundary wall created for Unit 2 has been charged to it. Part of this boundary wall has been dismantled to enlarge the plant area to include Units 3&4. It is also learnt that the boundary wall for the enlarged plant has been charged to the Units 3&4. Hence there is no case for reduction in cost of assets charged to Unit 2 on this account. 6. Railway tracks and marshalling yards: The layout of tracks (except a small portion which is described separately in point no 6) and that of the coal unloading facilities is such that the existing facilities (Units 1&2) cannot be used for the new facilities (Units 3&4).

107 | P a g e

Land required for railway track for Units 3&4: There is a very small section of railway track where the railway track for units 3&4 is laid in parallel with that of existing units 1&2. It is possible that laying tracks in that section did not require additional land if the land earlier acquired was in excess of what was actually used to lay tracks for units 1&2. However, if land for this section of the track has been acquired for Unit 1 and has not been charged to Unit 2, the question of transferring the cost from Unit 2 to Units 3&4 does not arise. In other words, laying these tracks on the land in question does not impact the cost of Unit 2. 7. Quantity, cost and GCV of coal: LAPL shared some information on Coal GCV during the site visit. However, all the necessary information had been provided to us earlier too in soft copy format. We have already done necessary diligence and the same has been shown in the Addendum to the draft report dated 8th July (point no 4). No additional finding has been observed during the site visit and hence not reported here”.

A copy of the above site visit report was also provided to HPPC and

LAPL . Further, the Commission vide memo no. memo no. 1924-

27/HERC/Tariff/LAPL dated 20.08.2014 requested HPPC and LAPL as

under:

“All facilities of the power plants (Unit – 1 to Unit – 4) including water

intake system, ash dyke, coal handling, railway line/sidings etc. were

visited. A copy of the plant outlay and railway lines/sidings/drawings

was provided by LAPL to the representatives of HPPC and E&Y. Coal

and freight invoices for coal supplied by SECL, E-auction/Open Market

were produced by LAPL for verification. The manner of assessing

108 | P a g e

GCV of coal received at LAPL Unit – 1 and 2 including the sampling

method was explained and daily report was provided for inspection.

In view of the above HPPC may submit their observations/comments regarding common assets etc. and sharing of the same.

E&Y shall also submit a report including their revised assessment of

sharing of the common assets between various Units of LAPL,

quantity, cost and GCV of coal etc. for LAPL Unit – 2 at the site. The

said report shall be submitted as an addendum to the report already

submitted by E&Y to the Commission. On receipt of the same a copy

shall be forwarded to HPPC and LAPL for their

comments/observations, if any”.

Meanwhile LAPL filed another petition dated 26.08.2014

submitting that in terms of Order dated 28.07.2014 passed by this

Commission, HPPC was given two weeks time to file its

comments/objections from the date of receipt of addendum dated

4.08.22014. Accordingly, the time period for filing the

comments/objections by HPPC expired on 18.08.2014. It was further

submitted that, on the contrary, HPPC has written a letter dated

11.08.2014 claiming that the time period for HPPC to file their

comments/objections would commence on after an affidavit

regarding conflict of interest is filed by E&Y and layout plan of the

project is received from LAPL.

109 | P a g e

Additionally, LAPL submitted that as per the judgment dated

03.01.2014 passed by the Hon’ble APTEL in Appeal No. 65/2013, the

tariff was required to be determined by this Commission was within

two months from the date of receipt of the said judgment. Thereafter,

vide Order dated 13.05.2014 the Hon’ble APTEL had extended the

said time period up till 25.06.2014 and had made it clear that no

further extension will be given at any cost. Despite the said Order

being passed by the Hon’ble APTEL, HPPC is delaying the present

proceedings on one pretext or another.

It was submitted that in the hearing held on 20.05.2014 in

which representatives of HPPC were also present, the Commission

had specifically asked E&Y to clarify whether it has any conflict of

interest with any of the parties. E&Y had clarified during the hearing

that there was no conflict of interest with any of the parties. That

after the receipt of report from E&Y pursuant to the Order dated

25.03.2014 passed by this Commission, the same was forwarded to

the parties vide e mail dated 08.07.2014 to file their

comments/objections positively by 15.08.2014 and a hearing was

scheduled on 22.07.2014. In the said communication sent by this

Commission, it was specifically made clear that in case comments/

objections are not received within the time period prescribed, it will

be presumed that the party has no objection to the draft report. HPPC

did not file its objections within the time period prescribed by this

Commission and on the date of hearing made a request to defer the

hearing on the purported ground that the sufficient time was not

110 | P a g e

given for filing the objections. Prior to that on 15.07.2014, HPPC made

a request to defer the hearing on the ground that its counsel was not

available, which request was rejected by this Commission. Therefore,

it is apparent that the request made for deferment on the ground that

time was not sufficient to file objections was nothing but an

afterthought to ensure that the hearing does not happen. It is further

submitted that HPPC also filed written objections on 22.07.2014

wherein a frivolous ground that E&Y has conflict of interest with the

Petitioner was raised. It is important to note that E&Y was appointed

as consultant by this Commission with consent of both the parties.

Therefore, the objection of HPPC evidently was to delay the matter.

The next hearing was scheduled on 28.07.2014 when a direction was

given by this Hon'ble Commission to E&Y to file an addendum to the

report.

It was submitted that the Order dated 28.07.2014 passed by

this Commission is clear that HPPC was required to file its

comments/objections to the addendum to the report within 2 weeks

from the date of receipt, which it has failed to do. Instead, it has filed

a mischievous letter claiming that the time period to file its

comments/ objections would start from the date of receipt of the

affidavit regarding conflict of interest from E&Y. It is pertinent to

mention here that in spite of specific and unambiguous direction by

the Commission vide its Order dated 28.07.2014 HPPC is deviating

from the same. It is clear from the conduct of HPPC that it has nothing

specific to object in the matter and is finding ways and means to

111 | P a g e

somehow delay the conclusion of the present proceedings not only in

Order to cause irreparable harm and injury to the Applicant but also

disregard to the aforementioned Order passed by the Hon'ble APTEL

and the Commission.

The Applicant submitted that the time period to conclude the

present proceedings was fixed by Hon'ble APTEL keeping in mind the

continuous irreparable harm and injury being caused to the Applicant

as its plant is shut. HPPC has been relentlessly, on one pretext or

another, delaying the matter with malafide objective. The letter dated

11.08.2014 written by HPPC claiming that the time period to file

comments/objections to the addendum filed by E&Y has not even

begun is in teeth of the directions given by this Commission vide

Order dated 28.07.2014 and is contumacious (sic) in nature. HPPC is

crossing all limits to somehow ensure that the present proceedings

are not concluded despite being conscious that its conduct is contrary

to the Orders passed by the Hon'ble APTEL. It is also evident that

HPPC has nothing substantial to raise in the matter as all its queries

and questions raised vide memorandum of interrogatories have been

satisfactorily replied to by the Applicant as far back on 09.04.2014.

Therefore, it is raising ex-facie frivolous and misconceived issues to

scuttle the proceedings. The Applicant submits that the conduct of

HPPC amounts to abuse of process of law and this Commission ought

to take serious note of the same and pass appropriate Orders in the

matter.

112 | P a g e

In view of the above submissions LAPL has prayed that the

Commission may pass an Order treating the right of HPPC t file their

comments/objections to the addendum dated 4.08.2014 to the report

dated 08.07.2014 filed by E&Y in the present matter as closed.

HPPC’s Submissions:-

The Ld. Counsel appearing Shri M.G. Ramachandran,for HPPC, argued

at length in the hearing held on 19.09.2014. The gist of averments

made by him is as under:-

It was submitted that reports submitted by E & Y Consultants,

including the addendum report forwarded to the Respondent No. 2

on or about 23.08.2014, subsequent to the site visit undertaken on 16

– 17th August 2014 has several inconsistencies in the claim made by

the Petitioner including with regard to the capital cost and other

aspects and the Petitioner is deliberately concealing facts and

misleading the proceedings.

It was argued that E & Y Consultants have not undertaken the

requisite study and investigation in a professional manner in Order to

verify the admissible project cost for the Petitioner’s Generating Unit

No. 2 of 300 MW at Amarkantak. The E & Y Consultants have

proceeded in a mechanical manner to approve the claims made by

the Petitioner without investigating into the veracity of the claim by

comparing it with other projects and also applying prudence check.

The E & Y Consultants have not considered the Memorandum in the

113 | P a g e

form of Interrogatories in writing given by Respondent No. 2 on 1st

April 2014. Further, there was no consultation of any nature

whatsoever by the E & Y Consultants with Respondent No. 2. The

Petitioner had also purported to have given materials such as Site

Plan to E & Y Consultants without giving copies of the same to

Respondent No. 2. The E & Y Consultants proceeded to consider all

these materials without any notice to Respondent No. 2.

The cursory manner in which the reports have been prepared

by E&Y Consultant is clear from the fact that E&Y Consultant had

proceeded on the basis of the claim of the Petitioner that there is no

Common Asset at all between Units 1 & 2 with Units 3 & 4; Whereas,

the site visit clearly establishes the falsity of the claim on the part of

the Petitioner.

Further, despite specific representation made by Respondent

No. 2 in the letter dated 29th April 2014 addressed to the Director

(Tariff) of the Commission to ensure that E & Y Consultants should not

be associated in any form with Lanco Group for taking up the work of

verification of the project cost, E & Y Consultants did not file any

affidavit before taking up the work on its ability to undertake the

work without such conflict.

114 | P a g e

E&Y Consultants filed an affidavit only on 25.08.2014. However,

vide this affidavit; E&Y Consultants have failed to declare that they

were not associated in any form with Lanco Group for taking up the

work of verification of the project cost. E&Y Consultants have not

made adequate disclosure of conflict of interest. Instead, their

affidavit contrary to the requirement is limited to conflict of interest

with Lanco Amarkantak Power Limited at the time of signing of the

contract with this Hon’ble Commission i.e. on 09.06.2014. The said

affidavit cannot be relied upon as E&Y Consultants have failed to

discharge their obligation of full disclosure regarding conflict of

interest with Lanco Group. In the circumstances, it will not be

appropriate for the Commission to proceed on the basis of the reports

submitted by E&Y Consultants. The meaningful reading of the

Affidavit shows that E&Y Consultants are in fact hiding behind

technicalities and concealing the conflict of interest it has. In this

regard, E&Y Consultants have deliberately not dealt with the

documents filed by the Respondents along with affidavit dated

25.07.2014.

Without prejudice to the above during the site visit on 16th and

17th August 2014, the representatives of Respondent No. 2 became

aware of serious inconsistencies in the claim made by the Petitioner

that there are no common or shared assets whatsoever in regard to

Units 1 and 2 with Units 3 and 4 of Amarkantak Power Project.

115 | P a g e

Some of these inconsistencies cited by the Respondent are as

under:

a) Layout Plan: It was submitted that the Petitioner provided

the representatives of the Respondent No. 2 with a

combined layout plan of Unit Nos. 1 to 4. However, the said

Layout Plan has not been properly marked/labelled.

b) Land: Land of Unit Nos. 1 to 4 was not properly demarcated.

Further, land of Unit Nos. 3 & 4 could not even be separately

identified. It is submitted that part of the land of Unit Nos. 1

& 2 has been used for Unit Nos. 3 & 4 and there are no

separate boundary walls. This is evident from the fact that

the geographical coordinates for main plant area of Unit

Nos. 3 & 4, in terms of the layout plan, lies inside the land

Unit 1 & 2.

c) Switchyard: Switchyard of Unit Nos. 3 & 4 has been made

adjacent to existing switchyard of Unit Nos. 1 & 2 on the

land meant for Unit Nos. 1 & 2. During the site visit, the

representatives of Respondent No. 2 have been informed by

the Petitioner that in lieu thereof a separate patch of green

belt has been earmarked for Unit Nos. 1 & 2. However,

sufficient information towards the same was not provided.

Accordingly, it is submitted that as the Petitioner failed to

furnish necessary details, adverse inference needs to be

drawn against the Petitioner inasmuch as it has utilized land

116 | P a g e

meant for Unit Nos. 1 & 2 for Unit Nos. 3 & 4. Further it is

imprudent practice to have separate switchyard for different

generating units located at the same place. The costs of

switchyard ought to be proportioned and this Commission

must approve the project cost only after prudence check.

d) Ash Pond: As per Environment Clearance dated 31/12/2007

granted by MoEF for Unit No. 3, it has been, inter-alia,

stated that:

“Fly ash shall be collected in dry form and its utilization

shall be ensured in accordance with the provisions of the

notification of September, 1997 on fly ash Utilization and

its amendment of August, 2003. The unutilized fly ash

and bottom ash shall be disposed in the existing ash

pond.”

e) It is apparent from the above that the Petitioner is

mandated to use the existing ash pond for unutilised fly ash

and bottom ash. However, when the same was brought to

the notice of the Petitioner by the representatives of the

Respondent No. 2, it was informed that separate Ash pond

would be made for Unit No. 3 & 4. The above position is

completely contrary to the conditions stipulated by the

MoEF and also establishes that the ash pond is required to

be shared between the Unit No. 1 & 2 and Unit No. 3 & 4.

Further, and in any event, location of a separate ash pond

was not provided in the layout plan of Unit Nos. 1 to 4.

117 | P a g e

Further, the Respondent No. 2 was also informed by the

Petitioner that they have acquired separate land for ash

pond where high concentrated ash of Unit Nos. 3 & 4, will be

disposed off. However no details were provided. It is also

imprudent to have such separate ash dyke and ash disposal

facilities

f) Boundary wall: No boundary wall separating Unit 1 & 2 with

Unit 3 & 4 has been constructed. In the circumstances, as

the land is contiguous, cost of land ought to be apportioned

in terms of the capacity of each unit.

g) Colony: During the site visit, the Respondent No. 2 was

informed by the Petitioner that it has acquired separate land

for colony of Unit Nos. 3 & 4, which shall be built towards

the water intake side; however, no construction has started

yet and cannot be verified at this stage.

h) Water Intake system: During the site visit, the Respondent

No. 2 was shown a separate construction site and was

informed that a separate raw water pump house is being

constructed on the said site. However, at present, after

some initial construction, the entire construction work on

the said site for the Water Intake System is at stand still. It is

also not verifiable as to whether the Petitioner will use

existing pipeline or provide a separate one for Unit No. 3 &

4. It is submitted that having a totally separate water Intake

118 | P a g e

System, Raw Water Pump House and Water Pipelines for

respective units is imprudent on the part of the Petitioner.

i) Raw Water Reservoir: No separate raw water reservoir could

be seen. It has been informed that they are constructing an

anicut in the river (Hasdeo river) before raw water intake

pump house with the permission of Chhattisgarh

Government. Though, same cannot be verified at this stage

as construction was at very initial stage. It is submitted that

having separate Raw Water Reservoir for respective units is

imprudent on the part of the Petitioner.

j) Railway siding: During the site visit, the Respondent No. 2

was informed that a separate railway siding is being

proposed for Unit Nos. 3 & 4. However, at present, there is

no separate railway siding for Unit Nos. 3 & 4 and it would

be rather imprudent on the part of the Petitioner to use

separate sidings for Unit 3 & 4, instead of the existing one.

Further and in any event, the proposed railway siding for

Unit Nos. 3 & 4 is bound to be made on the land presently

used for the existing railway siding of Unit 1 & 2.

Accordingly, this Commission should apportion the costs

between the units in terms of the generation capacity of

each unit.

k) Coal handling plant (CHP): The CHP of Unit Nos. 3 & 4,

shown to the Respondent No. 2, is already constructed

119 | P a g e

adjacent to existing CHP of Unit Nos. 1 & 2. However, in the

layout plan provided for Unit Nos. 1 – 4, it is to be

constructed behind the ash pond of Unit Nos. 1 & 2. It would

therefore mean that the Petitioner would use the Wagon

Tipler Area identified in the layout plan for Unit No. 1 & 2 for

Unit Nos. 3 & 4. In the circumstance, it is evident that the

cost for Coal handling Plant (CHP) would be shared between

Units 1 & 2 and Units 3 & 4. In this regard, it is also

submitted that the Petitioner has sought approval of an

amount of Rs. 151.47 Cr. and Rs. 115.74 Cr. as cost for the

Coal Handling Plant for unit 1 and unit 2, respectively.

Clearly, the cost of the Coal Handling Plant of the Petitioner

is significantly higher, as compared to other power plants,

details of which have been provided in the subsequent

paragraphs.

l) It is further submitted that the in addition to the above

assets, the following assets are also common and/or are

likely to be shared between Units 1 & 2 and Units 3 & 4:

i. Existing Roads within the power project of the Petitioner.

ii. Administrative Building

iii. Service building

iv. Fire station

v. Field hostel

vi. Drainage System

120 | P a g e

During the site visit a specific inquiry was made about the

expansion of Units Nos. 5 & 6 of 660 MW each. The details of

the said units are given hereunder. There was no satisfactory

answer given in regard to the location of such units 5 & 6. From

the Layout plant, the said units it seems will be constructed

within the map disclosed as in the case of Units 3 and 4

integrated with Units 1 and 2

It be stated that the Lanco Amarkantak Power Project consist of

several generating units, namely, Units 1 and 2 with 300 MW

capacity each, Units 3 and 4 with 660 MW capacity each and

further Units 5 and 6 being an expansion of the project again

with a capacity of 660 MW each. Thus, the generating station

as was originally considered was with 2 x 300 MW each and 2 x

660 MW each and subsequently there has been a proposal to

expand the generating station by another 2 x 660 MW each.

Unit No. 2 of 300 MW, the subject matter of the present

proceedings before the Commission, has therefore been a part

of a large capacity generating station of 1960 MW, which has

now increased to 3240 MW. All the above generating stations

are contiguous in Korba in the State of Chhattisgarh.

Accordingly, the generating units have been established with

the intent to have sharing of various common assets and

facilities and to achieve economies in the scale of operation.

121 | P a g e

In regard to the above, it is relevant to mention that the

Petitioner had offered to sell electricity to Respondent No. 2

from the 300 MW Unit No. 2 at a ceiling tariff of Rs 2.32 per

kwH. Reference in this connection may be made to the

Schedule E of the Power Purchase Agreement dated 19.10.2005

entered into by the Petitioner with PTC India Limited,

Respondent No. 1, which, inter alia, provides as under:

“Schedule E 2.1 The capped Tariff Rate (in Rupees per kWh), levelised over the relevant Tariff Years, using a discounting factor of 12% per annum, shall be as set out in the following table:

Tariff Year Capped Tariff Rate (Rs./kWh)

Tariff Year 1 – 25 2.32 For the avoidance of doubt, it is clarified that the Capped Tariff Rate shall be Rs. 2.32/kWh and would be considered from the 1st Tariff Year onwards until the 25th Tariff Year for the purpose of Tariff Pool account calculation.”

The Respondent no. 2 submits that there should have

been some basis for the Petitioner to agree to the above tariff

of Rs 2.32 per KwH. The Petitioner’s proposal to agree to the

ceiling tariff of Rs 2.32 per KwH clearly indicates its intention to

develop the generating stations with various generating units

including the opportunity available for expansion, namely,

122 | P a g e

Units 1 to 6 with a large aggregate capacity and thereby taking

advantage of economies of scale of operation including and in

particular the use of various facilities in a shared and common

manner. There is otherwise, no explanation whatsoever from

the Petitioner in regard to its decision to offer power to

Respondent No. 2 with a ceiling tariff of Rs 2.32 per KwH.

Neither, the Petitioner had disclosed the same nor the E & Y

Consultants appointed by this Commission as an expert has

even made an attempt to make any inquiry on the aspect of the

basis on which the Petitioner had agreed to the ceiling tariff of

Rs 2.32 per KwH and incorporated the same in the Power

Purchase Agreement dated 19.10.2005. The E & Y Consultants

has, therefore, failed to conduct proper inquiry as an

independent Consultant appointed by the Commission to go

into the prudent check of the project cost admissible for the

tariff purpose and has mechanically adopted whatever the

Petitioner had stated in its financial statements and that too

without any opportunity to Respondent no. 2 to contest the

same.

Admittedly, when a generating station is established with

number of units and on land contiguous to each other, there

are opportunities available to economies the scale of

investments and use of various assets in a common/shared

manner thereby reducing the cost for each unit. In this regard

123 | P a g e

many of the assets relating to the above generating stations of

the Petitioner with six units, namely, 2 x 300 MW each and 4 x

660 MW each can be effectively used as a common asset. The

layout plan now made available fortifies the same. Despite the

above, the Petitioner has been alleging wrongly that there are

no common assets as between Units 1 and 2 on the one hand

and Units 3 and 4 or other units on the other hand. In this

regard, the Petitioner has referred to various approval granted

by the authorities including environmental approval, approval

for drawing water, railway authorities approval etc to allege

that there are no common assets/shares assets. The grant of

specific approval for each unit cannot be an indication of the

fact that each of the unit will have an independent and

separate asset and there will be no common assets. The

attempt made by the Petitioner is to mislead this Commission

by referring to consents and approval with regard to each of

the generating unit and concealing that the physical assets will

be common. The site visit has exposed the falsity of the claim of

the Petitioner and the attempt made by the Petitioner to

mislead the Commission.

The line for the railway siding from the main trunk line of

Indian Railways to the Korba Station for transportation of coal

etc. This railway line is not being established and ought not to

be established separately for each unit, namely, for Units 1 and

124 | P a g e

2 separately from Units 3 to 6. This ought to be a common line

to be used for transportation of coal for all the generating units

with an aggregate capacity of 3240 MW. In such an event, the

capacity of 300 MW pertaining to the Generating Unit No. 2

would proportionately work out to less than 10% of the use of

the railway line and railway siding. It is, therefore, not

appropriate to load the entire cost of the railway line and

railway siding on Units 1 and 2.

Without prejudice to the above, it is further submitted that the

Petitioner has submitted the total common cost of “Permanent

Railway Sidings” to be Rs. 35.33 Cr. The Respondent No. 2 has

undertaken a comparison of costs for such Railway Sidings with

other generating plants and it was found that the cost of

railway sidings of the Petitioner are on the higher side. The

comparison of the railway line was carried out with the

following thermal power plants:

a) Chabbra Thermal Power Plant, Phase 1 (Unit 1 & Unit 2) in

Rajasthan.

b) Parli Thermal Power Plant (Unit-6) in Maharashtra

S. No. Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

1 Lanco 35.33 600 0.059

2 Chabbra (Unit 1 & 2)

25.00 500 0.050

3 Parli (Unit 6) 13.35 250 0.053

125 | P a g e

Thus, from the above, it is clear that the cost of railway

sidings as submitted by the Petitioner (LAPL) is around 10% to

18% higher than the plants selected for comparison. Moreover,

since the railway sidings once commissioned would also be useful

to the subsequent units, the cost of construction of railway sidings

should be shared between the subsequent units in proportion to

the capacity of the respective units.

In this regard, reference may also be placed on the Order

passed by the Rajasthan State Electricity Regulatory Commission.

The Rajasthan State Commission vide its tariff Order dated 6th

June 2013 while approving the capital cost for Chabbra Thermal

Power Plant (Unit-I & II), has shared the cost of railway sidings

between phase –I (Unit-I and Unit-II) and phase – II (Unit-III and

Unit-IV) of the project. The relevant extract of the Order dated 6th

June 2013, has been provided below:

“5.30 As already discussed in detail vide para no. 3.7 of

Order dt. 13.06.2011, half of the cost of railway siding

amounting to Rs.25 cr., which is common to phase-1 & 2

is reduced from the capital cost.”

Further, in the case of Parli Thermal Power Plant, the

generating company had initially submitted Rs. 26.69 Cr. as the

cost of railway sidings for Unit - 6. However, upon a direction by

the Maharashtra Electricity Regulatory Commission, it was

required to segregate the aforementioned cost into Unit - 6 and

126 | P a g e

Unit – 7, in the equal proportion. Relevant extract of the Order

passed by the Maharashtra State Commission dated 21.10.2009 is

provided below:

“38. The Commission asked MSPGCL to clarify whether

the actual cost for Parli Unit includes come common

facilities for the other Unit yet to be commissioned at

Parli and directed MSPGCL to segregate costs for such

shared facilities amongst various Units. MSPGCL, in

responses, submitted the details of sharing of common

costs as under:………”

Similarly, the water intake for all the Units 1 to 6 will be

from Hasdeo River at a distance of 4 Km from the Korba

Generating Station of the Petitioner. While, the approval from

the authorities for such water intake is to be obtained

separately for many of the units, the water pumping and water

intake system can be commonly used for all the generating

units. It is imprudent on the part of the Petitioner to have

independent water intake and water pumping system as well as

water pipeline from the Hasdeo River for each of the generating

units.

Without prejudice to the above, it is further submitted

that the Petitioner has submitted that the cost of water supply

system to be Rs. 102.90 Cr. for both the units taken together.

However, the Respondent No. 2 would like to place for

127 | P a g e

consideration of this Hon’ble Commission a comparative

analysis undertaken by it with the power project of the

Petitioner and other generating plants, namely, (a) Sagardighi

Thermal Power Plant in West Bengal; and (b) Chabbra Thermal

Power Plant in Rajasthan:-

S. No.

Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

1 LAPL Unit -1 62.07 300 0.207

2 LAPL Unit -2 40.83 300 0.136

3 Sagardighi Unit 1 & 2

87.60 600 0.146

4 Chabbra Unit 1 24.73 250 0.099

5 Chabbra Unit 2 24.92 250 0.100

From the above, it is apparent that the cost of water

treatment facility in the Petitioner’s power project is

significantly higher than other projects and thus the

Commission ought to conduct a detailed prudence check on the

same. Further, it may also be noted that in the case of Chabra

Thermal Power Plant, the initial cost of water system was

stated to be Rs. 70.92 Cr.

The Rajasthan State Commission had, inter-alia, observed

that the same could be used in the subsequent units i.e. Units 3

& 4, as well. Accordingly, the Rajasthan State Commission

directed sharing the aforesaid cost in the ratio of 70:30 and

based thereon it finally arrived at the cost of Rs. 49.65 Cr for

128 | P a g e

Units 1 & 2. The relevant extract of the Order dated 6th June

2013 is reproduced herein below:

“5.31 Regarding the cost of water conductor system, which is

common for Phase-1&2, the Commission has considered

sharing of the cost in the ratio of 70:30 between Phase-1 and

Phase-2.”

Further, as the generating units are being established on

a contiguous land, the Switchyard for Interconnection and

evacuation of power from all the generating units can be the

same. It is imprudent for the Petitioner to establish a separate

Switchyard for Units 3, 4, 5 and 6 independent of the existing

Switchyard for Units 1 and 2. There will be an increase in the

Bay for the existing Switchyard for the purpose of Units 3, 4, 5

and 6. There is no need for the Petitioner to establish a

separate Switchyard. Again, the facilities such as residential

colonies, maintenance of such facilities, township facilities,

road, street lighting, security etc are to be commonly

maintained for all the generating units thereby reducing the

cost of each generating unit in the proportion to their

generation capacity. Unit No. 2 with 300 MW capacity out of

3240 MW can be related to not more than 10% of such overall

cost for all the generating units. The same would be the

position in regard to other facilities such as ash dyke, ash

disposal system, administrative and other general buildings,

129 | P a g e

coal handling system, air conditioning and ventilation system,

compressor system, fire fighting system, repair and

maintenance workshop, cooling towers, rain water harvesting,

roads and drainage etc.

The Petitioner has submitted the cost of Switchyard to be

Rs. 59.31 Cr. and Rs. 63.33 Cr. for unit-I and unit-II, respectively.

The comparison of the same has been done with the following

plants, namely, (a) Paras Thermal power plant (unit-3) in

Maharashtra; and (b) Parli Thermal power plant (unit-6) in

Maharashtra

S. No.

Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

1 LAPL Unit -1 59.31 300 0.198 2 LAPL Unit -2 63.33 300 0.211

3 Paras Unit 3 28.15 250 0.113 4 Parli Unit 6 48.35 250 0.193

Thus, it is apparent that the cost of switchyard for unit-2

of the Petitioner is also substantially higher than the other

plants.

Accordingly, it is wrong on the part of the Petitioner to

allege that there are no shared or common facilities and each of

the facilities mentioned herein above established for Units 1

and 2 are totally independent and separate for the facilities to

130 | P a g e

be established for Units 3, 4, 5 and 6. In any event, such an

action on the part of the Petitioner is totally imprudent and

contrary to the practice adopted in establishing the generating

units. Respondent No. 2 and the consumers in the State of

Haryana cannot be called upon to pay for such imprudent act

on the part of the Generating Company.

The Respondent No. 2 would also like to place for the

consideration of this Commission a comparative analysis with

respect to the costs for Ash Handling System, Switchyard, Land

and Coal Handling Plant submitted by the Petitioner and other

generating stations to bring out the inconsistencies and higher

costs assumed by the Petitioner. The Petitioner has submitted

the cost of ash handling plant to be Rs. 151.81 Cr. in aggregate

for unit-1 and unit-2 of the power plant. This comes out to be

Rs. 0.253 Cr. per MW. The comparison of the same has been

done with the other plants and it was observed that the cost for

Ash Handling System is much lower in other thermal power

plants. Following plants have been selected for the comparison:

a) Sagadighi Thermal Power Plant in West Bengal (Unit 1

& 2)

b) Paras Thermal Power Plant (Unit-3)

c) Parli Thermal Power Plant (Unit-6)

131 | P a g e

S. No.

Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

1 LAPL Unit -1 80.69 300 0.269

2 LAPL Unit -2 71.12 300 0.237

3 Sagardighi Unit 1 & 2 10.00

600 0.017

4 Paras Unit 3 21.30 250 0.085

5 Parli Unit 6 47.21 250 0.189

It is therefore apparent that the cost of ash handling

plant is substantially higher than the corresponding cost of

other generating stations. Thus this Commission ought to

conduct the prudence check in Order to arrive at the

reasonable cost of this component. It is further submitted that

in the case of Paras Thermal Power Plant, the cost of ash

handling system for unit – 3 was stated to be Rs. 29.11. Cr.

However, upon the direction of the Maharashtra State

Electricity Regulatory Commission vide Order dated 15.12.2009,

the aforementioned cost was segregated into unit-3 and unit-4

and finally the approved cost for Unit – 3 came to Rs. 21.30 Cr.

In so far as the cost of land is concerned, it is submitted

that the Petitioner has submitted the cost to be Rs. 62.05 Cr. for

both the units taken together. The Respondent No. 2 has

undertaken a comparison of the cost of land with that of

Sagardighi Thermal Power Plant in West Bengal. The

comparison is as given below:-

S. No.

Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

132 | P a g e

1 LAPL Unit -1 33.11 300 0.110

2 LAPL Unit -2 28.94 300 0.096

3 Sagardighi Unit 1 & 2 48.00

600 0.080

On the instant issue of cost of land, it is submitted that as

the land would be useful to the subsequent units as well, the

cost of construction of land should be shared between the units

in proportion of the capacity of each unit.

It is further submitted that the Petitioner has submitted

the cost of coal handling plant to be Rs. 151.47 Cr. and Rs.

115.74 Cr. for unit 1 and unit 2. The Respondent No. 2 has

undertaken a comparison of the same with the following plants:

a. Sagardighi Thermal power plant in West Bengal

b. Paras Thermal power plant (unit-3) in Maharashtra

c. Parli Thermal power plant (unit-6) in Maharashtra

S. No.

Name of the Plant

Cost (Rs. Cr.)

Capacity (MW)

Per MW Cost (Rs. Cr.)

1 LAPL Unit -1 151.47 300 0.505 2 LAPL Unit -2 115.74 300 0.386

3 Sagardighi (Unit 1 & 2)

211.09 600 0.352

4 Paras Unit 3 53.30 250 0.213 5 Parli Unit 6 34.69 250 0.139

133 | P a g e

From the above comparison, it is apparent that the cost

of coal handling plant of the Petitioner/Lanco is substantially

higher than the other power plants.

It is further submitted that the Report submitted by E&Y

has not verified the coal and secondary fuel purchase bills for

the verification of sources as well as the cost of the landed coal

and secondary fuel oil. Moreover, the consultant has not

verified the laboratory report for verification of GCV of the

landed coal. The Petitioner ought to be directed to submit the

aforementioned documents forthwith.

The Coal Handling Plant is common for Units 1 & 2.

However, no information or details have been provided for the

quality and quantity of coal used in Unit 1 and Unit 2,

separately. Only upon such information being provided, it

would be clear as to the amount of coal required for achieving

the station heat rate, which in-turn would have revealed the

impact on the cost of coal. It is further submitted that the

Petitioner has not given any details or information with regard

to the excessively high transportation cost of Rs. 570/metric

cube for e-auction coal. Accordingly, the Petitioner should be

directed to give the necessary details forthwith.

134 | P a g e

The Consultants E & Y has not examined any of the above

aspects despite the Memorandum filed by Respondent No. 2

before this Commission on 1st April 2014. The E & Y

Consultants have also not gone into the comparison of the

project cost claimed by the Petitioner with other projects in a

proper manner.

In the proceedings on 25th March 2014 also this

Commission had specifically referred to the aspects of railways

siding, railway lines etc being common to the entire station of

1920 MW. If so, the proportionate share of Unit 2 of Lanco

Power Station would work out only to approximately 14.6% and

the common assets cannot be considered for Unit 2 beyond the

above percentage. The table of apportioning common assets in

the report is also on assumption and presumptions etc and not

by verification of the data by an independent financial

consultant for which purpose E & Y was appointed.

The capital cost determination would include the

apportionment of the cost of shared assets (assets commonly

used for other and all units) and also an adjustment to be given

for sale revenue pertaining to Unit 2 prior to the COD.

The in-principle capital cost approved, as per DPR for unit

2 was Rs 1340.041 Crore. It is incumbent on the Petitioner to

establish to the satisfaction of the Commission for allowance of

135 | P a g e

an increase over the in-principle DPR cost of Rs 1340.041

Crores. A comparison of the original cost as per the DPR along

with the revised estimated capital cost submitted by the

Petitioner is being given below:

Sl No Particulars Original Cost as per DPR

Revised Project Cost

Variation of original DPR and revised

cost

Audited Project Cost as on 06 May 2011

1 Land 12 12 -

1,311,89

2 EPC Cost -

Off shore CIF supplies 470.2 448.39 (21.81)

On shore ex works supplies

226 231.93 5.93

Engg, transport., testing and Comm.

110.8 113.31 2.51

Civil and construction work

198 267.53 69.53

3 Non EPC Cost (Including land development)

92 112.36 20.36

4

design, engineering, construction, supervision & pre-operative expenses

28.5 58.32 29.82

5 Tools and spares 2 2 -

6 Preliminary expenses 2.5 1.14 (1.36)

7 Start up fuel 11 11 -

8 Training of O&M staff 1.2 1.2 -

9 Financial charges including up-front fees

11.7 14.28 2.58

10 Interest during construction

138.82 224.29 85.47

11 Physical contingencies

11.1 0 (11.10)

12 Margin money for working capital

24.22 24.22 - 24.22

Total 1,340.04 1,521.97 181.93 1,356.11

In case of on-shore ex works supplies, the variation of Rs.

5.93 has been on account of the extra spares for critical spares

and special tools & plants for maintenance. However, it is

136 | P a g e

submitted that the above spares should be part of O&M

expenses as they are meant for maintenance of plants. In any

event, this Commission ought to allow maintenance spares

strictly in accordance with the applicable regulations.

The Petitioner has increased the scope of the civil and

construction works by Rs. 69.53 Cr. The Petitioner has also

increased the scope of non EPC contract by Rs. 20.35 Cr.

However, there has been no cross-verification and this

Commission ought to cross-verify the extended scope in Order

to ascertain that they were not originally part of the actual DPR.

Moreover, necessary prudence check may also be carried out

by this Hon’ble Commission to ascertain whether the additional

scope of work is actually required. The Respondent No. 2 would

further submit that the Petitioner should be directed to submit

the copies of contract/work Order awarded to different

agencies for this work.

The Petitioner has also increased the design, engineering,

construction, supervision & pre-operative expenses by Rs. 29.82

Cr. on account of increase in price levels. The Respondent

submits that the same ought to be disallowed as the increase in

price was principally due to the delay in CoD, solely attributable

to the Petitioner.

137 | P a g e

Further, as per the certificate by the statutory auditor, the

Petitioner had submitted that the actual capital cost as on 06th

May 2011 was Rs. 1356.11 Cr. However, no detailed breakup of

the capital cost is provided. Thus, the Respondent No. 2 would

further submit that the Petitioner be directed to submit the

detailed capital cost as on CoD so that the variation in the

estimated and actual capital cost can be understood.

In the earlier proceedings leading to the passing of the

Order dated 17.10.2012, the Commission had taken the total

capital cost as Rs 1340.04 Crores only, in view of the failure and

default on the part of the Petitioner to give particulars of the

capital cost in spite of the specific objections taken by the

Respondent and in spite of the opportunity given by the

Commission.

In the Order dated 3rd January 2014, the Hon’ble

Appellate Tribunal has decided that the Petitioner can furnish

the particulars with necessary documents in support of its claim

for the capital expenditure claimed in excess of Rs 1340.041

Crores. The claim now made by the Petitioner is for a capital

cost of Rs 1668.37 Crores. This is to be justified by the

Petitioner with satisfactory evidence and details to be given.

The Petitioner has still not given the proper details and

evidence in support of Rs 1668.37 Crores.

138 | P a g e

In addition to the above, the Petitioner was to give

details of the Sale of Power prior to COD pertaining to Unit 2.

The annual accounts of the Petitioner indicate a total sale of Rs

1889.10 Crores during the period 2009-10 to 2010-11. In

addition, there was a sale of infirm power from 1st April 2011

to 6th May 2011 for which details have not been provided. This

includes revenue from infirm power and UI charges from Unit 1

and 2. Admittedly, the Petitioner has accounted for a specified

amount to be adjusted for Unit 1 in the proceeding before the

Madhya Pradesh Electricity Regulatory Commission.

Accordingly, the balance pertains to Unit 2. Despite

opportunities given, the Petitioner has not provided the break-

up of Rs 1889.10 Crores. In view of the failure of the Petitioner

to provide such details, adverse inference needs to be drawn

against the Petitioner to the effect that much more than Rs 311

Crores proposed by the Petitioner, needs to be adjusted in the

capital expenditure for revenue from infirm power and UI

Charges. As mentioned herein above, the adverse inference

needs to be drawn against the Petitioner to the above effect for

not furnishing the details of infirm power.

It is further submitted that the O&M Expenses for Unit

No. 1 have been approved by the Madhya Pradesh Electricity

Regulatory Commission and therefore O&M Expenses towards

salaries to staff, maintenance of common auxiliaries’ etc need

to be apportioned between Unit Nos. 1 and 2.

139 | P a g e

The Petitioner is not entitled to any IDC and IEDC or cost

overrun on account of any alleged Force Majeure conditions.

The Petitioner has to either accept the Order dated 2nd

October 2011 in toto wherein the Commission has considered

the China earthquake, Visa issues of the Chinese Personnel as

Force Majeure, mainly in view of the Respondent not replying

to the notice of Force Majeure given by the Petitioner and at

the same time holding that no cost implications will be there

and the Petitioner is entitled only to time overrun. It is not now

open to the Petitioner to seek cost implications. If the

Petitioner wishes to dispute the finding contained in the Order

dated 2nd October 2011, then the entire claim on Force

Majeure for China Earthquake or Via etc need to be examined

on merits, as the Power Purchase Agreement is not applicable

and accordingly the condition of the Respondent disputing the

condition of Force Majeure will not be applicable.

Even otherwise, in the absence of a Power Purchase

Agreement, the only applicable provision is Section 56 of the

Contract Act which relieves the performance of the obligation

during the period of the Force Majeure. There is no higher cost

implication to the non-affected party. The affected party gets

released of the obligations to perform during the period of

Force Majeure. The China earthquake or the visa problems

cannot be a Force Majeure as it did not affect the Petitioner. It

140 | P a g e

was not impossible for the Petitioner to perform the obligations

through alternate means. The issue of Force Majeure or

section 56 would arise only if the performance had become

impossible and not merely onerous or difficult or expensive.

This proposition is well settled and the Respondent No. 2 craves

leave to refer to the same at the time of hearing.

As regards the debt equity, the approved financial

package provided for 80:20. The debt equity ratio to be

adopted is, therefore, 80: 20. The Petitioner cannot be allowed

to claim higher equity of 24.52% instead of 20%.

The repayment of loan should be considered as minimum

amount of depreciation.

The Annual Capacity Charges applicable for 2011-12,

2012-13 and 2013-14 on the above basis, after adjusting for the

infirm power and shared assets need to be considered for the

purpose of the Capacity Charges. Such capacity charges need

to be adjusted in a proportionate manner for PLF as per

Regulations 10 and 11 of the Haryana Electricity Regulatory

Commission Tariff Regulations. In other words, if the Plant

Load Factor achieved is say 40% as against 80% Target

Availability, the above annual capacity charges will be adjusted

by half. In other words, the Petitioner is not entitled to per unit

141 | P a g e

tariff based on Annual Capacity Charges for 80% Plant Load

Factor.

For example, in the petition filed for the FY 2011-12, the

annual capacity charges had been worked out at Rs 318.07

Crores. The Plant Load Factor achieved during this period

including auxiliary consumption is 56%. The annual capacity

charges payable need to be adjusted to Rs 224.12 Crores. The

per unit charge to be paid will be to the tune of Rs 1.30. Similar

would be the calculation for the FY 2012-13, where the annual

capacity charges is Rs 344.31 Crores, the Plant Load Factor

including auxiliary consumption is 40.77% and the per unit tariff

would be Rs 0.90.

The above calculation has been made as an illustration in

regard to the Annual Capacity Charges assuming all the other

claims but not admitted. The other claims need to be adjusted,

namely, total project cost, debt equity ratio, repayment of loan,

interest on working capital, operation and maintenance

expenses etc.

The mere fact that the auditors’ have given a letter as per

the books of account or even when the Auditor duly certifies

the account does not mean that the Commission will not

exercise prudent check. The prudent check need to be applied

by the Commission is to be in detail as higher capital cost would

142 | P a g e

increase the tariff for the consumers at large. The Commission

exercised prudent check in all cases in Order to ascertain not

only the veracity of the claim of the Petitioner/Generating

Company but also to seek whether all such capital expenditure

have been incurred reasonably or prudently. If the Commission

comes to the conclusion after applying the prudent check that

any such capital expenditure, though actually incurred was not

prudent or expedient, such part of the capital expenditure will

have to be rejected. The scrutiny of the capital expenditure by

the Commission is, therefore, an absolute necessity which

cannot be avoided by Petitioner by not giving the requisite

particulars and satisfying the claim. The Regulatory

Commissions have been exercising such prudence checks

including by appointment of consultants and through

verification by the staff of the Commission. It is, therefore, not

correct on the part of the Petitioner to seek admission of the

capital expenditure incurred only on the basis of auditor’s

certificate.

The prudence check is also required to be undertaken by

the Commission in Order to determine whether any part of the

capital expenditure involve minor assets or assets not relevant

for the generation of electricity. Accordingly, the expenditure

being supported by accounting vouchers for the purpose of the

Companies Act is not sufficient. The Generating Company is

143 | P a g e

required to establish to the satisfaction of the Commission the

need for capital expenditure, incurring of such capital

expenditure in a structured manner and the total expenditure

being reasonable and just.

While deciding the capital cost, the entire infirm power

including the power sold under Unscheduled Interchange prior

to the Commercial Operation Date i.e. the date from which the

Petitioner is supplying power to the answering Respondents in

pursuance to the earlier Order dated 2.2.2011 passed by this

Commission need to be deducted. As per the financial

statements of Lanco filed for the year ended 31.3.2009, for the

period 2009-10 and for the period 2010-11, the sale of power

from Units 1 and 2 before the declaration of the date of

commercial operation aggregate to Rs. 1889.10 crores. In

addition, there has been sale of infirm power during the period

1.4.2011 to 6.5.2011 the details whereof has not been disclosed

by Lanco. In the Financial Statements providing for the income

from sale of electrical energy, Lanco has not given the details of

the break-up of the above, namely, what part of the sales

pertain to Unit 1 and what part pertains to Unit 2.

It is, therefore, incumbent for Lanco to give details of the

sale of infirm power and sale of power under Unscheduled

Interchange Charges, namely, the aggregate quantum of such

sale both from Units 1 and 2 and out of the above, the amount

144 | P a g e

realised from the sale of infirm power and Unscheduled

Interchange Charges considered for reduction of the capital

cost of Unit No. 1. The balance after adjustment for Unit 1 held

to be accounted as pertaining to Unit No. 2. This revenue needs

to be adjusted for reduction in the capital cost for the purpose

of determining the cost to be considered for tariff. The

deduction of revenues from infirm power/UI Charges from the

capital cost is a significant aspect of capital cost determination

and the benefit of the same should go to the consumers in the

State of Haryana. The Hon’ble Commission may, therefore,

direct a detailed investigation into the quantum of infirm power

sold by Lanco from Amarkantak Project, verification of the

above quantum vis-a-vis Unit 2 and then determine the

reduction in the capital cost pertaining to Unit 2. In the facts

and circumstances of the case the submissions of Lanco on the

quantum of sale of infirm power at Rs. 311.60 crores is

erroneous.

The approved financial package of the project

admittedly, is 80% debt and 20% equity. Accordingly, the

capital cost duly scrutinised subject to prudent check and

approved, will have to be apportioned in the form of debt to

the extent of 80% and equity to the extent of 20%. It is not

open to Lanco to claim equity to be at 24.52% when the

approved financial plan for equity is only 20%. The excess of

145 | P a g e

equity above 20% should be treated as notional loan and not as

equity. Accordingly, the tariff filing made by Lanco on the basis

of apportionment of the debt and equity in the ratio of 75% -

25% is wrong. The entire tariff calculation based on the above

wrong differentiation and equity ratio assumed by Lanco is

defective and needs to be rejected. Once the capital cost

determined as per prudent check and infirm power and UI

revenues are deducted, the cost is apportioned in the debt

equity ratio of 80% - 20%, the return of equity is to be

restricted to 20% of the capital cost. The balance 80% will have

to be serviced as borrowings/loan.

In terms of the Tariff Regulations, 2009 of the Central

Commission the servicing of the loan is equated with the

depreciation amount and on a normative basis. The actual

repayment of loan or the terms and conditions entered into by

Lanco with its Lenders on repayment of loan are not relevant.

What is, however, relevant is the interest to be calculated on

the normative repayment i.e. on reducing balance as per the

normative repayment at the weighted average of the actual

interest paid to the Lenders. Accordingly, Lanco is required to

give the details of the depreciation claimed by Lanco, its

apportionment to the capital cost of Unit 2 from the beginning.

Any depreciation taken by Lanco on or after 1.4.2009 will be

treated as normative repayment to the banks. The interest for

146 | P a g e

the subsequent period will have to be determined after

adjusting the normative repayment. Lanco has not given such

particulars in Order to determine the normative loan,

depreciation adjusted and the balance to be serviced from time

to time.

In the Order dated 2.2.2011 this Commission while

dealing with the Force Majeure pleaded by the Petitioner

specifically rejected the claim for compensation in terms of

tariff hike i.e. IDC and IEDC specifically holding as under:

“A perusal of the above provision makes it clear that in

an event of Force Majeure the parties are entitled for

some relief in terms of extension in time for carrying out

their respective contractual obligations. As far as the

issue of compensating (in terms of tariff hike) for any

consequential appreciation in Capital Cost is concerned,

the Commission could not find any enabling provision in

the PSA/ PPA. Hence the second issue of whether any

relief other than extension in time due to any Force

Majeure event is admissible is answered in negative i.e.

no relief other than extension in time as explicitly

provided in the PSA/PPA is admissible.”

The above decision of this Commission was not

interfered with by the Hon’ble Appellate Tribunal for

Electricity in the judgment and Order dated 3.1.2014. In

view of the above, the Petitioner cannot claim either IDC or

147 | P a g e

IEDC or any other compensatory payment by way of cost

overrun or time overrun on account of the delay resulting

from the alleged Force Majeure Event of earthquake in

China or the Visa Policy of the Government of India. This

issue stands settled and cannot be re-opened at this stage.

It is, however, submitted that the alleged reasons, namely,

earthquake in China and Visa Policy of the Government of

India are not Force Majeure making it impossible for Lanco

to complete the construction of Unit No. 2. In particular,

the Visa Policy of the Government of India cannot be

construed as Force Majeure as sufficient manpower has

been available in India for commissioning Unit No. 2. The

claim for IDC and IEDC i.e. time overrun and cost overrun

can be considered only in regard to the matters other than

those resulting from the alleged Force Majeure Event. The

allegations to the contrary are wrong and are denied.

A perusal of the documents on record, as filed by

the Petitioner clearly show that the claim of the Petitioner

for the delay in the commissioning is only on account of

Force Majeure Event of earthquake in China in May 2008.

The other reason given for the delay in the Lenders

Engineers Report is that the commissioning was delayed

due to the usage of rotor of Unit No. 2 in Unit No. 1

allegedly to optimise the commissioning time of the unit.

This cannot be a ground for claiming the cost overrun in

respect of Unit No. 2. Any claim on account of excess

expenditure should be entirely to the account of Unit No. 1

and no part of such expenditure should be added on to Unit

no. 2. Furthermore, the allegation of Force Majeure of Visa

Policy of the Government of India not permitting the

Chinese workforce has been raised, as an afterthought.

148 | P a g e

The Fixed Charges as per the Tariff Regulations,

2009 determined based on the capital cost will be on an

annual basis and thereafter apportioned 1/12th for each

month. The fixed charges claimed by Lanco in the petition

are varying from month to month and that also significantly.

This is not in accordance with the Tariff Regulations, 2009.

The annualized fixed charges need to be determined and

then divided into monthly fixed charges on mathematical

basis for recovery purposes. The scheme adopted by Lanco

in determining the fixed charges on month-wise basis is

completely contrary to the Tariff Regulations, 2009. Further,

in terms of the Tariff Regulations 2009 the fixed charges

need to be proportionately reduced for the targeted plant

load factor not achieved. It is further submitted that

pursuant to the site visit undertaken on 16-17th August

2014 and as recorded in the letter dated 20.08.2014 issued

by the Director, Tariff of this Commission, it was noted that

Long Term Open Access and connectivity for evacuation of

power from Petitioner’s Unit – 2 was still not in place. In the

circumstances, it is submitted that the implemented

schedule of power shall be taken as per availability at the

State’s Periphery and not on declared availability of the

Petitioner’s plant for payment/billing purposes. Suitable

directions in this regard need to be issued by on this by the

Commission.

The interest on working capital to be determined is

on normative basis. The reference to the period to be taken

for the purpose of actual consumption, coal price etc is

January 2009 to March 2009. Once the interest on working

capital is determined on a normative basis, the actual

amount of capital employed by the generating company

from time to time in regard to the coal consumption etc. is

149 | P a g e

totally irrelevant. The interest on working capital is not

dependent on the actual working capital incurred by the

generating company irrespective of whether the generating

company incurs the working capital or not, the normative

working capital as determined under the Regulations is

alone admissible. In the present case, the claim of Lanco of

different working capital every month or on the basis of coal

value being more in certain months is contrary to the Tariff

Regulations, 2009.

In addition, Lanco has not given details as to why the

coal consumption in a particular month is of higher value.

In any event, the Tariff Regulations, 2009 having provided

for the interest on working capital to be determined on a

normative basis, it is not open to Lanco to claim interest on

working capital allegedly on the actual working capital

incurred by it and that too on month to month basis. The

interest on working capital needs to be uniform throughout

the tariff period of 2009-14.

The Operating and Maintenance Expenses need to

be ascertained in terms of Tariff Regulations, 2004 based on

the capital cost finally determined by the Commission.

Under the Tariff Regulations, 2009, the O & M Expenses are

on normative basis and need to be allowed. Any claim on

the part of Lanco contrary to the above is wrong.

As regards the coal, the Respondent had agreed to

purchase power from the second unit of Lanco Project

based on the coal linkage which Lanco had from Coal India

and/or its subsidiary. It is the obligation of Lanco to arrange

for the above coal. Lanco cannot demand energy charges

based on any coal used by it other than through

150 | P a g e

procurement of coal under a regular Fuel Supply Agreement

with Coal India and/or its subsidiary.

In the circumstances mentioned herein above, the

claim of the Petitioner for the project cost needs to be

rejected. In view of the conduct of the Petitioner of

concealing various facts and not approaching this

Commission in a clean and transparent manner, adverse

inference needs to be drawn against the Petitioner and

there should not be any change in the project cost as

determined by the Commission in the earlier Order dated

17.10.2012.

In addition to the above the Ld. Counsel raised the

issue that the officers of the Commission also undertook

site visit along with HPPC and E&Y hence in terms of HERC

Regulations, they should have filed a report along with a

copy to the parties.

Per Contra, the Ld. Advocate for LAPL Shri Sanjay Sen argued at length rebutting the averments made by the Respondent (HPPC). At the outset he reiterated that E&Y was appointed by the Commission after obtaining consent of HPPC and after hearing the parties. Hence he has no further submissions to make in this regard. On the issue of Officers of this Commission filing a report regarding the site visit undertaken by them, he brought to the notice of the Commission Clause 97 of the Electricity Act, 2003 i.e. “97. The Appropriate Commission may, by general or special Order in writing, delegate to any Member, Secretary, Officer of the Appropriate Commission or any other person subject to such conditions, if any, as may be specified in the Order, such of its powers and functions under this Act (except the powers to adjudicate disputes under Section 79

151 | P a g e

and Section 86 and the powers to make regulations under section 178 or section 181) as it may deem necessary”. Thus, this Commission having once delegated the work of independent capital cost verification to E&Y cannot delegate the same task again to the officers of the Commission. In reply to the affidavit of objection dated 08.09.2014 filed on behalf

of the Respondent No.2 (‘HPPC’), the Petitioner, by way of a written

reply, submitted that the same ought not to be taken on record

inasmuch as the affidavit of objection dated 08.09.2014 has been filed

in utter violation of the Order dated 28.07.2014 of this Commission. It

was submitted that this Commission vide its Order dated 28.07.2014

had given HPPC the liberty to file their comments/objections to the

addendum dated 04.08.2014 to the report dated 08.07.2014 filed by

Ernst and Young (‘E&Y’) whereas HPPC mischievously have given their

alleged comments/objections even to the report dated 08.07.2014

filed by E&Y. The limited liberty to file comments/objections to the

addendum dated 04.08.2014 to the report dated 08.07.2014 filed by

E&Y was given by this Commission because this Commission had

already adopted the draft report dated 08.07.2014 filed by E&Y during

the hearing held on 22.07.2014, which is clear from para-4 of the

Order dated 28.07.2014. Accordingly, any comment/objection in

relation to report dated 08.07.2014 filed by E&Y cannot be taken on

record at a later stage when the time for filing the

objections/comments had already expired and is liable to be rejected.

152 | P a g e

“PARAWISE REPLY ON MERITS

1. The contents of para no. 1 are denied being incorrect and misleading,

save and except being matters of record. It is completely misleading to state

that the interest during construction is inadmissible as alleged or otherwise.

2. The contents of para no. 2 are denied being incorrect, false and

misleading. It is wrong and denied that the time period of two weeks given to

HPPC for filing comments/objections to the addendum report dated 04.08.2014

commenced from 23.08.2014 as alleged or otherwise. It is reiterated that the

period of two weeks given to HPPC for filing comments/objections to the

addendum report dated 04.08.2014 commenced from 04.08.2014 since the said

report was submitted by E&Y on 04.08.2014 and was forwarded by Hon’ble

Commission to HPPC on the same date and said period of two weeks ended on

18.08.2014. HPPC has mischievously stated two weeks for filing of their

comments/objections commenced from 23.08.2014 when E&Y submitted its

addendum report pursuant to site visit on 16-17.08. 2014 which was forwarded

on 23.08.2014 whereas as per Order dated 28.07.2014 of this Hon’ble

Commission period of two weeks commenced from 04.08.2014 when E&Y filed

its addendum report, copy of which was provided to HPPC on the said date

itself. The report submitted by E&Y pursuant to site visit on 16-17.08.2014 was

as per the Order dated 28.07.2014 passed by this Hon’ble Commission. The

contents of the preliminary objections in this regard may be treated as part and

parcel of the para under reply.

3. The contents of para no.3 are denied being incorrect, false and

misleading. It is submitted that the contents of the affidavit of objections dated

08.09.2014 to the extent of alleged objections in relation to report dated

08.07.2014 and 04.08.2014 are in teeth of directions given by this Hon’ble

Commission to HPPC vide its Order dated 28.07.2014. Accordingly, it is

submitted that the contents of the affidavit dated 08.09.2014 ought not to be

153 | P a g e

considered for the purpose of adjudication of the present tariff proceedings. It

is wrong and denied that there is any inconsistency in any claim made by

Lanco in regard to capital cost or other aspect as alleged or otherwise. It is

wrong and denied that Lanco is concealing any fact or misleading the

proceedings as alleged or otherwise.

4. The contents of para no.4 are denied being incorrect, false, baseless and

misleading. It is wrong and denied that that E&Y has not undertaken the

requisite study and investigation in a professional manner in Order to verify

the admissible project cost for Lanco’s Unit-II as alleged or otherwise. It is

wrong and denied that E&Y have proceeded on a mechanical manner to

approve the claims made by Lanco without investigating into the veracity of

claims as alleged or otherwise. As per the mandate of HERC given vide Order

dated 25.03.2014, E&Y was required to verify the data submitted by Lanco to

HERC and not to compare the said data with other projects, which is apparent

from the ‘scope of services’ detailed in page-6 in the report dated 08.07.2014

of E&Y. It is also wrong and denied that E&Y as an independent chartered

accountant have not applied prudence check while preparing the report dated

08.07.2014. It is wrong and denied that E&Y has not considered the

Memorandum in the form of interrogatories given by HPPC on 01.04.2014.

The fact that E&Y has duly considered the Memorandum in the form of

interrogatories given by HPPC is reflected even in the Order dated 28.07.2014

passed by this Hon’ble Commission. Lanco submitted all documents, data and

information including plant layout to Hon’ble Commission as and when

required for independent cost verification. Admittedly, no direction was given

by HERC to provide any document or information to HPPC. The remaining

contents of the para under reply are denied for want of knowledge.

5. The contents of para no.5 are denied being incorrect, false, baseless and

misleading. It is wrong and denied that E&Y prepared any report in a cursory

manner. It is reiterated that there are no common facilities between Unit-1 and

154 | P a g e

Unit-2 on the one hand and Unit-3 & Unit-4 on the other hand. The basis of

reports of E&Y that there are no common facilities between Unit-1 and Unit-2

on the one hand and Unit-3 & Unit-4 on the other hand is absolutely correct. It

is submitted that there was a site visit Unit-2 of Lanco on 16.08.2014 -

17.08.2014 which was attended by representatives of HPPC, this Hon’ble

commission, E&Y and Lanoc, during which all the members visited each and

every facility of operational Unit 1 &Unit 2 and under construction Unit 3 &

4. The site visit report dated 23.08.2014 of E&Y and the site photographs of

various facilities as enclosed by HPPC as Annexure-7 in their affidavit of

objection dated 08.09.2014 clearly establish the fact that Unit 1 &Unit 2 on

the one hand and Unit 3 & 4 on the other hand have no common facilities. It is

wrong and denied that site visit establishes any falsity of any claim of Lanco

much less the claim in relation to claim of common facilities between Unit-1

and Unit-2 on the one hand and Unit-3 & Unit-4 on the other hand.

6. The contents of para no.6 are denied being incorrect, false and

misleading. That with a sole intention to delay the tariff adjudication process of

Unit-II, HPPC has been deliberately raising the alleged issue of conflict of

interest whereas there exists none at such a late stage when the Hon’ble

Commission had already decided to adopt the draft report of E&Y in its

hearing held on 22.07.2014. In this regard, it is important to note that as per

the Order dated 25.03.2014 of this Hon’ble Commission, the Independent

Chartered Accountant was supposed to be one neither connected to Lanco

Amarkantak Power Limited nor to HPPC. Admittedly, E&Y was in no manner

connected either to Lanco Amarkantak Power Limited or to HPPC. Further,

admittedly no direction was given to E&Y to file any affidavit to that extent.

The letter dated 29.04.2014 of HPPC was addressed to the Hon’ble

Commission which in its wisdom chose E&Y on the condition that it had no

conflict of interest with Lanco Amarkantak Power Limited.

155 | P a g e

The relevant portion of the Order dated 25.03.2014 is reproduced herein

below:

“Thus, all such data, as agreed by both the parties, would have to be

independently verified and smoothened out by an independent Chartered

Accountant (including physical verification) having exposure in power

sector preferably large power plants and not in any way connected to

either LAPL and/or Haryana Power Utilities.”

It is submitted that on 20.05.2014, a hearing was called by this Hon’ble

Commission vide its notice by its e-mail dated 16.05.2014, wherein the

representatives of E&Y, Lanco and HPPC unequivocally agreed that they do

not have any objection in the engagement of E&Y as an independent chartered

accountant for verification of the data submitted by Lanco. Also vide same e-

mail dated 16.05.2014, the Hon’ble Commission forwarded the Proposal of

Assignment of E&Y dated 07.05.2014 which contained certification by E&Y

(Before the commencement of the Assignment) stating that “we hereby certify

that none of the team members whose names are mentioned below are currently

associated in any consultancy assignment with the Lanco Group, and hence

there is no conflict of interest with the current assignment. The names of the

team members are:

A. Mayank Bhardwaj B. Amit Kumar Das”

Thereafter, this Hon’ble Commission had engaged E&Y and E&Y commenced

the work as per the assignment. Lanco submitted all the requisite documents

and data as directed by this Hon’ble Commission from time to time. E&Y

submitted its draft report on 08.07.2014 to this Hon’ble Commission which was

subsequently forwarded to both HPPC and Lanco. This Hon’ble Commission

gave sufficient time of one week to Lanco and HPPC to file its

objections/comments, if any to E&Y directly. HPPC did not file its objections

on the E&Y draft report. Thereafter, hearing was held on 22.07.2014, wherein

the Hon’ble Commission had adopted the E&Y draft report and fixed the next

hearing as final hearing on 28.07.2014. In the hearing held on 22.07.2014,

156 | P a g e

HPPC did not raise the issue the issue of conflict of interest of E&Y with

Lanco. Later on, HPPC raised the issue of conflict of interest for the first time

only in their objection dated 25.07.2014 and during the hearing held on

28.07.2014. This clearly shows the dilatory tactics adopt by HPPC to delay the

process of re-determination of tariff.

7. The contents of para no.7 are denied being incorrect, false and

misleading, save and except being matters of record. Apparently, the record of

proceedings dated 28.07.2014 does not contain any direction to E&Y as being

alleged by HPPC in the para under reply. Significantly, the Hon’ble

Commission vide its letter dated 20.08.2014 directed E&Y to file an affidavit

that at the time of award of the assignment there were no conflict of interest.

Admittedly, affidavit to the extent of direction of this Hon’ble Commission

given in its letter dated 20.08.2014 has been filed by E&Y on 25.08.2014.

8. The contents of para no.8 are denied being incorrect, false and

misleading, save and except being matters of record. It is wrong and denied

that E&Y failed to file any affidavit as alleged or otherwise. It is wrong and

denied that E&Y has not made adequate disclosure of conflict of interest. In

this regard, it is important to note that as per the Order dated 25.03.2014 of

this Hon’ble Commission, the Independent Chartered Accountant was supposed

to be one neither connected to Lanco Amarkantak Power Limited nor to HPPC.

Accordingly, E&Y filed an affidavit dated 25.08.2014 stating that it had no

conflict of interest with Lanco Amarkantak Power Limited at the time of

awarding of assignment by this Hon’ble Commission. It is wrong and denied

that the affidavit of E&Y is contrary to the requirement of this Hon’ble

Commission. The contents of para no. 7 of the present reply is re-affirmed

herein which are not repeated for the sake brevity and prolixity. It is wrong and

denied that the affidavit dated 25.08.2014 cannot be relied upon by this

Hon’ble Commission as alleged or otherwise. It is reiterated that the affidavit

157 | P a g e

dated 25.08.2014 of E&Y is in complete consonance with the direction given by

this Hon’ble Commission. It is wrong and denied that it will not be appropriate

for the Hon’ble Commission to proceed on the basis of reports submitted by

E&Y as alleged or otherwise. It is wrong and denied that any reading of the

affidavit dated 25.08.2014 shows that E&Y is hiding behind any technicality or

is concealing any conflict of interest as alleged or otherwise. It is submitted

that E&Y themselves in their affidavit has categorically clarified that there is

no conflict of interest with Lanco Amarkantak Power Ltd. It is wrong and

denied that E&Y have deliberately not dealt with documents filed by HPPC

along with affidavit dated 25.07.2014. There is no mandate of this Hon’ble

Commission to E&Y to consider the documents filed by HPPC on 25.07.2014,

which admittedly is objection to the report dated 08.07.2014 of E&Y. HPPC is

raising false, frivolous, meaningless and unsustainable objections with a sole

intention to delay the re-determination process which act is completely

contrary to the mandate of the Hon’ble APTEL given vide judgment dated

03.01.2014 in Appeal No. 65 of 2013.

9. The contents of para no.9 are denied being incorrect, false and

misleading, save and except being matters of record. It is wrong and denied

that there is any inconsistency in the claim of Lanco in relation to no common

or share assets between Unit-I&II on one hand Unit-3 & 4 on the other hand.

a). Layout- The contents of para no.9 (a) are denied being incorrect, false

and misleading, save and except being matters of record. It is submitted that a

coloured copy of Combined Layout Plan was handed over to HPPC during

their site visit in which the facilities of Unit 1 & 2 and Unit 3 & 4 are

demarcated. Also the representatives of HPPC, Hon’ble commission, E&Y and

Lanco together during the site visit on 16-17.08.2014, had physically verified

the facilities of the entire plant and it was established that there are no common

facilities between Unit 1 & Unit 2 on one hand and Unit 3 & 4 on the other

hand. A site visit report of the independent chartered accountant, E&Y also

158 | P a g e

clearly establishes the facts that common facilities of Unit 1&2 in Operation

and Unit III&IV under construction are separate and not common in any

manner whatsoever. It is wrong and denied that layout plan has not been

properly marked/labelled as alleged or otherwise.

b). Land- The contents of para no.9 (b) are denied being incorrect, false,

baseless and misleading. It is wrong and denied that that the land of Unit-1 &2

is not properly demarcated as alleged or otherwise. It is wrong and denied that

the land of Unit 3 & 4 cannot even be separately identified as alleged or

otherwise. It is wrong and denied that any part of land of Unit-3 & 4 has been

used for Unit 3 & 4 as alleged or otherwise. It is denied that geographical

coordinates of main plant lies inside the land of Unit 2. It is submitted that

Unit II has been built partly on the green belt area for Unit 1. Additional land

has been acquired to leave mandatory green belt for Units 1&2 taken together.

Since 200 acres have been attributed to Unit II and 566.89 acres to Unit 1, the

cost of land considered for Unit 2 is less than half of the total for Units 1 & 2

taken together. In a similar manner, part of the green belt earmarked for Unit 2

has been used for Units 3 & 4. Later an equal amount of the land which was

taken from Unit 2 green belt area for Units 3&4 was transferred back to unit 2

from the land acquired for Units 3&4. Hence, total land allocated to Unit 2

remained 200 acres and no part of that was used by Units 3&4. The same has

been verified by E&Y team during their site visit as per their report dated

23.08.2014

c). Switchyard- The contents of para no.9 (c) are denied being incorrect,

false, baseless and misleading It is submitted that the Switchyard for Unit 1&2

and 3&4 are completely separate. It is denied that the Switchyard of Unit 3&4

is in Unit-2 land. As regard to contention of HPPC for imprudent practice of

different Switchyard in a generating station, it is submitted that Unit 1

(300MW) , Unit-2 (300 MW) and Unit 3&4 (2X660 MW) were conceptualised,

159 | P a g e

appraised and executed at different period of times and are of different

capacities, hence they were not planned and constructed simultaneously. There

was a gap of 4-6 years between Planning and Execution of Unit 1&2 and Unit

3&4. HPPC has accepted in its objections filed before the Hon’ble Commission

that the switchyard and transmission lines for operational Unit 1&2 are

separate from the proposed switchyard and transmission lines of under

construction Unit 3 & 4. Hence the contention of HPPC that Lanco has not

applied/exercised proper prudence is wrong, baseless and misleading.

d&e) Ash Pond: The contents of para no.9 (d & e) are denied being incorrect,

false, baseless and misleading It is submitted that the Ash Pond of Unit-I&II

and Unit III&IV are separate and accordingly it has been located in the layout

plan of Unit I&II and Unit III&IV and the same was clarified/shown in the

layout as well as physically to the representatives of HPPC during the site visit.

It is contrary to the fact that location of a separate Ash Pond was not provided

in the layout plan of Unit I&II and Unit III&IV. As regards the statement

mentioned by HPPC in its objection, from the MoEF issued Environment

Clearance of Unit-III related to Ash Disposal, it is submitted that the same was

issued in line with the disposal of bottom ash in lean slurry form and fly ash in

dry form. It is clarified that the State Pollution Control Board while issuing the

Consent to Establish of Unit- III&IV had imposed the condition of High

Concentration Disposal System (HCSD). Accordingly, HCSD is proposed to be

adopted for Unit III&IV. The Ash disposal System of Unit-I&II (Lean Slurry

System) and Unit III&IV (High Concentration Slurry Disposal System) being

different in nature/specifications, the ash generated from Unit I&II and that

from Unit III&IV cannot be disposed in one pond. Hence, it would be grossly

incorrect to state that Unit III&IV Ash will be used in Unit-I&II Ash Pond and

accordingly the allegation of HPPC is denied as baseless and misleading.

160 | P a g e

f) Boundary Wall: The contents of para no.9 (f) are denied being incorrect,

false, baseless and misleading It is submitted that additional boundary wall

created for Unit II has been charged to it. Part of this boundary wall has been

dismantled to enlarge the plant area to include Units III&IV. Boundary wall for

the enlarged plant has been charged to the Units III&IV. Hence there is no

case for reduction in cost of assets charged to Unit II on this account. The same

has been verified by E&Y during their site visit on 16/17.08. 2014 and reflected

in their site visit report dated 23.08.2014.It is also stated that the total land

allocated to Unit II is 200 acres and cost of the same land is charged in Unit-

II.

g) Colony: The contents of para no.9 (g) are denied being incorrect, false,

baseless and misleading It is submitted and that there are sseparate colonies

for Unit-I&II and Unit III&IV. The colony of Units I&II is at the land of Unit I.

Separate land has been identified at different location for the Colony of Units

III&IV, which is Govt. Land and currently is in the process of transfer to

Lanco.

h) Water Intake System: The contents of para no.9 (h) are denied being

incorrect, false, baseless and misleading During the site visit, it was

established that there is a separate Water Intake System for Unit-II (under

service) and Unit III&IV (under construction) at different locations. Being

different Unit sizes and location of intake system, there is no possibility of

having common pipeline for Units-I&II ( under service) and Units III&IV

(under construction). Also it would be misleading to state that it is imprudent

to have separate reservoir, separate raw water pump house and separate

water-pipeline for respective Units although HPPC is aware of the fact that

respective Units are of different sizes and also they were conceived, planned,

appraised and executed at different periods of time. The separate raw water

intake system for Units-I&II and Units III&IV are clearly indicated in

161 | P a g e

Annexure-7 (Page No. 69 and 70) of site photographs as enclosed by HPPC in

its affidavit of objection dated 08.09.2014

i) Raw Water Reservoir: The contents of para no.9 (i) are denied being

incorrect, false, baseless and misleading. There is a raw water reservoir for

Unit-I&II inside the plant. It is submitted that as per the water allocation

approval for Unit III&IV from Water Resources Department, Govt. of C.G, it

was mandated that River intake System is to be made by Govt. of C.G to meet

the water requirement in lean season with 3 months water storage capacity.

HPPC during the site visit had physically observed that the same is under

construction at an altogether different location. Also it is misleading to state

that it is imprudent to have separate reservoir for respective Units, in view of

the admitted position that Units having different size were conceived , planned

and executed at different periods of times with a gap of 4-7 years .

j) Railway Siding:- The contents of para no.9 (j) are denied being incorrect,

false, baseless and misleading. From the site visit and the evidence of railway

siding layout submitted by Lanco to the Hon’ble Commission and provided to

HPPC, it is clearly established that there is a separate railway siding for Unit

II and Units III&IV. As far as land utilisation is concerned , it is reiterated that

railway siding of Unit III&IV will not be built in Unit II land. Hence the

question of apportionment based on capacity does not arise at all.

k) Coal Handling Plant (CHP): The contents of para no.9 (k) are denied being

incorrect, false, baseless and misleading. HPPC has clearly stated that the

Coal Handling Plant of Unit III&IV is separate and independent of Units-I&II.

As far as layout is concerned, it is denied that Lanco would use Wagon Tippler

area of Unit II in Units III&IV. It is worth to mention that no wagon tippler

were envisaged for Units-I&II in the coal handling plant scheme. HPPC is

knowingly creating confusion and misleading with the statement of use of

162 | P a g e

Wagon Tippler area of Units-I&II in Units III&IV. Regarding cost of coal

handling plant for Unit I and Unit II. It is admitted position that actual cost as

incurred in the coal handling system of Unit I and Unit II has been booked

separately and comparison of the cost with other power plant is not

appropriate as it depends on various factors such as complete scope of the

system, Plant Layout, make of the equipment manufacturers, quality of coal,

supplier of systems, date of award of contract etc. which varies from plant to

plant.

l) It is denied that the assets mentioned in the objection filed by HPPC are

common or likely to be shared between Units-I&II and Units III&IV. In this

regard, Lanco has already submitted an affidavit as per the direction of

Hon’ble Commission on 09.04.2014, wherein it has been submitted that the

facilities built for operational Units I&II will not be used for under

construction Units III&IV. There is separate Plant entry and roads, drains,

Administrative Building, Service Building, Fire Station for the under

construction Units III&IV. It is submitted that the following facilities will not be

shared with Unit I and Unit II:

i) Existing Roads within the Power Projects of the Petitioner

ii) Administrative Building

iii) Service Building

iv) Fire Station

v) Field Hostel

vi) Drainage System

10. The contents of para no.10 are denied being incorrect, false and

misleading. It is wrong and denied that no satisfactory answer was given in

relation to location of Unit-V & VI. It is wrong and denied that from the layout

plan or even otherwise it seems that the Unit-V & VI will be constructed with

163 | P a g e

Unit-I & II. It is wrong and denied that from the layout plan or even otherwise

it seems that Unit-III &IV is constructed with or is integrated with the Unit-I

&II as alleged or otherwise. It is once again reiterated that 200 Acres of land

allocated for Unit-II has been charged under Unit II. The same has been

verified and confirmed in the site visit report of E&Y dated 23.08.2014. HPPC

is misleading the Hon’ble Commission by making wrong statements. It would

be absurd to state that land currently acquired for Unit I&II and Unit III&IV

can be used for the construction of Unit V&VI.

11. The contents of para no.11 are denied being incorrect, false and

misleading, save and except being matters of record. It is submitted that there

are no common facilities between Units-I & II on the one hand and Units-

III&IV on the other hand. Further, there will be no common facilities between

Units-I & II on the one hand and Units-V & VI (in case planned in future) on

the other hand. The contention of HPCC that generating station of Lanco was

conceived with 1920 MW capacity is completely baseless and misleading. It is

submitted that Units III & IV (2X660MW) are being set up separately from

Unit-I & Unit-2 and the said Units are in construction phase and are expected

to be commissioned in FY 2014-15 whereas Unit-I & Unit-III are already

operational. In relation to Unit-I and Unit-II, it is stated that Unit-I was

conceptualised, planned and achieved financial closure on 20.09.2005 much

prior to financial closure of Unit-II. Further, Unit-II has been appraised

separately by the lenders and its financial closure happened on 15.09.2006 i.e.

about one year after the financial closure of Unit I. It is noteworthy to state that

the two Units i.e. Unit-I & Unit-II were separately conceptualized, appraised

and executed by augmentation/ modification/ addition to the existing facilities

of Unit-I. It is wrong and denied that Unit-II of Lanco has been part of 1960

MW at any point of time as alleged or otherwise. It is wrong and denied that

Unit-II of Lanco will be part of 3240 MW as alleged or otherwise. Though all

the four Units would eventually be established on contiguous land with

164 | P a g e

common boundaries but land was not acquired as a whole for all the Units

together instead it was acquired at different periods of time for different units

when the unit wise project appraisals got firmed up. The details of the land

acquired are: Unit No. I (300 MW): 566.89 Acres, Unit No. II (300 MW): 200

Acres; and Unit No. III & IV (2x660 MW): 570.71 Acres. Land required for

Unit-II was lesser than the land required in Unit-I. Further part of land

acquired for Unit-I was used for Unit-II as a result of which the cost of land

incurred for Unit-II is less in comparison to Unit-I. Land for Unit-II was leased

by the State Government vide lease deed dated. 19.09.2007 [Ref: page nos. 19-

47 of Reply dated 09.04.2014 to the memorandum of interrogatories]. Land for

all Units were acquired in different periods details whereof are already on

record [page nos. 48-105 of Reply dated 09.04.2014 to the memorandum of

interrogatories]. The site visit report dated 23.08.2014 of E&Y clearly

established that the capacities of existing facilities designed for 2x300 MW

generation capacity do not allow them to be used for a much larger 2x660MW

capacity of the new under construction plant. The layouts of the existing plant

(Units I&II) and that of the new plant (Units III&IV) also do not allow the

existing BOP facilities for units I&II to be used for Units III&IV. It is wrong

and denied that that all the generating stations have been established with the

intent to have sharing of various common assets or facilities or to achieve

economies in the scale of operation as alleged or otherwise.

12. The contents of para no.12 are denied being incorrect, false and

misleading, save and except being matters of record. It is wrong and denied

that Lanco had offered to sell the electricity to HPPC from its Unit-II as

alleged or otherwise. In this regard, admittedly the PPA dated 19.10.2005 was

between Lanco and PTC (Respondent No.1) and not with HPPC. The said PPA

stands terminated and the said termination has not been stayed by any forum or

court.

165 | P a g e

13. The contents of para no.13 are denied being incorrect, false, misleading

and irrelevant. The basis for arriving at the capped tariff of Rs. 2.32 per kWh is

completely irrelevant in the context of re-determination of tariff. It is wrong

and denied that Lanco’s proposal to agree to said capped tariff indicates its

intention to develop the generating stations with various generating Units i.e.

from Unit-I to Unit-VI as alleged or otherwise. The said conclusion of HPPC is

completely absurd besides being illogical. It is wrong and denied that there is

no explanation from Lanco in regard to its decision to offer power to PTC with

a capped tariff of Rs. 2.32 kWh. As per the mandate of the Hon’ble APTEL vide

judgment dated 03.01.2014, the re-determination of tariff has to be done

de hors the PPA dated 19.10.2005. Therefore any kind of purported reliance on

the PPA shall be in contravention of the said judgment. Since the re-

determination of tariff is to be done dehors the PPA dated 19.10.2005 therefore

there was no occasion for Lanco to disclose any basis for arriving at the

capped tariff. It is wrong and denied that E&Y as an independent chartered

accountant has failed to conduct proper inquiry as an independent consultant

as alleged or otherwise. It is wrong and denied that E&Y failed to go into the

prudent check of the project cost admissible for tariff purpose or has

mechanically adopted whatever Lanco had stated in its financial statement. The

detailed report covering various aspects of prudence check of project cost,

apportionment of common assets and land, interest during construction,

estimation of coal cost and surplus generated from infirm power as submitted

by E&Y on 08.07.2014 , 04.08.2014 and 23.08.2014 is self explanatory as to

the extent the check was carried out and all desired documents were submitted

to Hon’ble commission on this aspect as and when required. The allegations

are absolutely false and frivolous with a sole intention to delay the re-

determination of tariff for Unit-II of Lanco.

14. The contents of para no.14 are denied being incorrect, false,

speculative and misleading, save and except being matters of record. It is

166 | P a g e

wrong and denied that different units of Lanco established at Korba, Pathadi is

one generating station as being suggested. It is reiterated that Units III & IV

(2X660MW) are being set up separately from Units-I & II and the said Units

are in construction phase and are expected to be commissioned in FY 2014-15

whereas Unit-1 & Unit-II are already operational. In relation to Unit-1 and

Unit-II, it is stated that Unit-I was conceptualised, planned and achieved

financial closure on 20.09.2005 much prior to financial closure of Unit-II.

Further, Unit-II has been appraised separately by the lenders and its financial

closure happened on 15.09.2006 i.e. about one year after the financial closure

of Unit I. It is noteworthy to state that the two Units i.e. Unit-I & Unit-II were

separately conceptualized, appraised and executed by augmentation/

modification/ addition to the existing facilities of Unit-I. It is wrong and denied

that just because several independent generating units are being on land

contiguous to each other there are opportunities available to economise the

scale of investments or use of various assets in a common/ shared manner as

alleged or otherwise. It is wrong and denied that any of the assets relating to

Units-I & II on one hand and Units-III & IV on the other can be effectively

used as common assets as alleged or otherwise. It is wrong and denied that that

any of the assets relating to Units-I&II can be used as a common asset for any

proposed unit as alleged or otherwise. It is wrong and denied that any layout

plan made available to HPPC fortifies the said alleged contention of HPPC. It

is wrong and denied that Lanco has been wrongly alleging that the there are no

common assets as between operational Units-I & II on one hand and under

construction Units-III & IV on the other hand. Grant of specific approval for

each Unit at different periods of time (gap of 4-7 years) is an indication and is

a matter of fact that each of the Unit will have an independent and separate

asset and there will be no common assets. It is wrong and denied that any

physical asset between Units-I & II on one hand and Units-III & IV on the

other hand will be common as alleged or even otherwise. It is wrong and

denied that Lanco is concealing any fact as alleged or even otherwise. It is

167 | P a g e

wrong and denied that Lanco has made any attempt to mislead this Hon’ble

Commission by referring to consents and approval with respect to each of the

generating units. It is wrong and denied that there is any falsity in the claim of

Lanco. It is wrong and denied that site visit has exposed anything as alleged or

even otherwise. It is wrong and denied that Lanco had made any attempt to

mislead this Hon’ble Commission as alleged or even otherwise.

15. The contents of para no.15 are denied being incorrect, false, and

misleading, save and except being matters of record. It is wrong and denied

that the railway line for Units-1 & 2 on one hand and Units-3 & 4 on the other

is not being established separately as alleged or even otherwise. It is wrong

and denied that railway line for Units-I&II on one hand and Units-III&IV on

the other hand ought not to have been established separately. The said two

statements are mutually contradictory. It is wrong and denied that railway line

ought to have been a common line to be used for transportation of coal for all

generating units with an aggregate capacity of 3240 MW. Till now HPPC has

been deliberately making false and baseless statement that all generating

station of Lanco were conceived with 1920 MW capacity. In the present

objections, HPPC is now alleging that the same was conceived with 3240 MW,

which allegation is completely baseless and misleading. It is reiterated that

Units-I&II on one hand and Units-III&IV on the other were conceptualized,

planned separately at different time period, hence there was no question of a

establishing a common railway line/siding. It is submitted that the necessary

approvals for railway siding for Units I&II and that for Units III&IV were

received in different periods of time with gap of 7 years. It has been clearly

established from the railway siding layout submitted by Lanco to Hon’ble

Commission and HPPC, that there is a separate railway siding for Unit-II and

Units III&IV. The Site Visit report of E&Y dated 23.08.2014 clearly

establishes that the layout of tracks of the coal unloading facilities is such that

the existing facilities of Unit-II in operation cannot be used for the new

168 | P a g e

facilities. Therefore it is wrong and denied that that capacity of 300 MW

pertaining to Unit-II would work out to less than 10% of the use of the railway

line and railway siding as alleged or even otherwise. It is wrong and denied

that any cost of railway line or railway siding of Unit III&IV is being

appropriated cost of the railway line and railway siding on Units-I&II as

alleged or even otherwise.

16. The contents of para no.16 are denied being incorrect, false, and

misleading, save and except being matters of record. It is denied that cost of

railway siding incurred by Lanco is on the higher side as alleged or otherwise.

The alleged attempt of HPPC to compare the common cost incurred in

establishing “permanent railway siding’ by different power plants is absolutely

incorrect and has been made to mislead this Hon’ble Commission.

It is also submitted that the arbitrary comparison of the cost of a

System/Equipment with other power plant is not appropriate as it depends on

various factors such as complete scope of the system, plant layout, make of the

equipments, supplier of system, cost components etc. which varies from plant

to plant. Hence any allegation of HPPC that per MW cost of Railway Siding

of Amarkantak is more than Chhabra (Unit 1&2 ) and Parli (Unit 6) is wrong

and baseless. The sole purpose of HPPC is to mislead the Hon’ble

Commission by showing irrelevant data. What is most relevant is the total

project cost which has an impact on the tariff passed on to the consumers of

the state. As per the RERC Order dated 20.09.2012 enclosed by HPPC, the

capital cost of the projects commissioned during 2007-2010 as approved by

CERC/SERCs along with other projects whose capital cost has been approved

by CERC/SERCs is tabulated below, it can be seen that capital cost of Rs. 4.52

crore/MW of Lanco Unit-II is quite reasonable. (Ref: Page 120 of Affidavit of

Objection dated 08.09.2014).

169 | P a g e

S.

No.

Plant Name Approved

Capital Cost

in Rs. Crore

Capacity in

MW

Capital

Cost (in

Rs. Crore

Per MW)

Commercial

Operation Date

(COD)

1 Reliance Rosa

(Unit 1&2)

3112.81 600 5.31 Unit 1: 12.03.2010

Unit 2: 30.06.2010

2 Korba Stage 3 2588.28 500 5.18 Unit1: 21.03.2011

3 Chabra(Unit

1&2)

2416.00 500 4.83 Unit 1: 11.06.2010

Unit 2: 15.10.2011

4 Parli (Unit 6) 1155.35 250 4.62 Unit 6: 01.11.2007

5. Sagardighi

(Unit2&3)

2672.25 600 4.45 Unit 1: 07.09.2008

Unit 2: 06.11.2008

6 Lanco (Unit 2) 1356.11 300 4.52 Unit 2: 07.05.2011

It is also to be noted that the cost of Permanent Railway Siding of Lanco and

other plants as tabulated in Para 16 are not comparable. In case of Lanco,

EDC/IDC is included in the cost whereas the cost of Chhabra (Unit 1&2) and

Parli (Unit 6) does not include EDC/IDC.

In addition to the above said, HPPC has mischievously stated that the total

common cost of ‘permanent railway siding’ as Rs. 35.33 crores and has

deliberately not stated that only Rs. 8.7 Crores (approx) has been incurred

towards the cost of ‘permanent railway siding’ for Unit-II which is the subject

matter of this petition, which admittedly is less than comparative cost of other

thermal plants. Further, it is relevant to submit that comparison of cost in

relation to ‘permanent railway siding’ from Chhabra Thermal Power Plant

(Unit-1 & Unit-2) and Parli Thermal Power Plant (Unit-6) is misconceived

inasmuch as case of facts and circumstances of Chhabra & Parli are ex-facie

inapplicable to that of Unit I & II of Lanco. In this regard, it is submitted that

apparently Unit-1 & Unit-2 of Chhabra Thermal power plant were

simultaneously conceived, planned and expenditures were booked. [Ref: pg-

170 | P a g e

115-para-5.5, 117-para-5.19, 121-para-5.37 of affidavit dated 08.09.2014 of

HPPC] Similarly, it is apparent that Unit-6 & Unit-7 of Parli Thermal were

simultaneously conceived and planned. However, it is an admitted position in

the present case Unit-I & Unit-II of Lanco were separately conceptualized,

appraised and executed by augmentation/ modification/ addition to the existing

facilities of Unit-I.

17. The contents of para no.17 are denied being incorrect, false, and

misleading. It is submitted that Lanco has prudently incurred the expenses on

setting up of ‘permanent railway siding’ and is not higher or imprudent as

being alleged by HPPC. The alleged figures of cost in setting up ‘permanent

railway siding’ cannot be applied by a straitjacket formula as being suggested

by HPPC. It is wrong and denied that railway sidings once commissioned

would be useful to the subsequent units as alleged or even otherwise. It is

wrong and denied that cost of construction of railway sidings should be shared

between the subsequent units in proportion to the capacity of the respective

units as alleged or otherwise. In this regard, it is relevant to submit that E&Y in

its addendum report dated 23.08.2014 after due scrutiny has categorically

stated that the following “The layout of tracks (except a small portion which is

described in point no 6) and that of the coal unloading facilities is such that the

existing facilities (Unit I&II) cannot be used for the new facilities (Unit

III&IV).

18. The contents of para no.18 are denied being incorrect, false, and

misleading, save and except being part of record. The Order dated 06.06.2013

passed by the Hon’ble Rajasthan State Electricity Regulatory Commission is

not applicable to the present facts and circumstances. It is relevant to note that

apparently Unit-1 & Unit-2 of Chhabra Thermal power plant were

simultaneously conceived, planned and expenditures were booked jointly. [Ref:

-para-5.-pg-115, para-5.19-pg-117, para-5.37-pg-121 of affidavit dated

171 | P a g e

08.09.2014 of HPPC]. Whereas it is the specific case of Lanco that it’s two

Units i.e. Unit-I & Unit-II were separately conceptualized, appraised and Unit-

II was executed by augmentation/ modification/ addition to the existing

facilities of Unit-I. The said fact is established by report dated 08.07.2014 of

E&Y as well as by the addendum report dated 04.08.2014. This independence

of Unit 1 & 2 has been clearly established during the site visit on 16-

17.08.2014 which was admittedly attended by the team of E&Y Consultant,

HPPC and representative of this Hon’ble Commission.

The relevant portion of the report dated 08.07.2014 of E&Y is reproduced

hereinbelow:

3.1 Identification of common assets

There are total 4 thermal power units (2x300 MW and 2x660 MW) of

LAPL at Korba, Chhattisgarh. While, Unit 1 & 2 (2x300 MW) are

already operational, units 3 & 4 (2x660 MW) are presently under

construction. The common assets considered here are utilised only by

Unit 1 and Unit 2.

4.2 Key Observation

► Cost of land for Unit 2 was acquired at a slightly higher rate (Rs

5.75 lakh/acre) than Unit 1 (Rs 5.48 lakh/acre)

► Total cost of land for Unit 2 is much lower than the cost of land

incurred for Unit 1, although both the Units are of same capacity.

► The cost of land incurred for common facility has been largely

included in the project cost of Unit 1 as land for Unit 1 was acquired

earlier and only incremental cost incurred for Unit 2 has been included

in the project cost of Unit 2.

8. Summary of Findings

Apportionment of common assets

► The cost of common assets allocated to Unit 2 by LAPL is the

incremental expenditure incurred due to expansion of the common

facilities between Unit 1 and Unit 2

2 Apportionment

of land/common

1. Review of

1. The layout provided

172 | P a g e

assets apportionment of

common assets/land

through

layouts/maps/drawings

etc.

by LAPL is for Unit 1

and Unit 2 only.

Common facilities have

been marked

separately for both the

units in the layout. As

per our understanding

from the railway track

arrangement layout,

the existing track in

operation for Unit 1

and Unit 2 is

represented by black

lines, and the red lines

show planned track

which is to be extended

for Unit 3 and Unit 4.

However, the same can

be verified along with

HPPC officials during

site visit

19. The contents of para no.19 are denied being incorrect, false, and

misleading, save and except being part of record. The Order dated 21.10.2009

passed by the Hon’ble Maharashtra State Electricity Regulatory Commission is

not applicable to the present facts and circumstances. In this regard, it is

submitted that Order dated 21.10.2009 of MERC has been passed in respect of

capital cost determination of Unit-6 of Parli Thermal power plant wherein the

both units i.e. Unit-6 &Unit-7 of the said power plant was simultaneously

conceived, planned and Unit-7 was being executed so as to utilize the common

facilities of Unit-6. Further, the common facilities built at Unit-6 were to be

utilized by Unit-7 which was yet to be commissioned and cost was apportioned

accordingly. It was in this circumstances MERC had Ordered for

apportionment of cost of common facilities between an existing unit and a

proposed unit [Ref: para-70-71-pg-174 & para-89-pg-180 of affidavit dated

173 | P a g e

08.09.2014 of HPPC]. Whereas, it is the specific case of Lanco that there is no

common facility between operational Unit-II&II on the one hand and under

construction Unit III&IV on the other hand. Further, no common facility of

Units 1 & 2 will be used for Unit 3 & 4. In this respect contents of para 18 of

the present reply is reiterated and re-affirmed, which are not repeated herein

for the sake of brevity. In so far as apportionment of cost between Units-1 & 2

is concerned admittedly there is no dispute that the same has been apportioned.

20. The contents of para no.20 are denied being incorrect, false, and

misleading, save and except being matters of record. It is mischievous on part

of HPPC to contend that water intake and water pumping system can be

commonly used for all the generating units. It is noteworthy to state that the

two Units i.e. Unit-I & Unit-II of Lanco were separately conceptualized,

appraised and executed by augmentation/ modification/ addition to the existing

facilities of Unit-I. Unit 3 & 4 (2X660MW) which is under construction were

conceptualized, planned and achieved financial closure much later in 2011.

The approvals of water supply system also were obtained at different periods of

time with a gap of 7 years. In light of the above facts and circumstances, it is

wrong and denied that that it is imprudent on part of Lanco to have

independent water intake and water pumping system as well as water pipelines

from the Hasdeo river for Units-I&II on one hand and Units-III& IV as alleged

or otherwise.

21. The contents of para no. 21 are denied being incorrect, false, and

misleading, save and except being matters of record. It is denied that cost of

water supply system incurred by Lanco is on the higher side as alleged or

otherwise. The alleged attempt of HPPC to compare the common cost incurred

in establishing “water supply system’ by different power plants is absolutely

incorrect and has been made to mislead this Hon’ble Commission. HPPC is

misleading the Hon’ble Commission by comparing the cost of both Units

174 | P a g e

together i.e. Unit 1 and Unit-II which is not a subject matter of petition .

Without prejudice to above, it is submitted that Rs. 102.90 Crs water supply

system cost of Lanco Unit-II includes cost of Water Treatment Plant, Intake

water System along with its proportionate IDC/EDC and civil construction

cost. HPPC has compared this cost with Sagardighi Unit 1&2 and Chabra Unit

1&2 which has no rationale due to following reasons:

a) Both Units of Sagardighi and Chhabra were conceptualized,

appraised and executed simultaneously whereas Units 1 & Unit-II of

Lanco was conceptualized, appraised and executed independently at

different periods of time.

b) The Scope of Work of Water System of Units of Sagardighi and

Chhabra are different as compared to Lanco. In case of Chhabra only

the cost of Water Storage and transportation is considered and it

excludes the Water Treatment Plant Cost, Civil cost and proportionate

EDC/IDC cost which is a major part. Similarly, in the case of

Sagardighi project, where cost of Plant water System is only considered

which excludes Civil construction cost and even this cost is higher than

Lanco Unit-II cost.

c) The Cost depends upon the plant layout, distance of source of water

from generating plant, make of system equipment, Technology Selected,

Source of Water etc., which cannot be same for all the three plants.

22. The contents of para no.22 are denied being incorrect, false, and

misleading. It is submitted that Lanco has prudently incurred the expenses on

setting up of ‘water supply system’ and the cost is not higher or imprudent as

alleged by HPPC. The alleged figures of cost in setting up ‘water supply

system’ are not applicable in a straitjacket manner as being suggested by

HPPC due to different facts and circumstances as referred in previous para.

175 | P a g e

23. The contents of para no.23 are denied being incorrect, false, and

misleading, save and except being part of the judicial record. The Order dated

06.06.2013 passed by the Hon’ble Rajasthan Electricity Regulatory

Commission (“RERC”) is not applicable to the present facts and

circumstances. In this regard, it is relevant to submit that the observation of

Hon’ble RERC reproduced in the para under reply is ex-facie inapplicable to

the present case inasmuch as admittedly Units-III&IV are of different capacity

i.e. 660x2 MW as against 300x2 and therefore the water treatment facility

and/or water supply system of power plant of lesser capacity cannot be made

applicable to power plant of higher capacity. The site visit by team members of

E&Y Consultant, HPPC and Hon’ble Commission and subsequent Report of

E&Y specifying that the layouts of the existing plant (Units I&II) and that of the

under construction Units III&IV) also do not allow the existing BOP facilities

for Units I&II to be used for Units III&IV, clearly establish the fact that there

is no common sharing and thus the case of apportionment does not arise.

Additionally, in the case of Chhabra Thermal power plant it is apparent that

the water conductor system was common for all the four units i.e. for Phase-

I&II. Whereas, it is an established case of Lanco that there is no common

facilities between Unit-I&II on the one hand and Unit III&IV on the other [Ref:

Affidavit dated 09.04.2014 on behalf of Lanco as Per directions of the Hon’ble

Haryana Electricity Regulatory Commission given vide Order dated

25.03.2014].

24. The contents of para no.24 are denied being incorrect, false, and

misleading. It is incorrect to suggest that since the generating Units are being

established on a contiguous land therefore the switchyard for interconnection

and evacuation of power for all generating units can be the same. It is incorrect

to suggest that that it is imprudent for Lanco to establish a separate switchyard

for Units-III,IV,V & VI independent of the existing switchyard for Units-I&II. It

is wrong and denied that there will be an increase in the bay for the existing

176 | P a g e

switchyard for the purpose of Units III, IV, V and VI. It is wrong and denied

that there is no need for Lanco to establish a separate switchyard. From the

date of approvals, clearances and land acquisitions, it is clearly established

that Unit I, Unit-II and Units III&IV were conceptualised, planned and

executed at different periods of time with a gap of 4-7 years, hence there is no

case of planning and constructing the switchyard of Units I&II and Units

III&IV together. Similarly, it is wrong and denied that the facilities such as

residential colonies or maintenance of such facilities or township facilities or

road or street lighting or security etc., are to be commonly maintained for all

the generating units as alleged or otherwise. It is wrong and denied that Unit-II

cannot be related to more than 10% of overall cost of all generating units i.e.

3240 MW as alleged or otherwise. It is wrong and denied that Unit-II cannot be

related to more than 10% of overall cost of other facilities as detailed in para

under reply. In this regard, it is submitted that HPPC has carried out physical

verification of the site and it is an admitted fact that the Units-III&IV are being

constructed independently and separately from the existing Units-I&II, which is

evident from Annexure-R-7 filed by HPPC. Further, residential colony,

maintenance of such facilities, township facilities, road, street lighting,

security, ash dyke, ash disposal system, administrative building, coal handling

system, air conditioning system, compressor system, fire fighting system,

maintenance workshop, cooling tower, rain water harvesting, roads, drainage

etc for Unit-III&IV are being established independently and separately from

that of the existing Units-I&II.

25. The contents of para no. 25 are denied being incorrect, false, and

misleading, save and except being matters of record. It is denied that cost of

switchyard incurred by Lanco is on the higher side as alleged or otherwise. The

alleged attempt of HPPC to compare the common cost incurred in establishing

“switchyard” by different power plants is absolutely incorrect and has been

made to mislead this Hon’ble Commission. It is submitted that the cost of

177 | P a g e

Switchyard for Unit-II alone is Rs. 63.33 Crs. HPPC has compared this cost

with the cost of Total BOP Electrical in the case of Paras Unit 3 and Parli Unit

6 power plants, which represents a different category and nature of

equipments. (Ref:-page no. 169 and 233 of Objection of HPPC dated

08.09.2014) HPPC without noting the content of the system has erroneously

made inference that the cost of switchyard of Unit-II is substantially higher

than Parli Unit 6 and Paras Unit 3 power plants. Without prejudice to the

above, it is also stated that the arbitrary comparison of the cost of a

System/Equipment with other power plant is not appropriate as it depends on

various factors such as Complete Scope of the System, Plant Layout, Make of

the equipments, date of award of Contract, Make of System, cost components

etc., which vary from Plant to Plant. Hence the contention of HPPC that per

MW cost of Switchyard of Lanco Unit-II is more than Paras (Unit 3) and Parli

(Unit 6) is not correct and is totally irrelevant. The sole purpose of HPPC is to

mislead the Hon’ble Commission by projecting irrelevant data. What is most

relevant is the total project cost/MW which is least in case of Lanco as

compared to other power plants even without the mega power benefit.

26. The contents of para no. 26 are denied being incorrect, false, and

misleading. It is denied that cost of switchyard incurred by Lanco is on the

higher side as alleged or otherwise.

27. The contents of para no. 27 are denied being incorrect, false, and

misleading. Admittedly, there are no common facilities between the Unit 1 & 2

on one hand and Unit 3 &4 on the other hand. Similarly, it is wrong and denied

that there will be any shared or common facilities between Unit I&II on one

hand and Unit V&VI (if planned in future) on the other hand as alleged or

otherwise. It is wrong and denied that any action of Lanco in establishing

separate and independent facilities for Unit-I&II one hand and Unit III&IV on

the other hand is imprudent or contrary to the practice adopted in establishing

the generating units. It is wrong and denied that HPPC or consumers of the

178 | P a g e

State of Haryana is being called upon to pay for any imprudent act of Lanco as

alleged or otherwise.

28. The contents of para no. 28 are denied being incorrect, false, and

misleading, save and except being matters of record. The alleged comparison

of costs incurred for ash handling system, switchyard, land or coal handling

system between Lanco and other generating station is misleading. It is wrong

and denied that there is any inconsistency with the cost incurred by Lanco as

alleged. HPPC is misleading the Hon’ble Commission by comparing the cost of

both Units together i.e. Unit 1 and Unit-II which is not a subject matter of

petition in view of the fact that the tariff determination process is for Unit-II

only which is a separate business Unit and all the inputs related to Unit-II have

been submitted to Hon’ble Commission and HPPC. Without prejudice to the

above, it is stated that comparison of Cost of Ash Handling System tabulated in

para 28 is misleading as the system considered for comparison are of different

nature and existence. With the detailed review of the Order quoted by HPPC, it

is submitted that the Cost of Ash Handling System of Lanco Unit-II includes the

cost of Ash Handling Equipments, Ash Pond and cost associated with it such as

Civil and proportionate EDC/IDC etc. However in case of Sagardighi Unit

1&2, only the cost of Ash Pond is considered which contains only a part of Ash

Handling System. In a similar manner in Case of Paras Unit 3 and Parli Unit 6

the scope of the system is different from the scope of Lanco Unit-II. (Ref:-page

no. 169, 233 and 280 of Objection of HPPC dated 08.09.2014). It can be seen

from the tabulated data that there is a major difference in the Cost of Ash

Handling System among Sagardighi Unit 1&2, Parli Unit 6 and Paras Unit 3

where Lanco is no way connected and it clearly indicates that the sole purpose

of HPPC is to mislead the Hon’ble Commission with absurd data and not to

compare with the facts and figures at par. Hence arbitrary comparison of the

cost of a System/Equipment with other power plant is not appropriate as it

depends on various factors such as Complete Scope of the System, Plant

179 | P a g e

Layout, Make of the equipments, Date of Contract award, Make of System,

Specification of Equipments, cost components and Selection of Technology etc.,

which vary from, Plant to Plant. Hence the contention of HPPC that per MW

cost of Ash Handling System of Lanco Unit-II is more than Sagardighi Unit

1&2, Paras (Unit 3)and Parli (Unit 6) is wrong and baseless. The sole

purpose of HPPC is to mislead the Hon’ble Commission by projecting

irrelevant data analysis. It is wrong and denied that Lanco has incurred any

cost imprudently as being alleged by HPPC.

29. The contents of para no. 29 are denied being incorrect, false, and

misleading. The alleged comparison of costs incurred for ash handling system,

switchyard, land or coal handling system between Lanco and other generating

station is misleading. With the facts and circumstances referred in previous

para, it is wrong to suggest that the cost of ash handling plant is higher than

the corresponding cost of other generating stations. Also the observation of the

Hon’ble Maharashtra State Electricity Regulatory Commission in the Order

dated 15.12.2009 in the case of Paras Thermal Power plant is not applicable to

the present facts and circumstances. It is pertinent to note that the Hon’ble

MSERC passed the Order dated 15.12.2009 on a specific admitted case of

Maharashtra State Power Generation Company Limited (‘MSPGCL’) that the

common facilities constructed for Unit-3 shall be shared with proposed Unit-4

passed the Order dated 15.12.2009 [Ref: para-90-pg-238 & para-108-pg-243].

Whereas, it is reiterated that it is the specific as well as an established case of

Lanco that there is no common facilities between Unit-I&II on the one hand

and Unit III&IV on the other [Ref: Affidavit dated 09.04.2014 on behalf of

Lanco as Per directions of this Hon’ble Commission given vide Order dated

25.03.2014].

180 | P a g e

30. The contents of para no. 30 (wrongly numbered as para 26) are denied

being incorrect, false, and misleading, save and except being matters of record.

The alleged attempt of HPPC to compare the common cost incurred in for land

by different power plants is absolutely incorrect and has been made to mislead

this Hon’ble Commission. It is submitted that cost incurred for land depends on

various factors namely cost of land depends upon the Quantity, Rate (which

varies from State to State), Date of Purchase etc. which cannot be uniformly

applied for acquiring/purchasing land of each power plant. Hence comparing

the cost of Land with Lanco Unit-II is not correct. It is to clarify that the land

has been handed over by the State Govt, to Lanco through lease deed at a state

notified rate and has not been purchased directly from the villagers, hence any

allegation over the cost of land which is beyond the purview/control of Lanco is

baseless and denied. Also in the case of Sagardighi Plant, the COD happened

in the year 2008 which is much prior to the COD of Unit-II on 07.05.2011. The

cost incurred for acquiring/purchasing land for Sagardighi cannot be yardstick

for contending that cost incurred by Lanco in acquiring/purchasing land for

Unit-I &II is higher or imprudent.

31. The contents of para no. 31 (wrongly numbered as para 27) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is submitted that cost of purchasing land for Unit-II has been separately

booked and accounted for while determining the capital cost of Unit-II. It is

wrong and denied that the land acquired/purchased for Unit-I&II would be

useful to the subsequent Units as alleged or otherwise. It is wrong and denied

that the cost of construction of land should be shared between the units in

proportion of capacity of each unit. It is reiterated that there is no common

land or common construction on land between Unit-II&II on one hand and

Unit-III&IV on the other hand. HPPC is deliberately raising the issue to

mislead this Hon’ble Commission. In this regard, it is submitted that Lanco has

filed an affidavit dated 09.04.2014 as per directions of this Hon’ble

181 | P a g e

Commission given vide Order dated 25.03.2014 wherein Lanco has

categorically stated that no part of the land for Unit-II shall be used for Unit-

III&IV. The relevant extract of Site Visit report of E&Y dated 23.08.2014 which

is reproduced below clearly establishes the fact that 200 Acres is completely

utilised in Unit-II and no part of it is used in subsequent Units.

“ 4. Hence total land allocated to Unit 2 remained 200 Acres and no

part of that was used by Unit III&IV.”

32. The contents of para no. 32 (wrongly numbered as para 28) are denied

being incorrect, false, and misleading, save and except being matters of record.

The alleged attempt of HPPC to compare the common cost incurred for

establishing ‘coal handling plant’ by different power plants is absolutely

incorrect and has been made to mislead this Hon’ble Commission. In para no.

32, HPPC has undertaken a comparison of the cost of Coal Handling Plant of

Sagardighi, Paras Unit 3 and Parli Unit 6 with Unit No.1 & Unit No. II of

Lanco. It is submitted that HPPC had failed to appreciate that the cost of 300

MW Unit No. II of Lanco is very much in line with the 300 MW cost of Coal

Handling Plant of Sagardighi. It is submitted that the hard cost of 300 MW

Unit No. II of the Petitioner is 91.77 Crs (Excluding EDC/IDC) where as the

hard cost of Coal Handling Plant of Sagardighi thermal power plant is Rs.

184.22/2=92.11 Crs (Ref:-Page 279 of Objection of HPPC dated 08.09.2014)

although it’s COD was in the year 2008 much prior to COD of Unit No. II of

Lanco. HPPC also failed to analyse as to why there is a huge gap in per MW

cost of Coal Handling Plant of Sagardighi, Paras Unit 3 and Parli Unit 6.

Under these circumstances, it is appropriate to refer to the justification given in

previous paras that the cost of a System depends on various factors such as

scope of the System, Plant Layout, Make of the equipments, Date of contract

award, Make of System, cost components, Technology etc. which varies from

Plant to Plant and cannot be applied uniformly. In accordance with the

justification given in above para, it is submitted that the sole purpose of HPPC

182 | P a g e

is to mislead the Hon’ble Commission by projecting irrelevant, and baseless

data analysis The cost incurred for establishing ‘coal handling plant’ for

Sagardighi, Paras or Parli Thermal power plant cannot be yardstick for

contending that cost incurred by Lanco in establishing ‘coal handling plant’ for

Unit-I &2 is higher or imprudent.

33. The contents of para no. 33 (wrongly numbered as para 29) are denied

being incorrect, false, and misleading. With the facts and figures described in

previous para, it is denied that cost incurred for establishing ‘coal handling

system by Lanco is on the higher side in comparison with other power plant as

alleged or otherwise.

34. The contents of para no. 34 (wrongly numbered as para 30) are denied

being incorrect, false, and misleading. It is wrong and denied that report

submitted by E&Y has not verified the coal and secondary fuel purchase bills

for the verification of sources as well as the cost of landed coal or secondary

fuel as alleged or otherwise. In this regard, it is submitted that Lanco has

provided all necessary details in relation to coal and secondary fuel purchase

bills for verification to E&Y which have been duly verified and the same has

been shown at point 4 of the addendum report dated 04.08.2014. It is wrong

and denied that E&Y has not verified the laboratory report for verification of

GCV of the landed coal. In this regard, it is submitted that E&Y vide its email

dated 29.07.2014 requested Director, Tariff, HERC to ensure the documents in

relation to determining GCV of coal such as lab report, sampling mix etc.

Lanco vide its email dated 31.07.2014 provided the documents as sought by

E&Y to both E&Y and to the Director, Tariff of this Hon’ble Commission,

which have been duly considered by E&Y in validation of Coal Quantity and

Quality at point no. 7 of its site visit report submitted to Hon’ble Commission

on 23.08.2014. In addition to it as per the requirement during site visit, all the

invoices of coal were produced, which were verified without any

inconsistencies by representatives of both the Hon’ble Commission and that of

183 | P a g e

the HPPC. All the Invoices and Lab reports were also submitted to this Hon’ble

commission and HPPC on 12.01.2012 and 13.01.2014. It is therefore incorrect

to allege that Lanco ought to be directed to submit any document in relation to

lab report for determining GCV of landed coal. Without prejudice to the

foregoing, it is apparent from the proceedings dated 20.08.2014 issued by this

Hon’ble Commission that Lanco during the site visit provided manner of

assessing of GCV of coal of Unit I&II as well explained the sampling method

and provided the daily report for inspection to the satisfaction of the team

undertaking the site visit.

35. The contents of para no. 35 (wrongly numbered as para 31) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is submitted that HPPC should be concerned only about Unit-II of Lanco in

as much as the present proceeding is confined to re-determination of tariff of

Unit-II pursuant to the Order dated 03.01.2014 of the Hon’ble Tribunal. It is

strange that HPPC is not aware that the Station Heat Rate is a fixed/normative

parameter specified in the HERC Tariff Regulations, 2008, as such the quality

and quantity of coal used in Unit-II are not used to work out the station heat

rate as alleged by HPPC. The details of month wise weighted average GCV as

well as the supporting lab reports which are a measure of the quality of coal

used were submitted by Lanco to both E&Y and to Hon’ble Commission on

31.07.2014. The month wise data pertaining to coal stock at the beginning of

the month, the coal receipts during the month, transportation cost of coal, coal

consumption during the month and the closing stock of coal at the end of month

along with necessary documents have already been submitted as per Form 15

to this Hon’ble Commission as well as to E&Y. It is submitted that to meet the

shortfall of coal due to insufficient linkage coal quantity, Lanco had to resort to

procurement of coal from alternate sources i.e. e-auction/open

market/imported coal. The coal procured from e-auction sources was

transported by trucks from the coal mines located at to and fro distance of 100

184 | P a g e

to 240 km from the plant and therefore, the transportation cost incurred during

the supply period varied from Rs. 185/ton to Rs. 710/ton with average

transportation cost during the supply period was Rs. 480/ton. The

transportation cost incurred was through finalization of transparent

competitive bidding offers invited from the transporters. HPPC has not

specified how it has arrived at the figure of Rs. 570/metric cube stated in its

objection. Accordingly, from the above, it is clear that HPPC is mischievously

alleging the wrong figures and analysis related to the coal quality, coal

quantity and station heat rate.

36. The contents of para no. 36 (wrongly numbered as para 32) are denied

being incorrect, false, and misleading. It is wrong and denied that E&Y has not

examined any aspect as being alleged by HPPC or even otherwise. It is

reiterated that inter alia E&Y has examined and verified the quantity and

quality of coal for Unit-II, GCV of coal for Unit-II as well as coal cost

incurred. There was no occasion for E&Y to compare project cost claimed by

Lanco with other projects as alleged or otherwise inasmuch as the mandate of

E&Y as per this Hon’ble Commission was to verify the data furnished by Lanco

and not to compare the said data with other projects which is apparent from

the ‘scope of services’ detailed in page-6 in the report dated 08.07.2014 of

E&Y. Without prejudice to any right and contentions of Lanco, it is submitted

that admittedly the project cost of Parli (Unit-6), Paras Unit-3, Korba Stage –

III, Simdhari Stage-II is over and above Rs. 5 crore/MW which is much higher

than what Lanco’s Unit-II of Rs. 4.52 crore/MW being claimed in the present

tariff re-determination process.

37. The contents of para no. 37 (wrongly numbered as para 33) are denied

being incorrect, false, and misleading. It is completely wrong and denied that

this Hon’ble Commission in the proceedings dated 25.03.2014 had specifically

or otherwise referred to the aspects of railway siding, railway line etc., being

common to entire station to 1920 MW. HPPC is making false statement before

185 | P a g e

this Hon’ble Commission which is apparent from the record of proceedings

dated 25.03.2014. It is wrong and denied that the proportionate share of Unit-

II of Lanco works out to 14.6% (approx). It is wrong and denied that common

assets of Unit-II cannot be considered beyond 14.6% as alleged or otherwise. It

is wrong and denied that the table of apportioning common assets in the report

is also an assumption or presumptions as alleged or otherwise. It is wrong and

denied that the table of apportioning common assets in the report is not by

verification of the data furnished by Lanco as alleged or otherwise instead the

statement of cost of common facilities submitted by Lanco are based on actual

expenditure incurred for augmentation/ modification/ addition to the existing

facilities of Unit-I which has also been duly certified by its Statutory Auditors..

38. The contents of para no. 38 (wrongly numbered as para 34) are denied

being incorrect, false, and misleading. HPPC is deliberately and with malafide

intent is delaying process of re-determination of tariff of Unit-II inasmuch as

this Hon’ble Commission has given enough opportunities to HPPC to file its

objections/comments to the report which admittedly have not been availed by

HPPC and therefore it is humbly submitted that no further opportunity/liberty

should be given HPPC.

39. The contents of para no. 39 (wrongly numbered as para 35) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that, except that with Unit-I, there are shared

assets/common facilities between Unit-II and other units. It is wrong and

denied that capital cost determination of Unit-II would include apportionment

of the cost of shared assets other than shared assets between Unit-I&II.

40. The contents of para no. 40 (wrongly numbered as para 36) are denied

being incorrect, false, and misleading, save and except being matters of record.

Lanco has duly explained reason for increase in the capital cost in its details

submitted to Hon’ble Commission [ref: pg-77-80 of Vol-I-letter dated

186 | P a g e

13.01.2014, pg-2-3of rejoinder dated 03.03.2014 on behalf of Lanco; pg-1-

para-2-reply dated 09.04.2014on behalf of Lanco to memorandum of

interrogatories].

41. The contents of para no. 41 (wrongly numbered as para 37) are denied

being incorrect, false, and misleading, save and except being matters of record.

42. The contents of para no. 42 (wrongly numbered as para 38) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is submitted that the increase in cost of Rs. 69.53 Crores was on account of

increase in span of mill and bunker in Order to match with the requirement of

traverse of the hoist, and also to provide operational ease, deck sheeting in TG

building for construction of roof slabs to expedite construction activities,

requirement of pile foundation for stacker, re-claimer hopper entailing

additional expenditure towards manpower and material, price escalation

towards re-enforcement steel, structural steel and cement. The said increase in

cost has been duly approved by lenders engineer vide letter dated 23.04.2010,

which is already on record. Further, increase in scope of non-EPC contractor

to tune of Rs. 20.35 crores has also been duly approved by lenders engineer

vide letter dated 23.04.2010, which is already on record. Apparently, the said

figures have been cross-verified by E&Y. It is evident from the lender’s

engineer report dated 23.04.2010 that increase in scope of non-EPC cost was

on account of works carried out in accordance with directives of state

authorities and local state bodies. HPPC with a sole motive to delay the re-

determination of tariff is seeking documents time and again. In this regard, it is

submitted that HPPC has filed its reply dated 10.02.2014, memorandum of

interrogatories dated 01.04.2014 and preliminary objection dated 21.07.2014,

which have been duly responded by Lanco. However, HPPC never requested

for copies of the contract/work Order awarded to different agencies, which

clearly shows that HPPC is requesting for more documents only to delay the

proceedings, which is liable to rejected.

187 | P a g e

43. The contents of para no. 43 (wrongly numbered as para 39) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that cost of Rs. 29.82 Crores on account of change in

the design, engineering, construction, supervision & pre-operative expenses. It

is wrong and denied that the said increased cost ought to be disallowed as

alleged or otherwise. It is wrong and denied that the delay in achieving COD

was solely attributable to Lanco as alleged or otherwise. It is reiterated that the

delay in COD was on account of reasons beyond reasonable control of Lanco,

which has been duly explained by Lanco in its written submission dated

25.07.2014 [Ref: pg-10-13-para-12-18].

44. The contents of para no. 44 (wrongly numbered as para 40) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is completely wrong and denied that no detailed breakup of the capital cost is

provided as alleged or otherwise. Lanco has given all requisite details in

relation to capital cost. HPPC is repeating its alleged objections which have

been dealt with by Lanco in its rejoinder dated 01.03.2014 [ref: pg-2-5 para-

5], reply to memorandum dated 09.04.2014 [ref: page-1 to 4 para-2].

45. The contents of para no. 45 (wrongly numbered as para 41) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that there was any default on the part of Lanco to give

particulars of capital cost as alleged or otherwise. It is submitted that the

Order dated 17.10.2012 does not record any finding of failure of Lanco in

submitting all documents as per the direction of this Hon’ble Commission. In

any event the Order dated 17.10.2012 is of no relevance in the present re-

determination of tariff since the same has been set aside by the Hon’ble APTEL

vide judgment dated 03.01.2014.

188 | P a g e

46. The contents of para no. 46 (wrongly numbered as para 42) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is denied that the Lanco has made a claim for capital cost as Rs. 1668.37 as

alleged. Lanco has claimed actual capital expenditure incurred upto the COD

which has been supported by a certificate from its Statutory Auditor as per

applicable HERC Tariff Regulations, 2008. The cost overrun in the project cost

was approved by Lender’s engineer (PFC) after a thorough independent

assessment and verification. Significantly, the net revenue generated from sale

of infirm power after fuel expenses of Unit-II is (Rs. 311.28 Crores) from date

of synchronization (22.02.2010) upto the declaration of COD

(07.05.2011),which is reflected in the certificate issued by Auditor certifying

the capital cost of Unit II [Ref: page-73 of Vol-I-letter dated 13.01.2014]. It is

submitted that the benefit of reduced capital cost has been clearly passed on to

the consumers of State of Haryana as the revenue generated from sale of infirm

power from Unit-II has been deduced from the capital cost of Unit-II in

accordance with HERC Tariff Regulations, 2008. It is wrong and denied that

Lanco has not given proper details and evidence in support of capital cost

claimed by it.

47. The contents of para no. 47 (wrongly numbered as para 43) are denied

being incorrect, false, and misleading, save and except being matters of record.

The contents of the para under reply is mere repetition of para-18 & 19 of reply

dated 10.02.2014, which have been dealt with by Lanco in its rejoinder dated

01.03.2014. The averment of HPPC that as per financial statements of Lanco

filed for the year ended 31.03.2009, for the period 2009-10 and for the period

2010-11, the sale of power from Unit I and Unit-II before the declaration of the

date of commercial operation aggregate to Rs. 1889.10 crores is irrelevant for

the computation of infirm power revenue generated from Unit-II. Lanco

submits this very objection was raised by HPPC in the proceedings in CASE

NO: HERC/PRO – 1 OF 2012 and was dealt it by Lanco. The said objection

189 | P a g e

was rejected by the Hon’ble Commission in its Order dated 17.10.2012. HPPC

admittedly has not challenged the same and therefore HPPC is estopped from

raising this objection. Without prejudice to the above, it is submitted that

HPPC is trying to mislead this Hon’ble Commission by quoting the

consolidated financials of Lanco, which includes gross revenue from sale of

power from Unit-I before and after COD of Unit I in addition to the sale of

infirm power from Unit-II before its COD 07.5.2011. It is submitted that Unit I

was synchronized on 01.05.2009 and its COD was declared on 09.04.2010

whereas Unit II was synchronized on 22.02.2010 and its COD was declared on

07.05.2011. The net revenue generated from sale of infirm power after fuel

expenses of Unit-II is (Rs. 311.28 Crores) from date of synchronization

(22.02.2010) upto the declaration of COD (07.05.2011) which is reflected in

the certificate issued by Statutory Auditor certifying the capital cost of Unit-II.

It is submitted that complete details in relation to Energy Export and Amount of

infirm power solely pertaining to Unit-II has been already submitted by Lanco

before this Hon’ble Commission in CASE NO: HERC/PRO – 1 OF 2012 vide

its tariff petition dated 12.01.2012 and the same are already on record as

Annexure-4 of the tariff petition dated 12.01.2012. It is submitted that the

benefit of reduced capital cost has been clearly passed on to the consumers of

State of Haryana as the revenue generated from sale of infirm power from

Unit-II has been deduced from the capital cost of Unit-II in accordance with

HERC Tariff Regulations, 2008. Therefore, the submission of HPPC that the

sale of infirm power during the period from 01.04.2011 to 06.05.2011 has not

been provided by Lanco is totally incorrect and baseless. It is submitted that on

25.03.2010 i.e. the day when the Unit-IItouched full load the assets of Unit-II of

Lanco were capitalized in the book of accounts. The financial statements-as at

March 31, 2011 along with auditor’s report and financial statements-as at

March 31, 2010 along with auditor’s report of Lanco have already been

submitted by Lanco before this Hon’ble Commission vide its reply dated

19.07.2012 to the objections filed by HPPC in CASE NO: HERC/PRO – 1 OF

190 | P a g e

2012 and the same are already on record as Annexure-B of the reply dated

19.07.2012. The financial statements-as at March 31, 2012 along with

Auditor’s report is already on record as Annexure-P-3 with the rejoinder dated

01.03.2014. The standalone financials of Unit-II certified by the Auditor for the

period as on 25.03.2010, as on 31.03.2010, as on 31.03.2011 and as on

07.05.2011 is already on record as Annexure-P-4 (Colly) with the rejoinder

dated 01.03.2014. It is wrong and denied that Lanco has not provided break up

as alleged or otherwise. It is wrong and denied that there is any failure of

Lanco to provide any detail. It is wrong and denied that any adverse inference

is to be drawn against Lanco to the extent that more than Rs. 311 crores needs

to be adjusted in the capital expenditure for revenue from infirm power and UI

Charges as alleged or otherwise. It is wrong and denied that any adverse

inference is to be drawn against Lanco.

48. The contents of para no. 48 (wrongly numbered as para 44) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that O&M expenses for Unit I as approved by MPERC

towards salaries of staff, maintenance of common auxiliaries etc., need to be

apportioned between Unit I & II as alleged otherwise. That no common cost

has been incurred towards salaries of staff or maintenance of common facilities

as alleged or otherwise. It is submitted that the claim of Lanco towards

capital cost in the present proceedings is the actual cost incurred by Unit-II

wherein no such alleged cost has been incurred and booked in the books of

accounts. Similarly, the capital cost incurred by Unit I of Lanco is

independently booked and incurred.

49. The contents of para no. 49 (wrongly numbered as para 45) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that Lanco is not entitled to any IDC and IEDC or cost

overrun on account of any alleged Force Majeure conditions. HPPC is

misconceived in stating that Lanco has to either accept the Order dated 2nd

191 | P a g e

October 2011 in toto i.e. finding of occurrence of force majeure events with no

cost implication. It is also wrong and denied that it is not now open to Lanco to

seek cost implications. In this regard, it is submitted that though Lanco has

challenged the said Order dated 02.02.2011 before the Hon’ble Supreme Court

but it is a fact on record that the said findings in the Order dated 02.02.2011

has not been assailed either by Lanco or HPGCL (HPPC) or for that matter by

PTC. Further, the said portion of the Order dated 02.02.2011 is fact finding

rendered by the Hon’ble Commission which will not change in any scenario. It

is misconceived on part of HPPC to contend that since PPA dated 19.10.2005

is not applicable therefore the fact that HPPC not disputing the condition of

Force Majeure will not be applicable.

50. The contents of para no. 50 (wrongly numbered as para 46) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that in the absence of PPA dated the only applicable

provision is Section 56 of the Contract Act as alleged or otherwise. It is wrong

and denied that there is no higher cost implication to the non-affected party in

the event of occurrence of Force Majeure events. It is wrong and denied that

the affected party only gets released of the obligations to perform during the

period of Force Majeure. It is wrong and denied that the China earthquake or

the visa problems cannot be a Force Majeure as it did not affect Lanco. It is

wrong and denied that it was not impossible for Lanco to perform the

obligations through alternate means. It is wrong and denied that performance

of the obligations of Lanco had become onerous or difficult or expensive as

alleged or otherwise. It is reiterated that the performance of Lanco was delayed

on account of factors beyond reasonable control which has been duly explained

by Lanco in its reply to memorandum of interrogatories dated 09.04.2014. It is

pertinent to mention herein that IDC is dependent on hard cost of the project

which is decided along with the time duration of the Project and the applicable

interest rate. It is submitted that the actual capital expenditure incurred upto

192 | P a g e

the COD has to be considered as the completed capital cost in accordance with

Regulation 12 of the HERC Tariff Regulations, 2008. Therefore, Lanco is

entitled to the actual capital cost incurred by it. As stated above the increase in

capital costs were on account of the reasons which were beyond the reasonable

control of Lanco. It is submitted that the reasons of increase in capital cost

have been duly explained in Para-B of its letter dated 13.01.2014 and the

documents filed along with the same and the contents of which may be treated

as part and parcel of the para under reply. It is further submitted that as per

Regulation 12 of the HERC Tariff Regulations, 2008 Lanco is entitled to

increase in capital cost since the same has been actually and bonafidely

incurred by Lanco in executing the project. In this regard, it is submitted that it

is a settled law that in case delay in execution of a generating project occurs

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

due to force majeure then the generating company is entitled to benefit of the

additional cost incurred due to time over-run. In this respect reliance may be

placed on the judgment of APTEL passed in Appeal No. 72 of 2010. Lanco

craves the leave of this Hon’ble Commission to distinguish any alleged settled

legal position during the course of argument.

51. The contents of para no. 51 (wrongly numbered as para 47) are denied

being incorrect, false, and misleading. The averment of HPPC that debt-equity

ratio should be as per the alleged approved financial package is incorrect and

misconceived and is contrary to the judgment dated 03.01.2014 of the Hon’ble

APTEL. As per which the debt-equity ratio has to be fixed according to the

HERC Tariff Regulations, 2008. It is wrong and denied that Lanco cannot

claim the actual debt and equity. In this regard, it is submitted that the HERC

Tariff Regulations, 2008 clearly provides that where equity actually employed

is less than 30%, the actual debt and equity shall be considered for the

determination of tariff. The actual debt outstanding in the books of accounts of

Lanco as on COD is Rs. 968.402 crores duly certified by the Statutory Auditor

193 | P a g e

vide its certificate dated 12.01.2014 and accordingly Lanco has considered the

actual net outstanding loan as on COD as the debt for the project and the

balance amount of the capital cost of the project is considered as equity. It is

submitted that Lanco has commenced repayment of the term loan for the

project before the COD and based on actual debt outstanding as on COD, the

debt –equity ratio stands at 71.41%:28.59% which has been claimed by Lanco.

It is denied that in the present case the capital cost will have to be apportioned

in the form of debt to the extent of 80% and equity to the extent of 20%. It is

denied that Lanco cannot be allowed to claim equity at more than 20%. It is

submitted that the claim of Lanco is strictly as per the HERC Tariff

Regulations, 2008.

52. The contents of para no. 52 (wrongly numbered as para 48) are denied

being incorrect, false, and misleading. It is wrong and denied that the

repayment of loan should be considered as minimum amount of depreciation as

alleged or otherwise. It is submitted that the issue of repayment of loan as

raised by HPPC is irrelevant for current tariff re-determination as per HERC

Tariff Regulations, 2008 as it already provides for components of Depreciation

and Advance against Depreciation which shall take care of the requirements of

repayment of loan.

53. The contents of para no. 53 (wrongly numbered as para 49) are denied

being incorrect, false, and misleading. It is submitted that the Annual capacity

charges for 2011-2012, 2012-2013 and 2013-2014 has been computed after

adjusting infirm power as well as common facilities between Unit 1 & 2 for the

purpose of Capacity charges. Since there are no shared assets/facilities

between Unit 1 & Unit-II on one hand and Unit III&IV on the other hand

therefore there is no question for adjusting the same from the annual capacity

charges as alleged by HPPC. It is wrong and denied that as per regulations 10

& 11 of HERC Tariff Regulations, 2008 capacity charges need to be adjusted

194 | P a g e

as alleged or otherwise. It is wrong and denied that if the plant load factor is

achieved by say 40% as against 80% target availability the above capacity

charges will be adjusted by half. It is wrong and denied that Lanco is not

entitled to per unit tariff based on annual capacity charges for 80% plant load

factor. In this regard, it is submitted that the Lanco has claimed annual

capacity charges strictly as per HERC Tariff Regulations, 2008.

54. The contents of para no. 54 (wrongly numbered as para 50) are denied

being incorrect, false, and misleading, save and except being matters of record.

It is wrong and denied that plant load factor achieved by Lanco during the FY

2011-2012 including auxiliary consumption is 56%. It is wrong and denied that

annual capacity charges payable need to be adjusted to Rs. 224.12 crores. It is

wrong and denied that per unit charge to be paid will be to the tune of Rs. 1.30.

It is also wrong and denied that computation of annual capacity charges would

be as alleged by HPPC in the para under reply. It is wrong and denied that

plant load factor including auxiliary consumption for the FY 2012-2013 is

40.77% as alleged. It is wrong and denied that per unit charge for FY 2012-

2013 to be paid will be to the tune of Rs. 0.90. It is submitted that the HERC

Tariff Regulations, 2008 clearly provide for recovery of full annual capacity

charges at the Target Availability (80%) of Unit-II. In case the Availability is

less than the Target Availability on an annual basis, the recovery of annual

capacity charges shall be on pro-rata basis. Recovery of annual capacity

charges have nothing to do with the PLF of the plant. Therefore, the issue

raised by HPPC is irrelevant as annual capacity charges shall be determined

by the Hon’ble Commission as per the HERC Tariff Regulations, 2008.

55. The contents of para no. 55 (wrongly numbered as para 51) are denied

being incorrect, false, and misleading. It is wrong and denied that any other

claims of Lanco need to be adjusted as alleged or otherwise. It is denied that

total project cost or debt equity ratio or repayment of loan or interest on

195 | P a g e

working capital or operation and maintenance expenses etc., need to be

adjusted as alleged or otherwise.

56. The contents of para no. 56 (wrongly numbered as para 52) are denied

being incorrect, false, and misleading. It is not the case of Lanco that the

Hon’ble Commission should not exercise prudent check. It is wrong and denied

that Lanco has claimed any higher capital cost. It is reiterated that Lanco has

claimed capital cost prudently and actually incurred by it as per HERC Tariff

Regulations, 2008. It is wrong and denied that Lanco has not given any

requisite particulars in support of its claim. It is reiterated that Lanco has

provided all documents and information in support of claims as and when

sought to the Hon’ble Commission from time to time. It is incorrect to contend

that Lanco is seeking admission of capital expenditure incurred only on the

basis of auditor certificate.

57. The contents of para no. 57 (wrongly numbered as para 53) are denied

being incorrect, false, and misleading. Lanco has provided all requisite details

explaining the need for capital expenditure. Lanco has also provided the details

of actual capital expenditure incurred. It is reiterated that all expenditure

incurred by Lanco is reasonable and just.

58. The contents of para no. 58 (wrongly numbered as para 54) are denied

being incorrect, false, and misleading. It is wrong and denied that Lanco ever

supplied power to HPPC. It is submitted that Lanco has supplied power to PTC

which has in turn supplied the same to HPPC. It is reiterated that Lanco has

already deducted the revenue from infirm power while computing the capital

cost of Unit-II. The remaining contents of para under reply are mere repetition

of the contents of para no. 47 (wrongly number as para 43). Accordingly,

Lanco reiterates and reaffirms the contents of para no. 47 of this reply, which

are not repeated herein for the sake of brevity.

196 | P a g e

59. The contents of para no. 59 (wrongly numbered as para 55) are denied

being wrong, incorrect, false, baseless and misleading. It is reiterated that

Lanco has given details of the revenue generated by Lanco from the sale of

infirm power upto the COD of Unit-II, which has been duly certified by its

Statutory Auditor. It is submitted that based on the directions of Hon’ble

Commission, E&Y has also verified the same and found to be correct and in

Order. It is denied that it is incumbent upon Lanco to give details of aggregate

quantum of the sale of infirm power and sale of power under unscheduled

interchange of Unit-I & Unit-II. It is wrong and denied that any revenue

generated from sale of infirm power and unscheduled interchange charges

under the Unit 1 need to be adjusted for reduction in the capital cost for the

purpose of determining the cost to be considered for the tariff. It is reiterated

that the capital cost of the Unit-II as certified by the Statutory Auditor in the

certificate along with the letter dated 13.01.2014 excludes the sale of infirm

power and unscheduled interchange charges under the Unit I. It is submitted

that the contention of HPPC regarding a detailed investigation into the

quantum of infirm power sold by Lanco under the Unit-II is totally

misconceived, mischievous and is a ploy to delay the present proceedings. It is

denied that the quantum of sale of infirm power at Rs. 311.28 crores is

erroneous as alleged or otherwise.

60. The contents of para no. 60 (wrongly numbered as para 56) are denied

being wrong, incorrect, false, baseless and misleading. The averment of HPPC

that debt-equity ratio should be as per the alleged approved financial package

is incorrect and misconceived and is contrary to the judgment dated 03.01.2014

of the Hon’ble APTEL. As per which the debt-equity ratio has to be fixed

according to the HERC Tariff Regulations, 2008. It is wrong and denied that

Lanco cannot claim the actual debt and equity. In this regard, it is submitted

that the HERC Tariff Regulations, 2008 clearly provides that where equity

actually employed is less than 30%, the actual debt and equity shall be

197 | P a g e

considered for the determination of tariff. The actual debt outstanding in the

books of accounts of Lanco as on COD is Rs. 968.402 crores duly certified by

the Statutory Auditor vide its certificate dated 12.01.2014 and accordingly

Lanco has considered the actual net outstanding loan as on COD as the debt

for the project and the balance amount of the capital cost of the project is

considered as equity. It is submitted that Lanco has commenced repayment of

the term loan for the project before the COD and based on actual debt

outstanding as on COD, the debt –equity ratio stands at 71.41%:28.59% which

has been claimed by Lanco. It is denied that in the present case the capital cost

will have to be apportioned in the form of debt to the extent of 80% and equity

to the extent of 20%. It is denied that it is not open to Lanco to claim equity at

more than 20%. It is submitted that the claim of Lanco is strictly as per the

HERC Tariff Regulations, 2008. It is denied that the tariff petition made by

Lanco on the basis of apportionment of the debt and equity in the ratio stated

therein is wrong. It is denied that the tariff calculation is based on any wrong

differentiation and equity ratio assumed by Lanco. It is denied that the tariff

calculation based on above stated debt-equity ratio is defective and need to be

rejected. It is submitted that the Regulation 15 (3) of the HERC Tariff

Regulations 2008 clearly stipulates that the debt-equity ratio shall be based on

actual deployment of funds subject to the condition that the equity deployed in

excess of 30% of the capital cost shall be treated as normative loan. It is denied

that the once the capital cost determined as per prudence check and infirm

power and UI charges are deducted the cost is to be apportioned in the debt-

equity ratio of 80%-20%. It is wrong and denied that the return of equity is to

be restricted to 20% of the capital cost. It is wrong and denied that the balance

80% will have to be serviced as borrowing/loan.

61. The contents of para no. 61 (wrongly numbered as para 57) are denied

being wrong, incorrect, false, baseless and misleading. It is submitted that as

per the judgement dated 03.01.2014 of the Hon’ble APTEL the Tariff

Regulations, 2009 of the Central Commission is of no relevance in the present

198 | P a g e

proceedings in so far as interest on loan is concerned. It is submitted that

HPPC is trying to mislead the Hon’ble Commission by referring to the Tariff

Regulations, 2009 of the Central Commission for Interest on Loan component

of the Tariff as against the applicable HERC Tariff Regulations, 2008. Lanco

states that it has claimed interest on loan after COD on the actual loan

outstanding as on COD after duly taking into account the normative repayment

for the respective tariff periods. The objections raised by HPPC are

misconceived as Lanco has not claimed any depreciation before COD, which is

in line with the HERC Tariff Regulations, 2008. It is denied that Lanco has not

given any particulars in Order to determine the normative loan, depreciation

adjusted and balance to be serviced from time to time. Lanco reiterates that it

has already submitted all the necessary and relevant details in the applicable

Formats required for determination of Interest on Loan, Depreciation and

Advance against Depreciation in accordance with the applicable provisions of

HERC Tariff Regulations, 2008.

62-63. The contents of para no. 62-63 (wrongly numbered as para 58-

59) are denied being wrong, incorrect, false, baseless and misleading. It is

submitted that this Hon’ble Commission vide its Order dated 02.02.2011 had

specifically held that the Force Majeure events as claimed by Petitioner therein

i.e. PTC India Limited did happen which were not disputed by PTC and HPPC.

The said findings were not challenged by HPPC and thus became final and

binding on the said parties. Therefore, it is not open to HPPC now to state that

the reasons namely earth quake in China and the visa policy of the Government

of India are not Force Majeure events as contended or otherwise. In so far as

the contention of HPPC that this Hon’ble Commission vide Order dated

02.02.2011 rejected the claim of compensation in terms of the tariff hike is

concerned, it is submitted that admittedly the said finding of the Hon’ble

Commission was based on the premise that there was no enabling provision for

the same in the PSA/PPA. The said finding of the Hon’ble Commission cannot

199 | P a g e

be considered at all as the Hon’ble APTEL vide its judgement dated 03.01.2014

has directed re-determination of tariff dehors the PPA.. As per the said

judgment of the Hon’ble APTEL the tariff is to be determined in accordance

with the HERC Tariff Regulations, 2008. Without prejudice to the above, the

second appeal arising out of the Order dated 02.02.2011 passed by this

Hon’ble Commission being C.A. No. 10329 of 2011 is pending before the

Hon’ble Supreme Court and therefore the above finding in respect of tariff

revision is sub-judice. It is important to note that the present proceedings for

determination of interim tariff originally arise out of the Order dated

16.12.2011 passed by the Hon’ble Supreme Court in the said Civil Appeal. It is

thus incorrect and misconceived to state that Lanco cannot claim either IDC or

IEDC or any other compensatory payment by way of cost overrun or time

overrun on account of the delay resulting from the Force Majeure Event of

earthquake in China or visa policy of the Government of India. It is also

incorrect to state that the said issue stands settled and cannot be opened at this

stage as alleged. It is denied that the reason of earthquake in China, visa policy

of the Government of India etc are not Force Majeure events as alleged by

HPPC. In any event HPPC is estopped from raising the above contention. It is

denied that the claim for IDC and IEDC i.e. time overrun and cost overrun can

be considered only in regard to the matters other than those resulting from the

Force Majeure Event. It is pertinent to mention that IDC is dependent on hard

cost of the project which is decided along with the time duration of the Project

and the applicable interest rate. It is submitted that the actual capital

expenditure incurred upto the COD has to be considered as the completed

capital cost in accordance with Regulation 12 of the HERC Tariff Regulations,

2008. Therefore, Lanco is entitled to the actual capital cost incurred by it. As

stated above the increase in capital costs were on account of the reasons which

were beyond the reasonable control of Lanco. It is submitted that the reasons of

increase in capital cost have been duly explained in Para-B of its letter dated

13.01.2014 and the documents filed along with the same and the contents of

200 | P a g e

which may be treated as part and parcel of the para under reply. It is further

submitted that as per Regulation 12 of the HERC Tariff Regulations, 2008

Lanco is entitled to increase in capital cost since the same has been actually

and bonafidely incurred by Lanco in executing the project.

64. The contents of para no. 64 (wrongly numbered as para 60) are denied

being wrong, incorrect, false, baseless and misleading. It is denied that the

claim of Lanco for the delay in the commissioning is only on account of Force

Majeure Event of earthquake in China in May, 2008. It is denied that the

reasons stated for delay in commissioning of the Unit-II cannot be ground for

claiming cost overrun in respect of Unit-II. It is submitted that on 12.05.2008,

the manufacturing facilities of M/s Dongfang Electric Corporation, China

(DEC), supplier of main plant equipment and BTG component of project were

severely damaged due to a powerful earthquake rated at Richter scale 8.0 in

China and DEC could not supply the machines and equipments to Lanco. This

was admittedly a Force Majeure event. It is denied that the event of Force

Majeure of Visa Policy of the Government of India not permitting the Chinese

workforce has been raised as an afterthought. The force-majeure notices were

issued by Lanco to PTC immediately after the occurrence of the force majeure

event in the year 2008 itself and therefore the allegation of HPPC that it has

been raised as an afterthought is patently wrong. It is denied that the delay in

commissioning due to the usage of the rotor of Unit-II in Unit-I cannot be a

ground for claiming the cost overrun in respect of Unit-II. It is submitted that

the delay on this account was caused during the period of Force Majeure

events. Lanco craves the leave of this Hon’ble Commission to treat the contents

of para-B of the letter dated 13.01.2014 as part and parcel of the para under

reply and the same are not repeated herein for the sake of brevity.

65. The contents of para no. 65 (wrongly numbered as para 61) are denied

being wrong, incorrect, false, baseless and misleading. It is reiterated that as

per the judgement dated 03.01.2014 of the Hon’ble APTEL, the Tariff

201 | P a g e

Regulations, 2009 of the Central Commission in so far as fixed charges is of no

relevance in the present proceedings. As per the judgement dated 03.01.2014 of

the Hon’ble APTEL, fixed charges are to be computed as per the HERC Tariff

Regulations 2008. It is evident from the Tariff Formats filed by Lanco on

13.01.2014 which are in accordance with HERC Tariff Regulations, 2008 that

Lanco has claimed annual fixed charges for FY 2011-12, FY 2012-13, FY

2013-14 and FY 2014-15. It seems that HPPC has raised these objections

without going into the details submitted by Lanco. It is wrong and denied that

the implemented schedule of power shall be taken as per availability at the

State’s Periphery and not on declared availability of Lanco’s Plant for

payment/billing purposes as alleged or otherwise. It is denied that any suitable

directions in this regard need to be issued by this Hon’ble Commission.

66. The contents of para no. 66 (wrongly numbered as para 62) are denied

being wrong, incorrect, false, baseless and misleading. It is reiterated that as

per the judgement dated 03.01.2014 of the Hon’ble APTEL the Tariff

Regulations, 2009 of the Central Commission is of no relevance in the present

proceedings in so far as interest on working capital is concerned. In the para

under reply, HPPC is again trying to mislead the Hon’ble Commission by

referring to period of actual consumption, coal price etc. of January 2009 to

March 2009. It is submitted that it commenced supply of power to the PTC for

onward supply to HPPC w.e.f. 07.05.2011 pursuant to the interim Order dated

23.03.2011 passed by the Hon’ble APTEL. Lanco had been running its Unit II

and supplying power to PTC for onward supply to HPPC by procuring the

linkage coal supplied by SECL under MoU route and meeting its balance

requirements of coal from alternate sources. That the linkage coal supplied by

South Eastern Coalfields Limited (SECL) during the above period was widely

varying and it was sufficient for only 27% PLF and hence the additional coal

was procured from alternate sources which is much costlier than the linkage

coal which had caused additional working capital expenditure and further the

202 | P a g e

payment was not fully realized at par with the cost of generation from PTC. The

tariff was to be determined based on the directions of the Hon’ble Supreme

Court by its Order dated 16.12.2011 and now by the direction of Hon’ble

APTEL for the power which had already been supplied based on costs actually

incurred. Lanco submits that it is seeking reimbursement of the actual costs

incurred by it in accordance with directions of Hon’ble APTEL. It is relevant to

submit that to comply with the Order dated 16.12.2011 of the Hon’ble Supreme

Court, Lanco was receiving widely varying quantum of linkage coal under

MoU route from SECL, the coal procured from alternate sources also widely

varied to run the Unit-II and supply power to PTC for onward supply to HPPC

. It is submitted that in the instant case, Lanco had to spend additional working

capital to procure the coal from alternate sources varying on month to month

basis based on the quantum of linkage coal supplied. The tariff application

containing the tariff filing formats filed on 13.01.2014 is based on the actual

working capital expenditure incurred for the power already supplied for the

past period and for the future period, Lanco has considered the normative

working capital requirements in the computation of the tariff. It is further

important to state that in the present facts and circumstances where the tariff is

determined for a past and concluded period for which the data in respect of

actual consumption of coal price, operation and maintenance expenses, cost of

secondary fuel etc are already available then the interest of working capital is

required to be determined on the said available data. It is denied that the actual

amount of capital employed from time to time in regard to the coal

consumption etc. is irrelevant as alleged. It is incorrect to state that the interest

on working capital is not dependent upon the actual working capital incurred

by the generating company irrespective of whether the generating company

incurs the working capital or not. It is denied that the claim of Lanco of actual

working capital every month or on the basis of coal value is contrary to HERC

Tariff Regulations, 2008 or any other regulations.

203 | P a g e

67. The contents of para no. 67 (wrongly numbered as para 63) are denied

being wrong, incorrect, false, baseless and misleading. The averment of HPPC

in relation to alleged coal consumption being higher in a particular month is

completely vague. Lanco in its Tariff Filing Formats has given monthly as well

yearly figures of coal consumption. Lanco submits that in certain months

during the power supply period, Lanco did not receive any linkage coal as

SECL had not supplied any linkage coal and Lanco had to procure the entire

coal required for running the Unit-II from alternate sources including imported

coal. In certain other months, Lanco had to depend entirely on procurement of

coal from alternate sources including imported coal which led to higher

outflow of working capital. It is reiterated that as per the judgement dated

03.01.2014 of the Hon’ble APTEL the Tariff Regulations, 2009 of the Central

Commission is of no relevance in the present proceedings in so far as coal

consumption is concerned. It is denied that it is not open for Lanco to claim

actual interest on working capital on month to month basis.

68. The contents of para no. 68 (wrongly numbered as para 64) are denied

being wrong, incorrect, false, baseless and misleading. It is denied that the

operating and maintenance expenses need to be ascertained in terms of the

Tariff Regulations, 2004 based on the capital cost determined by this Hon’ble

Commission as alleged. In the para under reply, HPPC is again trying to

mislead the Hon’ble Commission by initially referring to the Tariff Regulations,

2004 and then referring to Tariff Regulations, 2009 pertaining to O&M

expenses. It is reiterated that as per the judgement dated 03.01.2014 of the

Hon’ble APTEL the Tariff Regulations, 2004 of the Central Commission is of

no relevance in the present proceedings. Further, even otherwise the Tariff

Regulations, 2004 cannot be made applicable to the tariff determination of

Lanco since the said Regulations ceased to be effect from 01.04.2009 whereas

O&M expenses in respect of Lanco case is for the year 2011-12. It is submitted

that on 03.02.2014, Lanco has filed an application under Regulation 33 of the

204 | P a g e

HERC Tariff Regulations, 2008 before this Hon’ble Commission inter alia

seeking relaxation of Regulation 16(iv)(c) of the HERC Tariff Regulations,

2008 regarding O&M expenses and grant of O&M expenses as per CERC

Tariff Regulations, 2009. In this regard, it is relevant to submit that the O&M

expenses as per HERC Tariff Regulations, 2008 are much lower and

practically not feasible for a generating station or Unit generating power. It is

further submitted that HPPC has also admitted that the O&M expenses needs

to be paid to Lanco under CERC Tariff Regulations, 2009 on normative basis.

It is further submitted that this Hon’ble Commission vide its Order dated

18.04.2011 passed in CASE No: HERC/PRO– 1 OF 2011 for generation tariff

for HPPC has noted that the HERC Tariff Regulations, 2008 in relation to

Operation and maintenance expenses are outdated and not updated. Further,

this Hon’ble Commission vide the said Order has not only deviated from the

applicability of HERC Tariff Regulations, 2008 but has also allowed O & M

Expenses as per CERC Tariff Regulations, 2009 for the generation tariff of the

generating stations of HPPC. In this regard, it is submitted that Lanco is

therefore entitled to parity and is entitled to relaxation/variation of HERC

Tariff Regulations, 2008 while re-determination of the interim tariff for its

Unit-II. The relevant potion of the Order dated 18.04.2011 of this Hon’ble

Commission is reproduced herein below:

“2.7.1...........

The Commission is of the considered view that adequate amount of

O&M expenses is essential for deriving optimum efficiency from the

plant and machinery. Hence, in the absence of updated HERC

generation tariff regulations, CERC norms for unit size of 200 MW &

above have been adopted for FY 2011-12. For the remaining generating

stations of lower than 200 MW capacity, where CERC norm does not

exist, the basis of estimating O&M expenses is the O&M expenses

allowed by the Commission in FY 2009-10 escalated by 5.72% per

annum to arrive at O&M expenses to be allowed in FY 2011-12. The

escalation factor considered is as per CERC notification. Accordingly,

the Commission allows O& M expenses @ Rs. 2.94 million/MW for

PTPS (1-4), Rs. 2.034 million/MW for PTPS (5 to 8), Rs. 1.788

million/MW for DCRTPS and Rs. 1.308 million /MW for RGTPS (1&2).

205 | P a g e

While the O&M expenses allowed by the Commission in the case of

WYC & Kakroi have been approved as proposed by HPGCL.

It is also important to state that pursuant to the passing of Order dated

18.04.2011, this Hon’ble Commission has passed similar tariff Orders for the

Respondent No. 2 generating stations for the subsequent years wherein O&M

expenses has been allowed in accordance with CERC Tariff Regulations, 2009

containing reference of Order dated 18.04.2011. Copy of relevant extract of the

Order dated 18.04.2011 passed by the Hon’ble Commission in CASE No:

HERC/PRO– 1 OF 2011 is already on record as Annexure P-5 with the

rejoinder dated 01.03.2014.

69. The contents of para no. 69 (wrongly numbered as para 65) are denied

being wrong, incorrect, false, baseless and misleading. It is denied that Lanco

cannot demand energy charges based on any coal used by it other than through

procurement of coal under a regular Fuel Supply Agreement with coal India/its

subsidiary is contrary to the judgment dated 03.01.2014 of the Hon’ble APTEL.

In terms of the said judgment the energy charges are to be calculated as per the

HERC Tariff Regulations, 2008. Further, as per the directions of the Hon’ble

APTEL Lanco has submitted the requisite materials showing that it made

bonafide efforts to secure coal linkage from SECL as envisaged at the project

planning stage, along with the letter dated 13.01.2014. Lanco submits that

since 07.05.2011 when Lanco commenced power supply to PTC for onward

supply to HPPC, there have been frequent downward revisions in the supply of

linkage coal by SECL. Lanco inspite of financial hardships had tried its best to

operate its Unit-II and supply power to PTC for onward supply to HPPC by

procuring the ever increasing balance requirement of coal from alternate

sources (where the cost of coal was at least 3 to 4 times higher than the cost of

linkage coal) without realization of a just and equitable tariff which was not

even meeting its generation cost. It is an admitted position that Lanco was

facing severe hardship on account of the increasing burden due to coal costs

206 | P a g e

(in view of the reduced quantities of coal being supplied by the government

undertakings in light of the New Coal Distribution Policy). It is submitted that

the coal linkage from the SECL to Lanco had decreased from what was

originally envisaged with the SECL i.e. 100% linkage coal which is evident

from the following:

a) Letter of Assurance dated 18.09.2006 issued by SECL

guaranteeing coal supply to the extent of 1.445 MTPA;

b) MoU dated 15.03.2010 with SECL for the period 2009-2010

for coal supply of an annual quantity of 18 lakh tons;

c) Letter dated 11.06.2010 by the Ministry of Power directing

Lanco to procure 3 lakh tons of imported coal.

d) MoU dated 24.07.2010 for the period 2010-2011 for coal

supply of an annual quantity of 13 lakh tons with SECL;

e) Minutes dated 18.04.2011 of SLC, Ministry of Coal envisaging

supply of only 50% of domestic coal.

f) MoU dated 30.08.2011 for the year 2011-2012 for coal supply

of an annual quantity of 9.4 lakh tons

g) Letter dated 10.07.2012 from SECL by which SECL had

reduced the coal supply to 91% of 0.94 MTPA (i.e. 71,283 per

month).

Copy of the Letter of Assurance dated 18.09.2006, MoU dated 15.03.2010,

MoU dated 24.07.2010, MoU dated 30.08.2011, Letter dated 11.06.2010 &

Minutes dated 18.04.2011 of SLC have already been submitted by Lanco vide

its tariff petition 12.01.2012 before this Hon’ble Commission in CASE NO:

HERC/PRO – 1 OF 2012 and the same are already on record at page nos. 224-

250 of the tariff petition dated 12.01.2012.

Copy of the letter dated 10.07.2012 from SECL have already been submitted by

Lanco vide its reply dated 19.07.2012 to the objection of HPPC before this

207 | P a g e

Hon’ble Commission in CASE NO: HERC/PRO – 1 OF 2012 and the same is

already on record as Annexure-G of the reply dated 19.07.2012 of Lanco.

As a matter of fact, there was no coal supply during the period from May 2012

to June 2012 and the coal allocation vide SECL letter dated 10.7.2012 was

further reduced to an annual quantity equivalent to 0.86 million tons per

annum (MTPA) from 0.94 MTPA. It is further submitted that, the coal supply

was further reduced by SECL to 46216 metric tonnes per month (equivalent to

0.55 MTPA) vide letter dated 28.09.2012. The month wise supply of Linkage

Coal from SECL was as under:

Month

Linkage Coal

Supplied from

SECL (in MT)

Coal

Requirement

for 100% PLF

(in MT)

@3300

kCal/kg

Supplied Coal

Sufficient for %

PLF

Weighted

Average GCV

(Kcal/Kg)

May-11 0 1,61,719 0% 3146

Jun-11 0 1,56,502 0% 3273

Jul-11 0 1,61,719 0% 3127

Aug-11 0 1,61,719 0% 3295

Sep-11 59,169 1,56,502 38% 3,348

Oct-11 76,926 1,61,719 48% 3,132

Nov-11 72,421 1,56,502 46% 3,321

Dec-11 88,680 1,61,719 55% 3,354

Jan-12 76,780 1,61,719 47% 3,487

Feb-12 74,172 1,51,285 49% 3,411

Mar-12 76,648 1,61,719 47% 3,350

Apr-12 74,601 1,56,502 48% 3,181

May-12 3,800 1,61,719 2% 3,265

Jun-12 0 1,56,502 0% 0

Jul-12 66,090 1,61,719 41% 2,952

Aug-12 63,847 1,61,719 39% 3,176

Sep-12 0 1,56,502 0% 3167

Oct-12 39,739 1,61,719 25% 2,976

Nov-12 44,809 1,56,502 29% 3,023

Dec-12 43,999 1,61,719 27% 2,929

208 | P a g e

Jan-13 44,439 1,61,719 27% 3,270

Feb-13 41,151 1,46,069 28% 3,581

Mar-13 39,961 1,61,719 25% 3,421

Total/

Average 9,87,232 36,56,934 27% 3,256

It is further relevant to submit that the cost of imported coal is about five times

the cost of linkage coal after proportionally adjusting the benefit of higher

GCV. That in the absence of the 100% linkage coal Lanco had to resort to

procurement of the imported coal and therefore Lanco is entitled to actual cost

incurred in procuring coal for generating the power at Unit-II.

70. The contents of para no. 70 (wrongly number as para 66) are denied

being wrong, incorrect, false, baseless and misleading. It is wrong and denied

that the claim of Lanco for the project cost needs to be rejected. It is wrong

and denied that Lanco has concealed any fact from this Hon’ble Commission

as alleged or otherwise. It is wrong and denied that Lanco has not approached

this Hon’ble Commission in a clean and transparent manner as alleged or

otherwise. It is wrong and denied that any adverse inference needs to be drawn

against Lanco as alleged or otherwise. It is wrong and denied that there should

not be any change in the project cost as determined by the Hon’ble Commission

in the earlier Order dated 17.10.2012 as alleged or otherwise.

In view of the above, it is submitted that the objections filed on behalf of HPPC

are frivolous, baseless and meritless.

The Petitioner, as directed by the Commission in the hearing held on

19.09.2014, submitted as under:

209 | P a g e

a) Use of Rotor of Unit-II in Unit-I as mentioned in the Lender’s

Engineer report regarding cost overrun dated 23.04.2010

The scheduled date of commissioning of Unit-II of Lanco was 15.09.2009.

Accordingly, the scheduled date for supply of Generator was 23.08.2008 and

the scheduled date of start of erection was 15.10.2008 and it was to be

completed by 30.04.2009. The scheduled date of start of supply of

connecting piping, heaters & valves was 12.08.2008, completion of supply

of the same was 04.10.2008 and erection of piping was scheduled from

19.11.2008 to 25.05.2009 to achieve steam blowing completion by

25.06.2009. Thus, the original schedule of generator erection was starting

from 15.10.2008 and was to be completed by 30.04.2009.

It is an admitted position that there was a powerful earth quake in China of

magnitude 7.8 on Richter scale on 12.05.2008. Consequently there was

delay in delivery of above said items and the same had been communicated

by Original Equipment Manufacturer (“OEM”) to Lanco. There was an

overall delay of 5 months in supply of connecting pipes, valves etc and

missing/damaged parts such as LP Diaphragm, HP –IP diaphragm etc. in

shipping. This 5 month delay in supply of connecting pipes, valves and

missing/damaged parts resulted in delay in start of erection of respective

systems. Accordingly, the supply of the above items was commenced by the

OEM and thereafter in April 2009, erection of the said items including HP-

210 | P a g e

IP diaphragms commenced, and was completed by November 2009 and

steam blowing was completed by December 2009.

It is also an admitted position that the Govt. of India vide its notification

dated 08.09.2009 and letter dated 25.9.2009 from Ministry of Home Affairs

introduced New and Specific Visa regime for foreign personnel coming to

India for execution of projects/contracts which restricted their deployment

for execution of the Project. All the Chinese engineers of OEM left the

project site of Unit-II of Lanco in September/October, 2009 and resumed

back in February, 2010 which added to the delay of 5 more months in

commissioning the Unit-II even after receipt of the materials.

On 31.01.2009, rotor of Unit-I of Lanco failed during its synchronization.

Accordingly, rotor of Unit-I was sent back to OEM, China in March, 2009.

As due to the factors i.e. earthquake in China and visa issues, the overall

construction and erection activities of Unit-II got delayed, the rotor of Unit-

II was used in Unit-I only for the month of April 2009 and Unit-I was

synchronised on 01.05.2009. At that time, Unit-II Turbine Generator

erection activities had just started after March 2009 after the effect of earth

quake in China had ceased and as per the project construction status of Unit-

II, generator rotor was not required to be used immediately and it was

expected to be used only after August 2009.

211 | P a g e

The Generator rotor of Unit-I for use in Unit-II was dispatched from China

on 04.06.2009 well in advance of its requirement for erection at site. I say

that there was delay in receipt of connecting pipes, valves and

missing/damaged parts as stated hereinabove.

The delay in commissioning of Unit-II due to delay in supply of connecting

pipes can be confirmed from the fact that the steam blowing completion as

per Original Schedule was 25.06.2009 which was delayed by around 6

months and was actually completed on 27.12.2009. That the steam blowing

process is directly related to supply and erection of piping and is in no way

connected with readiness of generator. Also it is reiterated that there was

further delay due to Visa issue after receipt of the materials. However the

turbine generator was ready for barring gear before completion of steam

system for steam blowing.

The mention of the use of Unit-II rotor in Unit-I in the lender’s engineer

report regarding cost overrun dated 23.04.2010 is general is nature. It is in

addition to the problems faced by the Project. It is important to mention that

the said lender’s engineer report regarding cost overrun dated 23.04.2010

does not indicate any specific delay attributable on account of the use of

rotor of Unit-II in Unit-I. This is for the reason that the said period overlaps

with the overall delay in the project on account of the above Force Majeure

212 | P a g e

events namely Earth Quake in China and Visa issues of Chinese workers

which were beyond the reasonable control of Lanco. This is clear from the

facts narrated above. Thus the use of rotor of Unit-II in Unit-I did not

contribute in any delay.

The final cost overrun approval was done by the Lender’s engineer report

dated 23.04.2010 and after the said approval no further approval was done

by the Lender’s Engineer. The Lender’s report regarding cost overrun

approval dated 23.04.2010 is already on record.

b) Separate Coal supplies for Unit-I & Unit-II

Lanco had signed a separate Coal Supply Agreement dated 25.06.2008 with

South Eastern Coalfields Ltd (SECL), Bilaspur for its Unit-I. As far as Unit-

II is concerned, Lanco had signed an MoU with SECL on 24.07.2010 for

supply of power to PTC for onward supply to Haryana.

The supply of coal under the above different arrangements for Unit-I and

Unit-II, on monthly basis and as per the Railway norms, Lanco had to

request for railway rake allotment Unit wise to SECL in the prescribed

format for approval, which Lanco used to submit Unit wise. SECL supplied

213 | P a g e

coal through rakes with Unit reference and Railway Receipt (RR) &

Invoices were raised separately for each of the Units. Therefore, say that the

month wise quantum of coal and its amount was separately accounted for

Unit-I and Unit-II.

During the course of hearing on 19.09.2014 Lanco was directed by this

Commission to furnish details in relation to capital costs of various projects

commissioned during the period 2007-2013, which have been approved by

various Appropriate Commissions. Lanco has prepared a chart giving

various relevant details in relation to capital costs of various projects

commissioned during the period 2007-2013. The said chart is prepared on

the basis of the Orders passed by various commissions (as mentioned in the

chart). The said Orders are available on the website of the respective

commissions. The said chart clearly shows that the capital cost claimed by

Lanco is lesser than the capital costs for other projects approved by the

various Commissions.

In the hearing held on 19.09.2014 the Respondent No.2 i.e. HPPC as a part

of its written submission filed a chart allegedly comparing the common

facilities of Unit-I & II on one hand and Unit-III & IV on the other as well

as comparing the cost of several other thermal power plants with that of

Lanco. The said chart handed over by HPPC is a mere repetition of

214 | P a g e

statements made by HPPC in its affidavit of objection dated 08.09.2014,

which have been duly responded by Lanco in its reply dated 17.09.2014.

7.0 Commission’s Analysis & Order:-

7.1 The Commission, while passing this Order, has taken into

account all the pleadings, written as well as oral, of the parties as well

as the report submitted by E&Y including addendum, outcome of the

site visit, subsequent clarifications furnished by E&Y in response to

various queries of the Commission, reply dated 30.10.2014 filed by

LAPL to furnish information sought vide letter dated 22.10.2014 by

the Commission, documents /information furnished by LAPL, PTC, and

HPGCL consequent to Commission’s interim Order dated 15.12.2014

and all other documents/data/information submitted by the

Petitioner/Respondent’s and on the record of the Commission.

7.2 As already stated, the Commission had appointed independent

consultants, M/S E&Y on 09.06.2014 with the consent of both the

parties to (i) review the capital cost (ii) ascertain impact due to IDC (iii)

identification and cost allocation of common assets (iv) ascertain land

acquisition cost (v) estimation of cost of coal and (vi) determine

surplus generated from infirm power in respect of Unit-II of LAPL. The

report was submitted by M/S E&Y on 08.07.2014. Subsequently E&Y

also submitted an addendum to the report and further, thereafter,

furnished clarifications to various queries of the Commission as

sought vide e-mail dated 31.10.2014 and note to the clarifications

furnished in response to the additional queries of the Commission.

215 | P a g e

7.3 The Commission notes that HPPC had filed preliminary

objections on the report dated 8th July, 2014 of E&Y. In brief, HPPC

had raised the issues of the Interrogatory/questionnaire submitted by

them not taken into account by E&Y, upteem number of disclaimers in

the said report, no independent cost verification done by E&Y etc. The

Commission had considered all the issues raised by the HPPC and

passed an Order dated 28.07.2014. Thus the issues that survived were

conflict of interest of E&Y and site visit. On this issue the Commission

observes that E&Y was appointed after obtaining confirmation from

both LAPL as well as HPPC during the meeting held on 20th May 2014

by the Commission wherein the Chief Engineer/HPPC, DY. CEO LAPL

and representatives of E&Y were present. However, to remove any

doubt on the issue of conflict of interest, E&Y was directed to file an

affidavit regarding the same. Accordingly, E&Y filed an affidavit dated

25th August, 2014 stating as under:

“I hereby declare to the best of my knowledge that EY LLP had not conflict of interest with Lanco Amarkantak Power Limited at the time of signing the contract with the Haryana Electricity Regulatory Commission i.e. on 9th June, 2014, in a manner so as to affect the independence of EY LLP in relation to performing services mentioned in the contract dated 09th June, 2014 with Haryana Electricity Regulatory Commission”. In this regard the Commission observes that E&Y and for that matter

any big consultancy firm may have handled some business/services

for a firm for consideration in the past but once all such transactions

216 | P a g e

are closed, there do not seem any justification to apprehend

existence of any conflict of interest. It is evident from the affidavit

now submitted by E&Y that that EY LLP had no conflict of interest with

Lanco Amarkantak Power Limited at the time of signing the contract

with the Haryana Electricity Regulatory Commission i.e. on 9th June,

2014.

7.4 In addition to the above E&Y submitted addendum to their

report as well as undertook site visit and submitted a report on the

same. Further, as already stated, E&Y also replied to various queries

of the Commission in respect of capital cost, coal cost etc made vide

e-mail dated 31.10.2014 and note to the clarifications furnished in

response to the additional queries of the Commission. In view of

above and to address the apprehension of HPPC in this regard, the

Commission would like to make it very clear that report submitted by

E&Y has been just another input for determination of tariff amongst a

large number of inputs received in the Commission in the form of

pleadings (both written & oral) in a number of hearings held in the

present case. Consequently, the Commission was bound to apply its

own mind including prudence check to all the claims of LAPL and

records available in the Commission rather than base its judgment

solely on the report submitted by E&Y. Further the Commission did

satisfy itself in the hearing held on 28.07.2014 that E&Y carried out

the assignment in accordance with the scope of work as per the

contract and further directed E&Y to submit an addendum in respect

217 | P a g e

whatever doubts/quarries that still remained as well as to undertake

site visit which was complied with by E&Y as already stated above.

7.5 Further, midway through the proceedings, HPPC submitted that

they are filing a second appeal before the Hon’ble Supreme Court

against the Order of Hon,ble APTEL dated 03.01.2014, in pursuance of

which the present Petition for re-determination of tariff has been filed

by LAPL. Considering the fact that filing an appeal is a statutory right

of the party but until any such appeal is admitted by a court of

competent jurisdiction and stay granted there is no legal embargo on

this Commission to proceed with the present case, the Commission

continued with the proceedings. Moreover, in a number of

proceedings/hearings held in the present case prior to that, HPPC

never mentioned a word about the intended second appeal or its

status thereto. In their submission in pursuance of Commission’s

interim Order dated 15.12.2014, HPPC again submitted that have filed

an appeal against the judgment dated 03.01.2014 of the Hon’ble

APTEL before the Hon’ble Supreme Court, being Civil Appeal No. 3800

of 2014 and that HPPC has also filed an application for interim Orders

on the said Civil Appeal and further that notice on interim application

and Civil Appeal has been issued by Hon’ble Supreme Court to LAPL

and others and matter is pending. As already stated Commission is

not estopped from proceeding in the matter/passing Order in view

thereof.

218 | P a g e

In view of the above discussions, the Commission finds no merit in the

preliminary objections of HPPC with regard to the report submitted by

E&Y and shall now proceed to examine the case on merit.

7.6 Before proceeding further, the Commission observes that the

time granted by the Hon’ble APTEL for passing the Order in the

present case was two months from the date of communication of the

said judgment. However, due to complexity of the case and disputes

raised by the HPPC on the details/data provided by LAPL for re-

determination of tariff in the present case, the Commission sought

some more time from the Hon’ble APTEL. The Hon’ble APTEL was

pleased to grant time till 25.06.2014. However, due to the need

subsequently felt by the Commission for independent verification of

the data/details, which was got done by appointing independent

consultant M/S E&Y, site visit as well as adjournments sought by the

parties, the matter got further delayed beyond the extended time

allowed to the Commission by the Hon’ble APTEL. It was, however,

essential for the Commission to first satisfy itself regarding the

authencity of the voluminous data/details running into several

hundred pages filed by the parties which formed the basis for tariff

determination and then only proceed further to avoid any

factual/computational error and further litigation, hence the delay.

Further, delay was also caused due to insufficient data furnished by

LAPL in their different fillings and certain other inconsistencies which

219 | P a g e

had to be got clarified/ascertained by the Commission before taking

up determination of tariff in the present case.

7.7 The Commission observes that as per Hon’ble APTEL’s Order

dated 03.01.2014, the generation tariff in the present case has to be

determined as under:-

“The interim tariff to be determined by the State Commission as per

the Order of the Hon’ble Supreme Court dated 16.11.2011 has to be in

accordance with the State Commission’s own tariff Regulations of

2008. However, where no specific operational or financial norms have

been specified in the State Commission’s Tariff Regulations, the

provisions of Central Commission’s Regulations of 2009 would be

considered for such parameters.

“The State Commission has to re-determine the interim tariff as per

the directions given in this judgment, pending disposal of the Appeal

before the Hon’ble Supreme Court”.

From the above it is evident that the norms to be reckoned for

determination of generation tariff has to be HERC Regulations, 2008

and where no norms have been specified in the HERC’s Tariff

Regulations then CERC Regulations, 2009 can be based upon.

7.8 The Commission, before proceeding further, would also like to

record certain facts which emerged after the Commission examined

various data/information furnished by LAPL on 30.10.2014 in

220 | P a g e

response to Commission letter dated 22.10.2014. It came out from

the information/data supplied by LAPL on 30.10.2014 that LAPL had

not conducted trial run to demonstrate maximum continuous rating

(MCR) before declaring COD of Unit-2 on 07.05.2011. This information

was held back by the Petitioner LAPL from the Commission until it was

specifically asked for by the Commission. The Commission expresses

its displeasure on the conduct of Petitioner LAPL in this regard.

This above fact first came to light after LAPL was directed vide

Commission letter dated 22.10.2014, besides furnishing other

information/data, to supply a copy of the trial run test (MCR)

conducted before declaration of COD of Unit-2. In reply to this, LAPL,

vide information furnished through affidavit filed on 30.10.2014,

submitted that “the trial run test (MCR) could not be conducted before

the declaration of COD of Unit-2 due to non-availability of

transmission facility; however the Unit running on continuous basis on

available capacity has been demonstrated before COD”. The reply

furnished by LAPL on this point is reproduced below:-

“The scheduling of power in terms of APTEL interim Order dated

23.03.2011 in Appeal No. 15/2011 to PTC for onward supply to the

Haryana Dicoms was commenced from 07.05.2011 i.e. the date from

which the scheduling was allowed by WRLDC, even though the long

term opened access (LTOA) for Unit-2 was not operationalized. The

responsibility of arranging LTOA for both Units was with PTC as it was

221 | P a g e

PTC who was the applicant for LTOA and had signed BPTA with CTU.

The power was being evacuated through the interim LILO

arrangement and based on grid/ transmission constraints. In

accordance with the CERC Tariff Regulations, 2009 which define the

date of commercial operation (COD) as the date from which the

scheduling process was fully implemented as per the Indian Electricity

Grid Code (IEGC), LAPL had declared 07.05.2011 as the commercial

operation date (COD) of Unit 2 as from that date the scheduling of

power to the beneficiaries had commenced. The trial run test (MCR)

could not be conducted before the declaration of COD of Unit 2 due to

non- availability of transmission facility. However the Unit running on

continuous basis on available capacity has been demonstrated before

COD. Further LAPL had considered the revenues generated from sale

of infirm power up to 06.05.2011 which have been deducted from the

capital cost for ascertaining the completed capital cost of the project

for determination of tariff”

Further, from the perusal of the letters exchanged by LAPL with

SECL, MoP, CEA regarding coal allocation (copies of which were

supplied by LAPL along with the affidavit dated 30.10.2014), it was

noted that whereas in the application dated 13.01.2014 filed by LAPL

with the Commission for tariff determination, the COD of Unit-2 had

been given as 07.05.2011, in a letter dated 15.12.2011 written by

LAPL to MoP LAPL expressed its inability to commission the Unit – 2

even up to 31.12.2011 and requested MoP to recommend to the

222 | P a g e

Ministry of Coal to ask SECL to continue coal supply beyond

31.12.2011 without insisting for compliance of achievement of COD

up to 31.12.2011. The relevant part of the letter is reproduced

below:-

“…. further we apprehend that in the pretext of not meeting the

special milestone related to achievement of COD by 31st December,

2011, SECL may stop supply of coal beyond 31st December, 2011 to

LAPL Unit – 2. …… as you are already aware, we have commissioned

the Unit - 2 of our project on 25th March, 2010 itself and due to

reasons beyond our control we could not declare COD”.

Besides in a letter dated 17.05.2012 of SECL addressed to Coal

India Limited, (CIL), it had been stated as under:-

“At present, supplies to above Unit are being continued under MOU.

However, since COD was not declared by the above Unit by

31.12.2011, the matter was referred by CIL to MOC and subsequently

deliberated in the SLC (LT) meeting held on 14.02.2012. Relevant

extracts of minutes of above SLC (LT) meeting…”

From this correspondence, it was absolutely clear that LAPL had not

declared COD of Unit-2 even until December, 2011.

In this context it would be relevant to refer to the definition of

COD as given in the HERC Tariff Regulations, 2008 and CERC Tariff

Regulations of 2009 which are reproduced below:-

Definition of COD as per HERC Tariff Regulations.

3(j) ‘Date of Commercial Operation’ (COD) In relation to a Unit mean

the date declared by the generator after demonstrating the Maximum

223 | P a g e

Continuous Rating (MCR) or Installed Capacity through a successful

trial run after notice to the beneficiaries and in relation to the

generating station the date of commercial operation means the date

of commercial operation of the last Unit or block of the generating

station;

Definition of COD as per CERC Tariff Regulations.

3(12) ‘date of commercial operation’ or ‘COD’ means (a) In relation to a Unit or block of the thermal generating station,

the date declared by the generation company after demonstrating the maximum continuons rating (MCR) or the installed capacity (CI) through a successful trial run after notice to the beneficiaries, from 0000 hour of which scheduling process as per the Indian Electricity Grid Code (IEGC) is fully implemented, and in relation to the generation station as a whole, the date of commercial operation of the last Unit or block of the generating station;

From the definitions of COD , it is evident that before

declaration of COD of a thermal generation station or Unit, it is

mandatory for the generation company to demonstrate continuous

maximum rating (MCR) of the station/Unit by conducting a successful

trial run with notice to the beneficiaries. But LAPL, as stated above

and as categorically admitted by them in their Affidavit dated

30.10.2014, had not conducted trial run of Unit 2 to demonstrate

MCR before declaration of COD. Thus LAPL had not complied with

the provisions regarding declaration of COD of neither HERC Tariff

Regulations, 2008 nor CERC Regulations of 2009 before declaration

of COD of Unit 2. In the given situation the issue which needed to be

decided by the Commission before preceding for tariff determination

was, whether, in view of factual position which had emerged as

224 | P a g e

stated above, COD of 07.05.2011 of Unit-2 declared by LAPL (without

conducting trial run) and stated as such in the application dated

13.01.2014 could be considered for Tariff determination or not?

The Commission devoted considerable time deliberating on this

issue as it was germane to the issue of the process of tariff

determination. LAPL on its part had submitted in their Affidavit dated

30.10.2014 that since the scheduling of power from Unit-2, in terms

of APTEL interim Order dated 23.03.2011, to PTC for onwards supply

to Haryana Discoms had commenced from 07.05.2011 i.e. the date

from which scheduling of power from Unit 2 was allowed by WRLDC,

LAPL, in line with CERC Tariff regulations which define the date of

commercial operation as the date from which the scheduling process

was fully implemented as per IEGC, had declared 07.05.2011 as the

COD of Unit- 2. This contention of LAPL was, however, without any

merit and was a misinterpretation of CERC Regulations, 2009.

Commission observed that in the first instance WRLDC should not

have allowed scheduling of power from Unit-2 without ascertaining

that LAPL has declared COD of Unit-2 after following the due

procedure as per CERC Regulations. Secondly, it was also incumbent

on the part of beneficiaries i.e. PTC and Haryana Discoms to

ascertain, before agreeing to schedule power from Unit-2 w.e.f.

07.05.2011, that LAPL had conducted successful trial run before

declaring COD. Commission further observed that had this fact, that

LAPL had not conducted trial run before declaration of COD, been

225 | P a g e

brought to the notice of the Commission in the application dated

13.01.2014 by LAPL or by Haryana Discoms/ LAPL in the initial stage

of the case, the commission could have considered to refer the

matter back to Hon’ble APTEL for directions. But at that point of time

(i.e. after it was disclosed by LAPL vide their filing dated 30.10.2014

that it had not conducted trial run before declaration of COD) when

the case had already been delayed due to the reasons earlier stated

in this Order, it would not had been appropriate for the Commission

to refer the matter back to Hon’ble APTEL at that stage. The point

was that the Commission had been directed to determine the Tariff

as per HERC Tariff Regulations and the first step for determination of

tariff under these Regulations was to determine the completed

capital cost on COD. Further the tariff determined under these

Regulations would be applicable from the date of commercial

operation (COD) onwards. So if COD of 07.05.2011 was not accepted,

the tariff determination process got stalled.

7.9 To have the views/submissions of Respondents PTC and HPPC

on the issue of COD as also on other information/clarifications

furnished by LAPL vide Affidavit dated 30.10.2014, copies of the

same were supplied to PTC and HPPC and hearing was held on

15.12.2014 which was attended by all the parties. Further based on

submission/arguments made in the hearing, Commission, vide

interim Order dated 15.12.22014, directed LAPL to submitted the

following documents/information.

226 | P a g e

i) Documentary evidence to establish the fact that LAPL

Unit-2 was capable of generating at the rated capacity.

ii) Performance Guarantee Test conducted by the EPC

contractor and details of LDs/penalties imposed if any.

iii) Documentary evidence in support of request(s) made for

making the Grid available for trial-run post

synchronization and response/replies received.

From perusal of the reply furnished by LAPL on the above points vide

their filing dated 19.12.2014, the Commission observed as under:-

a) Unit-2 was run continuously for 3 days from 11.08.2010 to

13.08.2010 when Unit-1 was stated to be under

shutdown. From the slot wise (15 minute) energy

generation data enclosed, it is seen that Unit was run at

an average PLF of 93.40% and the generation varied from

260 MW (approx.) to 294.50 MW (approx.). As stated by

LAPL, due to non-availability of LTOA, which was PTC’s

responsibility as per PPA, Unit-2 could not achieve full

capacity due to transmission constraints.

227 | P a g e

b) LAPL conducted Preliminary Acceptance Test for 7 days

continuous running during the period 04.10.2010 to

10.10.2010 which was witnessed by Lender’s engineer,

the EPC contractor and Lanco but PTC and beneficiaries

were not informed. From the copy of the load record and

CRT data for 7 days furnished by LAPL, it is seen that there

were large dips in the generation during 3 days as visible

from the load curve during 7 days running. The maximum

load touched is 297.296 MW on 04.10.2014. The Unit did

not touch the rated capacity of 300 MW even once during

these seven days.

c) Performance Guarantee Test was conducted from

04.01.2012 to 07.01. 2012 when Unit-1 was on shutdown.

Copy of Performance test report of Steam Generator and

Steam Turbine has been enclosed wherein it has been

shown that Steam Generator and Steam Turbine met the

design values during the test but test results in respect of

performance test on the turbo generator have not been

furnished. LAPL has stated that “based on above test on

achieving guaranteed performance and due to non-

availability of power evacuation capacity which was

beyond EPC contractor’s scope, no LD /penalty was

imposed on the EPC contractor”.

228 | P a g e

d) LAPL has again reiterated that (MCR) test could not be

conducted due to non-availability of downstream

transmission facilities which prevented simultaneously

running of both Units (2X300 MW) at peak load and in the

light of said circumstances, Lanco considered the date

w.e.f. which scheduling of power of Unit-2 was allowed by

WRLDC i.e. 07.05.2011 as the COD which is accepted by all

parties.

e) In response to directive of the Commission at (iii) above,

LAPL has stated that non-availability of downstream

transmission facilities had caused frequent grid

restrictions which prevented simultaneous running of

both the Units on peak load and therefore there was no

occasion for Lanco to have made the requests to

appropriate authorities like WRLDC as it was WRLDC itself

which was imposing restrictions on generation.

The Commission has perused the above submissions

(supra) and is not inclined to accept the arguments advanced by

LAPL, particularly in view of submissions made by WRLDC in the

proceedings before CERC in case of Petition no. 289 and 290 of

2010, as recorded in CERC Order dated 09.02.2014 (referred to in

the later part of this Order) wherein WRLDC stated that “considering

the delay in Commissioning schedule of WR pooling station near

229 | P a g e

Sipat, a System Protection Scheme (SPS) has been put in operation

progressively for both Units of LPL starting from 01.09.2010 to

ensure grid security as well as evacuation of power from both Units

of LPL” It is therefore apparent that it was only because of lack of

serious efforts on the part of LAPL that MCR test on Unit-2 could not

be conducted by LAPpL before declaration of COD.

7.10 Prior to the hearing held on 15.12.2014, the Commission

vide letter dated 01.12.2014, had asked LAPL to submit its reply

/clarification on the issue of ‘Declaration of COD of the project by

lanco viz-a-viz HERC Tariff Regulations’, in response to which LAPL

has submitted that “at the relevant time when COD for Unit-2

occurred, it was nobody’s case that HERC Tariff Regulations, 2008

would apply. It was only pursuant to APTEL’s judgment dated

03.01.014, it was decided that interim tariff of Unit-2 shall be

determined as per HERC Tariff Regulations, 2008. Accordingly, the

COD i.e. 07.05.2011 ought to be taken as the same for determination

of interim tariff as per the Hon’ble Supreme Court Order dated

16.12.2011 and as per the stand of the parties. It is significant to

state that no dispute has ever been raised by HPGCL or PTC in respect

of COD, which has also been recognized by the CEA”.

7.11 PTC, in respect of COD, has stated in their filing dated

30.12.2014 in compliance of Commission’s interim Order dated

15.12.2014, that PTC has not accepted COD of 07.05.2012 of Unit-2

230 | P a g e

as no evidence of any Commissioning or load test has been provided

by LAPL to PTC.

7.12 HPPC in their filing dated 02.01.2015, in response to the

interim Order dated 15.12.2014, has also stated that LAPL has not

undertaken proper performance test in regard to rated capacity of

the Unit, in particularly, commissioning test of running the Unit

continuously for a period of 72 hours to the extent of 95% of the

contracted capacity.

From the position brought out above it is apparent that irrespective

of the reasons the admitted position is that LAPL has not conducted

the trial run to demonstrate Maximum Continuous Rating of the Unit

before declaration of COD on 07.05.2011. This fact was first admitted

by LAPL in their submissions made vide affidavit dated 30.10.2014

and again vide their filing dated 19.12.22014. The main reason

advanced by LAPL is that trial run could not be conducted due to

non-operationalization of LTOA. But now that LTOA for Unit-2 has

been stated to be operationalized w.e.f. 01.01.2015, it would be

desirable as also essential that LAPL conducts trial run to

demonstrate MCR of 300 MW of Unit-2, to claim fixed charges as

determined vide this Order.

7.13 The commission, after careful consideration of

submissions of all the parties on the issue of COD, the material on

231 | P a g e

record of the Commission and all other aspects, has decided to

proceed with determination of tariff considering 07.05.2011 as the

commercial operation date (COD) of Unit-2 for the purpose of tariff

determination keeping in view that WRLDC had allowed scheduling

of power from Unit-2 w.e.f. 07.05.2011 and further Haryana Discom

had also started scheduling power from this Unit w.e.f. 07.05.2011

although in the opinion of the commission LAPL had not complied

with the provisions of relevant Regulations before declaration of

COD. The Commission at the same time directs LAPL to conduct trial

run of Unit-2 to demonstrate its Maximum Continuous Rating

(MCR) of 300 MW as per the Regulations within three months from

the date of this Order and in the event of failure of LAPL to conduct

MCR test within this period, the matter shall be brought before this

Commission by HPPC/PTC for taking appropriate action in the

matter.

The Commission has, accordingly, proceeded to determine

various cost components for determination of generation tariff in the

present case considering COD of LAPL Unit-2 as 07.05.2011.

8.0 Capital Cost:-

8.1 The Commission in its earlier Order dated 17.10.2012 had

approved the capital cost as Rs. 1007.731 cr. i.e original capital cost of

Rs. 1340.041 cr. estimated by PFC as per Detailed Project Report

232 | P a g e

(DPR) less Rs. 332.31 cr., the net earning by LAPL on account of sale of

infirm power from the date of synchronization to COD of UNIT-2 of

LAPL. The Hon’ble APPTEL in its Order dated 03.01.2014 with regard

to capital cost had observed as under:-

“61. The State Commission has deviated from its own Regulations for determination of the capital cost based on the actual expenditure as no audited account was made available for Unit-2 from which power was contracted to Haryana. Further, there was nothing on record to establish that the Appellant exercised sufficient prudence to efficiently execute the Project within the cost and time line as originally envisaged. 62. Of course, we agree with the Haryana Power (R2) that the

State Commission has to apply prudence check in determining the capital cost based on the audited accounts. We find from the impugned Order that adequate materials were not available before the State Commission to verify the capital cost incurred on Unit No.2 of the Appellant and to examine that the time and cost overrun was not due to reasons attributable to the Appellant and in the absence of the requisite materials the State Commission approved the capital cost as per the Detailed Project Report. 63. Therefore, we direct the Appellant to submit the necessary details of capital cost for Unit No.2 including apportionment of cost of common facilities and detailed reasons for time and cost overrun of the Project before the State Commission to enable the State Commission to apply prudence check and determine the capital cost according to its own Tariff Regulations. The State Commission in turn shall determine the capital cost as per its Regulations after the requisite details are furnished by the Appellant”.

The Commission, therefore, is required to determine the capital

cost of Unit-2 of LAPL as per HERC Tariff Regulations, 2008 i.e starting

from competed capital cost on COD claimed by LAPL, Commission

should apply prudence check keeping in view the reasons of time and

cost overrun submitted by LAPL and reasonableness of various cost

components to arrive at the capital cost that can be considered for

tariff determination. Regulation 12 and 14 of HERC Tariff Regulations

233 | P a g e

regarding capital cost and sale of infirm power as per which capital

cost is to be determined are reproduced below:-

“12 . Capital Cost. –

(1) The actual expenditure incurred on the date of completion of the

project shall form the basis for fixation of final tariff. Investments made

prior to 1/04/2008 in the case of the existing generating stations shall be

accepted for reckoning capital cost on the basis of audited accounts. The

final tariff shall be determined based on the capital expenditure allowed

by the Commission and the expenditure actually incurred up to the date

of commercial operation of the generating station and shall include

capitalized initial spares, subject to ceiling norms mentioned below, as a

percentage of plant and equipment cost:

(i) Coal based projects 2.5%

(ii) Gas Turbine/CCGT 4.0%

(2)The admissibility of the capital cost shall be subject to the prudence

check by the Commission. This shall, however, be limited to the

reasonableness of the capital cost, financing structure, interest during

construction, working capital margin, efficient technology and such other

matters. Any benefit from capital restructuring shall be passed on to the

beneficiaries.

Provided that where the power purchase agreement entered into between

the generating company and the beneficiaries provides a ceiling of actual

expenditure, the capital expenditure shall not exceed such ceiling for

determination of tariff;

Provided further that any person intending to establish, operate and

maintain a generating station may make an application before the

Commission for ' in principle' acceptance of the project capital cost and

financing plan before taking up a project through a Petition in

accordance with the procedure specified in the appendix – III to these

regulations, as applicable from time to time. The Petition shall contain

information regarding salient features of the project including capacity,

location, site specific features, fuel, beneficiaries, break up of capital cost

estimates, financial package, schedule of commissioning, reference price

level, estimated completion cost including foreign exchange component, if

234 | P a g e

any, consent of beneficiary licensees to whom the electricity is proposed

to be sold etc.;

Provided also that where the Commission has given ‘in principle’

acceptance to the estimates of project capital cost and financing plan, the

same shall be the guiding factor for applying prudence check on the

actual capital expenditure;

Provided also that in case of the existing generating stations, the capital

cost admitted by the Commission prior to 1.4.2008 shall form the basis

for determination of tariff.

14. Sale of Infirm Power:

Infirm power shall be accounted as Unscheduled Interchange (UI) and

paid for from the State UI pool account at the applicable frequency-

linked UI rates as may be determined by the CERC from time to time. Any

revenue earned by the generating company from sale of infirm power,

shall be taken as reduction in capital cost and shall not be treated as

revenue.”

As already stated the capital cost of Unit-2 of LAPL as

originally estimated by PFC as per DPR was Rs. 1340.041 crores. The

financial closure of Unit-2 was achieved by LAPL on 15.09.2006. The

construction period was estimated to be three years and the

scheduled COD of this Unit was 15.09.2009. But the synchronization

/commissioning of the Unit got delayed. The Unit was synchronized

for the first time on 22.02.2010 and achieved full load on 25.03.2010.

COD of Unit also got subsequently delayed and LAPL finally declared

Unit-2 on commercial operation on 07.05.2011, though without

conducting trial run almost 4 years and 8 months after financial

closure. The delay in COD impacted the capital cost primarily by way

of increase in IDC. The certified capital cost as on COD, as submitted

by LAPL in their Petition for determination of tariff supported with

Auditor’s certificate, is Rs. 1643.17 crores (gross) and Rs. 1331.89

235 | P a g e

crores, net of revenue earned (Rs. 311.28 crores) by LAPL from sale of

infirm power less fuel cost incurred for generation of infirm power

from the date of synchronization to COD. The certified capital cost on

COD as given in Annexure-1 enclosed with Auditor’s certificate

submitted by LAPL is as under:-

Particulars Amount

(Rs. In Crores)

Capital Cost as 31 March 2010 - As per Books (A) 1459.59

Expenses charged to Profit and Loss Account : (B)

Year: 2009-10

Administrative Expenses from 26 March 2010 to 31 March 2010

12.48

Finance Cost from 26 March 2010 to 31 March 2010 1.87

Year: 2010-11

Administrative Expenses 22.68

Other Direct Expenses 13.01

Finance Cost 119.05

Year: 2011-12 (01 April 2011 to 6 May 2011)

Administrative Expenses 1.56

Other Direct Expenses 0.78

Finance Cost 12.15

Total (B) 183.58

Total C=(A+B) 1643.17

Infirm Power: (D)

Year: 2009-10

Sales 1.35

Fuel Expenses (0.60) 0.75

Year: 2010-11

Sales 424.58

Fuel Expenses (142.41) 282.17

Year: 2011-12 (01 April 2011 to 06 May, 2011)

Sales 44.00

Fuel Expenses (15.64) 28.36

Total-Infirm Power (D) 311.28

Capital Cost on 06 May 2011 (C-D) 1,331.89

The following notes given in the Auditor’s certificate for the capital

cost are worth mentioning here.

236 | P a g e

a) Pursuant to the Order dated 03.01.2014 of the Hon’ble

Appellate Tribunal for Electricity, the Company is submitting

further information to Haryana Electricity Regulatory

Commission (HERC) for re-determination of interim tariff for

supply of power from Unit-II of LAPL, this certificate has been

issued at the request of the company for submission to HERC.

b) We have verified the books of account and other relevant

records & documents of M/s Lanco Amarkantak Power Limited

(LAPL), formerly Lanco Power Limited having its Registered

Office at LANCO House, Plot No.04, Software Units Layout,

Hitech City, Madhapur Hyderabad-500081 and Corporate office

at Plot NO. 3978, Udyog Vihar, Phase 3, Gurgaon 122016.

c) The capital cost certified does not include Margin Money

amounting to Rs. 24.22 crores which is part of project cost

appraised and approved by Power Finance Corporation Ltd.

(Lead Financial Institution).

d) The HERC Regulations contemplate that initial spares are

identified and capitalized as fixed assets and such value shall

not exceed 2.5% of the project cost. The value of initial spares is

included in the cost of respective machineries.

237 | P a g e

It need to be noted that certified capital cost does not include margin

money of Rs. 24.22 cr, which was part of project cost appraised and

approved by PFC. However, LAPL, in the claimed capital cost, has

included margin money of Rs. 24.22 cr. If the margin money is

included, the capital cost on COD works out to Rs. 1667.39 cr. and

after netting of the revenue earned from infirm power (less fuel cost),

the capital cost on COD works out to Rs. 1356.11 cr. as under:-

(Rs. Cr.)

i) Certified capital cost on COD 1643.17 ii) Margin money not included in

the certified cost

24.22

Total 1667.39

iii) Less revenue earned from infirm power (less fuel cost)

311.28

iv) Net capital cost on COD 1356.11

Although in the auditor’s certificate Rs. 1459.59 cr. has been

mentioned as the ‘capital cost as on 31.03.2010- As per Book’, in the

hearing held on 15.12.2014, in response to a query, it was informed

by LAPL that Rs. 1459.59 cr. is the capitalized cost as on the date of

synchronization i.e. 25.03.2010. It is observed that in the auditor’s

certificate, it has not been mentioned that the margin money of Rs.

24.22 cr. needs to be included in the capital cost.

238 | P a g e

The details of capitalized cost of Rs. 1459.59 cr.

(as on 25.03.2010) mentioned in the certified cost as per the Auditor’s

certificate are available in the break-up of the capital cost on COD

furnished by LAPL in the form 5-B enclosed with the Petition.

Summary of the same, package- wise is as under: -

Sr. No.

Description Amount (Rs. Millions)

1 Cost of land &development & RR charges including lease rentals

28.94

2 Total main plant and equipment

i) Total Main Plant (TG) 340.25

iI) Total BoP Mech. 114.84

iii) Total BoP Elect. 143.25

iv) C&I Package 14.63

Total Plant & Equipment excluding Taxes & Duties 612.97

Taxes & Duties 79.94

Total Plant & Equipment including Taxes & Duties 692.91

3 Initial Spares -

4 Total Civil Works 337.51

5 Construction & Pre Commissioning expenses

i) Erection Testing & Commissioning 110.75

ii) Insurance (Const.) 4.58

iii) Tools & Plants -

iv) Startup 8.14

v) Total construction & Pre Commissioning expenses 123.47

6 Overheads

Establishment 49.98

Audit & Accounts 1.20

Total overheads 50.10

7 Total excluding IDC & IC 1232.93

8 Total IDC including Finance charges (up to 25.03.2010 226.66

9 Total 1459.59

In brief, the certified capital cost on COD as submitted in the

Petition is Rs. 1667. 39 cr., gross and Rs. 1356.11 cr. net of earnings

239 | P a g e

from sale of infirm power as against Rs. 1340.04 cr. originally

appraised by PFC. There is a time overrun of 1 year and about 8

months. This has resulted into gross cost overrun of Rs. 327.35 cr. But

the net cost overrun after accounting for the earning from infirm

power is Rs. 16.07 cr. (1356.11- 1340.04) only.

The Petitioner has submitted that it is entitled to the actual

expenditure incurred as on the date of completion of the project which

is Rs. 1356.11 cr. to be considered as capital cost for the

determination of tariff as per Regulation 12 of HERC Tariff Regulations,

2012.

Regarding detailed reasons for time and cost overrun of the

project, the Petitioner has submitted as under:-

“LAPL had duly exercised prudence to efficiently execute

the project within the cost and timeline as originally envisaged.

There were unequivocally agreed Force Majeure conditions

that caused delay in commissioning the project. The

commissioning of the Project was delayed due to occurrence of

Force Majeure events which were not within reasonable

control of LAPL and could not be prevented by taking

reasonable care. LAPL had duly informed PTC India Limited

from time to time in this regard.

M/s Dongfang Electric Corporation, China (DEC), was

LAPL’s supplier of main plant equipment and BTG component of

the project. Manufacturing facilities of DEC were severely

damaged due to a powerful earthquake in China on 12.05.2008

and DEC could not supply the machines and equipments and

vis- a- vis the same could not be received by LAPL in time.

240 | P a g e

Due to new Visa Policy enforced by Government of India

in September/October 2009, all the Chinese Engineers of DEC,

who were supervising the erection, testing and commissioning

activities at the project site were forced to leave the country on

or before 31-10-2009 that caused non availability of Chinese

Experts for supervising the erection, testing and commissioning

activities. To ensure warranty and guarantee of the plant and

equipment, alternate arrangement for the work of erection

commissioning was not possible. Due to the said policy, 40

Chinese engineers/executives could not be deployed for a

period of about 4-5 months i.e. from September, 2009 to Feb,

2010 which resulted in delay in erection, testing and

commissioning. LAPL had duly informed PTC India Limited vide

letter dated 28-05-2008 and subsequently submitted a report

vide letter dated 5-12-2008 with respect to aforesaid Force

Majeure events. The above said Force Majeure events were

duly acknowledged and accepted by PTC and PTC accordingly

filed Case no. HERC/PRO -12 dated 13.05.2010 before the

learned Commission.

Due to non-availability of the long term open access

(which was purchaser’s obligation), the testing and

commissioning activities of Unit-2 could not be completed in

time. Though an interim LILO arrangement was made for

connecting Unit-2 to the 400 kV Korba-Sipat transmission line

for evacuation of power, continuous full load operation of the

Unit-2 was not possible in the absence of long term open access

which was the purchaser’s obligation. Due to non-

operationalization of long term open access, the transmission

constraints persisted throughout the period of generation of

infirm power which prevented the continuous full load

operation of Unit-2 and which was beyond the reasonable

241 | P a g e

control of Lanco. During the period up to the COD, (COD was

declared on 07.05.2011 when WRLDC allowed scheduling of

power), the Unit was running intermittently on “as and when

available basis” at part load and generating infirm power.

The Commission duly appreciated and acknowledged

as well as accepted the aforesaid Force Majeure event in its

Order dated 02-02-2011 and held that “Force Majeure Event as

claimed by PTC/LAPL did happen and the same were not

disputed by HPGCL”. Lanco had challenged the said Order dated

02.02.2011 before the Hon’ble Supreme Court but it is a fact on

record that the said finding in the Order dated 02.02.2011 has

not been assailed either by Lanco or HPGCL (HPPC) or for that

matter by PTC.

LAPL lead lender PFC has approved the Project cost

overrun. The reasons for delay in commissioning of the project

of LAPL were reasonable and appropriate which were noted by

the majority judgment dated 09.02.2012 passed by Central

Electricity Regulatory Commission (Para 40 of the judgment)”.

The Respondent HPGCL/HPPC in respect of capital

cost has submitted as under:-

i. In the previous proceedings Lanco admittedly had defaulted in

placing adequate material before the Commission. The Hon’ble

APTEL has directed the Petitioner to submit necessary details of

capital cost of Unit-2 including the apportionment of the cost of

common facilities as well as detailed reasons for the time and cost

overrun to enable the Commission to apply prudent check.

242 | P a g e

Despite specific directions of Hon’ble APTEL , the Petitioner has

not furnished the requisite details relating to capital cost of Unit-2

along with Auditor’s certificate as well as basis for apportionment

of the cost of common facilities. In the absence of same, capital

cost and other tariff elements cannot be effectively determined

by the Commission.

ii. The generating station of Lanco consists of two Units of 300 MW

and two Units of 600 MW each with aggregate capacity of 1920

MW. Respondent have to get power only from Unit-2 of 300 MW

which constitute only 15.62% of total capacity. There are number

of common facilities such as land, service buildings, administrative

buildings, field hostels, residential colonies, sewerage treatment

plant, drainage, air conditioning system etc. which are related to

all the Units and not restricted to Unit-2 alone. Cost of such

facilities to the extent of 15.62% alone can be apportioned to Unit

-2.

iii. Lanco has only apportioned the common facilities amongst Units

1 and 2 without considering the impact of such common facilities

qua Units 3 and 4 of 660 MW each. The apportionment between

Units 1 and 2 is also in an arbitrary manner undertaken at the

whims of Lanco. There is no Auditor’s Certificate verifying the

apportionment or the basis of apportionment.

iv. The Auditor’s certificate dated 12.01.2014 attached to the

Petition is not a proper certificate approving the apportionment

of cost of common facilities in view of number of disclaimers

mentioned in the certificate by auditors.

v. The Commission is fully empowered to and has the statutory

function to undertake the prudent check. Such exercise of powers

by the Commission, notwithstanding any approval of capital cost

by the CEA or by the auditors etc., have been now well settled as

243 | P a g e

held by Hon’ble Supreme Court in case of West Bengal Electricity

Regulatory Commission vs. CESC (2002) 81 SCC 715 and by

Hon’ble APTEL in case of Kerala State Electricity Board vs. Kerala

State Electricity Regulatory Commission, Appeal No. 177 of 2009

dated 13.01.2011.

vi. The prudence check is also required to be undertaken by the

Commission in Order to determine whether any part of the capital

expenditure involve minor assets or assets not relevant for the

generation of electricity. Accordingly, the expenditure being

supported by accounting vouchers for the purpose of the

Companies Act, is not sufficient. The Generating Company is

required to establish to the satisfaction of the Hon’ble

Commission the need for capital expenditure, incurring of such

capital expenditure in a structured manner and the total

expenditure being reasonable and just. The Petitioner was to give

details of sale of power prior to COD pertaining to Unit-2. The

annual accounts of the Petitioner indicate a total sale of Rs

1889.10 Crores during the period 2009-10 to 2010-11. In

addition, there was a sale of infirm power from 1st April 2011 to

6th May 2011 for which details have not been provided. This

includes revenue from infirm power and UI charges from Unit 1

and 2. Admittedly, the Petitioner has accounted for a specified

amount to be adjusted for Unit - 1 in the proceedings before the

Madhya Pradesh Electricity Regulatory Commission. Accordingly,

the balance pertains to Unit - 2. Despite opportunities given, the

Petitioner has not provided the break-up of Rs 1889.10 Crores. In

view of the failure of the Petitioner to provide such details,

adverse inference needs to be drawn against the Petitioner to the

effect that much more than Rs. 311/- Crores proposed by the

Petitioner, needs to be adjusted in the capital expenditure for

revenue from infirm power and UI Charges.

244 | P a g e

vii. In the Order dated 02.02.2011, the Commission while dealing with

the Force Majeure events pleaded by the Petitioner specifically

held that “…….no relief other than extension in time as explicitly

provided in the PSA/ PPA is admissible”.

In view of the above, the Petitioner cannot claim either IDC or

IEDC or any other compensatory payment by way of cost overrun

or time overrun on account of the delay resulting from the alleged

Force Majeure Event of earthquake in China or the Visa Policy of

the Government of India. This issue stands settled and cannot be

re-opened at this stage.

viii. The Petitioner has to either accept the Order dated 2nd October,

2011 (it should be 02.02.2011) in toto wherein the Commission

has considered the China earthquake, Visa issues of the Chinese

Personnel as Force Majeure, mainly in view of the Respondent not

replying to the notice of Force Majeure given by the Petitioner

and at the same time holding that no cost implications will be

there and the Petitioner is entitled only to time overrun. It is not

now open to the Petitioner to seek cost implications. If the

Petitioner wishes to dispute the finding contained in the Order

dated 2nd October, 2011, then the entire claim on Force Majeure

for China Earthquake or Visa issue etc need to be examined on

merits as the Power Purchase Agreement is not applicable and

accordingly the condition of the Respondent disputing the

condition of Force Majeure will not be applicable. In the absence

of a Power Purchase Agreement, the only applicable provision is

Section 56 of the Contract Act which relieves the performance of

the obligation during the period of the Force Majeure. There is no

higher cost implication to the non-affected party. The affected

party gets released of the obligations to perform during the

period of Force Majeure. The China earthquake or the visa

problems cannot be a Force Majeure as it did not affect the

245 | P a g e

Petitioner. It was not impossible for the Petitioner to perform the

obligations through alternate means.

The issue of Force Majeure or section 56 would arise only if the

performance had become impossible and not merely onerous or

difficult or expensive. This proposition is well settled.

ix. A perusal of the documents furnished by the Petitioner show that

the claim of the Petitioner for delay in commissioning is only on

account of Force Majeure event of earthquake in China. The other

reason for delay given in Lender’s Engineer report is diversion of

rotor of Unit-2 for Unit-1 which cannot be ground for claiming

cost overrun for Unit-2. Further allegation of Force Majeure event

of change in visa policy of GOI has been raised by the Petitioner as

an afterthought.

The Respondent has also submitted a comparative analysis with

respect to cost of Ash Handling System, Coal Handling System,

Switch Yard, Railway Siding as submitted by the Petitioner for

Unit- 2 with the cost of corresponding systems of the following

plants.

a) Sagadighi Thermal Power Plant in West Bengal Unit 1&2)

(2x300 MW).

b) Paras Thermal Power Plant (Unit -3 of 250 MW).

c) Parli Thermal Power Plant (Unit -6 of 250 MW).

It has been brought out that the per MW cost for ash handling

system, coal handling system, switch yard and railway siding is much

higher in case of LANCO Unit 1&2 as compared to the corresponding

per MW cost in case of above mentioned plants.

246 | P a g e

LAPL in response to the argument of the Respondent that per

MW cost of ash handling system etc. is higher in case of Unit - 2 as

compared to above plants, submitted that the arbitrary comparison of

the cost of a System/ Equipment with other power plants is not

appropriate as it depends on various factors such as compete scope of

the system, plant layout, make of the equipments, supplier of system,

cost components etc. which vary from plant to plant; What is most

relevant is the total project cost which has an impact on the tariff

passed on to the consumers of the State.

LAPL has submitted that capital cost of Rs. 4.52 crore/ MW of

Unit 2 based on completed capital cost of Rs. 1356.11 crore is quite

reasonable and in support of their contention has furnished the capital

cost of some other plants commissioned during 2007-2010 as

approved by CERC/ SERCs as under:-

S. No Plant Name Approved

Capital Cost in Rs. Crore

Capacity in MW

Capital Cost (in Rs. Crore Per MW)

Commercial Operation Date (COD)

1 Reliance Rosa (Unit 1&2)

3112.81 600 5.31 Unit1: 12.3.2010 Unit 2:30.06.2010

2 Kobra Stage 3 2588.28 500 5.18 Unit1: 21.03.2011

3 Chabra (Unit 1&2) 2416.00 500 4.83 Unit1: 11.06.2010 Unit2: 15.10.2011

4 Parli (Unit 6) 1155.35 250 4.62 Unit6: 01.11.2007

5 Sagardighi (Unit 2&3)

2672.25 600 4.45 Unit1: 07.09.2008 Unit2: 06.11.2008

6 Lanco (Unit 2) 1356.11 300 4.52 Unit2: 07.05.2011

247 | P a g e

Regarding arguments of HPGCL/ HPPC on apportionment of the cost of

common facilities, Petitioner has submitted that “there are no

common facilities between Units-I & II on the one hand and Units-III&IV

on the other hand; Further, there will be no common facilities between

Units-I & II on the one hand and Units-V & VI (in case planned in future)

on the other hand; The contention of HPCC that generating station of

Lanco was conceived with 1920 MW capacity is completely baseless

and misleading. Units III & IV (2X660MW) are being set up separately

from Unit-I & Unit-II and the said Units are in construction phase and

are expected to be commissioned in FY 2014-15 whereas Unit-I & Unit-

II are already operational; Unit-I was conceptualized, planned and

achieved financial closure on 20.09.2005 much prior to financial

closure of Unit-II ; Further, Unit-II has been appraised separately by the

lenders and its financial closure happened on 15.09.2006 i.e. about one

year after the financial closure of Unit-I; It is noteworthy to state that

the two Units i.e. Unit-I & Unit-II were separately conceptualized

appraised and executed by augmentation/ modification/ addition to

the existing facilities of Unit-I ; It is wrong and denied that Unit-II of

Lanco has been part of 1960 MW at any point of time as alleged or

otherwise; It is wrong to say that Unit-II of Lanco will be part of 3240

MW project.”

The issue of Capital Cost that could be considered by this

Commission for fixation of tariff including the apportionment of

common assets between Unit- 1 and Unit –2 and between Unit–1 & 2

248 | P a g e

on one hand and Unit-3 & Unit-4 on the other hand at the same site

was vehemently contested by the Petitioner as well as Respondents

during the course of number of hearings held by the Commission in

the matter. While the Petitioner argued that the Commission may

consider capital cost of Rs. 1356.11 Crore i.e. Rs. 1667.39 Crore netted

off for revenue earned on account of UI, which is the actual capital

cost incurred and verified by the auditor. Per Contra HPGCL/HPPC has

argued that the capital cost for determination of tariff ought to be

determined by the Commission after applying prudence check on the

actual capital cost claimed to have been incurred by the Petitioner.

The Respondent further submitted that the Capital Cost considered by

the Commission in its Order dated 17.10.2012 may only be considered

and the claims of IDC/IEDC due to force majeure ought not to be

allowed.

While the Commission agrees with the HPPC that prudence

check is essential and the Commission may not solely rely on the

audited accounts/auditor’s certificate, the Commission finds it difficult

to agree with HPPC that the details of cost of Ash Handling System,

Coal Handling System, Switch Yard, Railway Siding etc. of a few power

projects cited by them can in any manner be considered as the

benchmark to determine the reasonableness of the cost of these

common facilities as included in the completed capital cost of Unit-2 of

the Petitioner. Commission agrees with the contention of the

Petitioner that the arbitrary comparison of the cost of a System/

249 | P a g e

Equipment with other Power Plants would not be appropriate as it

depends on various factors which vary from plant to plant.

On the issue of apportionment of cost of common facilities,

Respondents HPGCL/HPPC had initially submitted that generating

station of LAPL comprise of four Units with a total capacity of 1920

MW; capacity of Unit- 2, from which Respondent have to get power,

constitute only 15.62% of the total capacity, there are a number of

common facilities [refer para 4 (ii)] which relate to all the four Units and

their use is not restricted to Unit-2 alone and as such cost of such

facilities to the extent of 15.62 % alone can be apportioned to Unit-2.

Subsequent to site visit, HPGCL/ HPPC submitted that as per the

feedback gathered by them during the site visit, there seems a proposal

to expand the generating station by another two Units of 660 MW each

and in that case, Unit-2 would become a part of still larger capacity of

3240 MW. Extending their above argument further, HPGCL/ HPPC

submitted that cost of such facilities which may relate to all the 6 Units

could be apportioned to Unit-2 only to the extent of not more than

10%. HPGCL/ HPPC further submitted that it would be imprudent on

the part of Petitioner to have independent railway siding, water intake

system, switch yard etc. for each of the generating Units.

The Commission finds no merit in the above arguments of the

Respondents. More so because Unit-3 and 4 which are still under

construction and Unit-5 and 6 which are reportedly at a planning stage,

250 | P a g e

is of much larger capacity i.e. 660 MW each as compared to Unit-1 and

2 of 300 MW each. The existing common facilities of Unit- 1 and 2 have

been designed for a capacity of 2x300 MW and the same, in all

probability, cannot be used/ shared for Unit-3 and 4 or Unit-5 and 6.

Further, as stated in the Petition by LAPL, Unit-1 was independently

conceptualized planned and executed and common facilities were

created for Unit-1 on standalone basis. Thereafter existing facilities of

Unit-1 were augmented to cater to the requirements of Unit-2. This

also lends credence to the inference that common facilities of Unit-1

and 2 would not be suitable for sharing with Unit-3 and 4 or Unit- 5 and

6. The Commission observed that the Respondent (HPPC) has taken

contradictory stands i.e. on the one hand they would argue that there

are common (shared) assets between various Units at LAPL site while

on the other hand they would argue that it is prudent practice to have

shared assets when several generating Units are planned at the same

site in Order to garner economies of scale.

The Commission has carefully perused the detailed objections/

submissions made by the Respondent HPGCL/HPPC on the

apportionment of cost of common facilities, the counter submissions/

clarifications submitted by Petitioner in respect of each of the

objections of Respondent HPGCL/ HPPC and after considering the same,

intend to agree with the Petitioner that common facilities of Unit- 1 and

2 are not in any way shared with Unit- 3 and 4 or for that matter with

Unit-5 and 6. LAPL also filed an Affidavit on 9.4.2014 stating that

251 | P a g e

facilities built for operational Unit- 1 and 2 will not be used for Unit-3

and Unit-4. Further with reference to the objection of HPGCL that

common facilities namely i) Existing Roads within the power project of

the Petitioner ii) Administrative Building iii) Service Building iv) Fire

Station v) Field Hostel and vi) Drainage System created for Unit-1 and 2

are likely to be used/shared for/with Unit - 3 & 4, LAPL has categorically

stated that “there is separate plant entry and roads, drains,

administrative building, service building, fire station for the under

construction Unit 3 and 4 and these will not be shared with Unit 1 & 2”.

The inference drawn as above by the Commission in respect of

sharing of common facilities is also supported by the Report furnished

by E&Y after the site visit on 16th and 17th August, 2014 along with

representatives of LAPL and HPGCL/HPPC. In this Report, E&Y has

stated that, after the site visit, following points stood clearly

established:-

“1. Balance of Plant (BOP) facilities of the existing 2x300MW

shared between Units 1& 2. These are as follows

i. Coal Handling Plant ii. Fuel Handling System iii. Ash Handling Plant iv. Fire Detection & Fire Fighting System v. Raw Water Intake Station vi. Clarified Water System vii. DM Water Plant viii. 400kV Switchyard ix. Miscellaneous auxiliary Units not specifically listed above.

252 | P a g e

2. The capacities of existing facilities designed for 2x300 MW

generation capacity does not allow them to be used for a much

larger 2x660MW capacity of the new plant i.e. Units 3 & 4. The

layouts of the existing plant (Units 1 & 2) and that of the new

plant (Units 3&4) also do not allow the existing BOP facilities for

Units 1 & 2 to be used for Units 3 & 4.

3. The only physical connection between electrical/mechanical

/coal/water systems of the existing plant and the new plant is the

planned interconnection between the two 400kV switchyards,

which are separated by a fence and have their own control rooms

and evacuation arrangements. This connection gives a flexibility of

operation and does not amount to sharing the assets of the

existing plant (Units 1 & 2) with the new plant (Units 3 & 4).

Land: Unit 2 has been built partly on the green belt area for Unit 1.

Additional land has been acquired to leave mandatory green belt

for Units 1&2 taken together. Since 200 acres has been attributed

to Unit 2 and 566.89 acres to Unit 1, the cost of land considered

for Unit 2 is less than half of the total for Units 1& 2 taken

together.

It is our understanding that in a similar manner, part of the

green belt earmarked for Unit 2 has been used for Units 3&4.

Later an equal amount of the land which was taken from Unit 2

253 | P a g e

green belt area for Units 3 & 4 was transferred back to Unit 2 from

the land acquired for Units 3 & 4. Hence, total land allocated to

Unit 2 remained 200 acres and no part of that was used by Units 3

& 4.

Boundary Wall: It is understood that additional boundary wall

created for Unit 2 has been charged to it. Part of this boundary

wall has been dismantled to enlarge the plant area to include

Units 3 & 4. It is also learnt that the boundary wall for the

enlarged plant has been charged to the Units 3&4. Hence there is

no case for reduction in cost of assets charged to Unit 2 on this

account.

Railway tracks and marshalling yards: The layout of tracks (except

a small portion which is described separately below) and that of

the coal unloading facilities is such that the existing facilities

(Units 1&2) cannot be used for the new facilities (Units 3&4).

Land required for railway track for Units 3&4: There is a very

small section of railway track where the railway track for Units

3&4 is laid in parallel with that of existing Units 1&2. It is possible

that laying tracks in that section did not require additional land if

the land earlier acquired was in excess of what was actually used

to lay tracks for Units 1&2. However, if land for this section of the

track has been acquired for Unit 1 and has not been charged to

254 | P a g e

Unit 2, the question of transferring the cost from Unit 2 to Units

3&4 does not arise. In other words, laying these tracks on the land

in question does not impact the cost of Unit 2.”

The Commission in view of the position brought out above

observes that there are no common facilities of Unit-1 & 2 which are

shared or will be shared with Unit- 3 &Unit- 4 or with Unit-5 & Unit- 6.

The cost incurred on the common facilities for Unit -1 & Unit-2

as given in the Petition dated 13.01.2014 was Rs. 635.13 Crore and

Rs. 544.60 Crore respectively i.e. total cost of common facilities of Unit-1

& 2 as per the information provided worked out to Rs. 1179.73 Cr. The

Auditor’s Certificate dated 18.02.2014 certifying the cost incurred on the

common facilities as above was provided by the Petitioner along with the

rejoinder filed on 03.03.2014.

In respect of apportionment of cost of common facilities,

Petitioner has submitted that Unit-1 was independently conceived,

planned and financial closure was achieved in 2005. EPC contracts of

Unit-1 were executed in May, 2005 exclusively for the facilities required

for Unit-1 on standalone basis, Expansion in the form of Unit-2 took place

subsequently, as such only the actual expenditure incurred for

augmentation of existing facilities of Unit-1 to cater the requirements of

Unit-2 have been included in arriving at the capital cost of Unit-2.

255 | P a g e

The apportionment of the cost of common facilities between

Unit-1 & Unit-2 was also reviewed by E & Y in their report. It has been

stated by E & Y that LAPL confirmed through e-mail dated 02.07.2014

that amount of cost considered for common assets for Unit-1 in the

MPERC Order is same as indicated in Annexure- B3 of the Petition dated

13.01.2014 i.e. Rs. 635.13 Cr. However, the total cost of common

facilities for Unit-1 and Unit-2, based on information provided by LAPL

to E & Y, has been given as Rs. 1162.30 Cr. in the E & Y report. Out of

this, based on e-mail dated 02.07.2014 of LAPL to E&Y referred to

above, Rs. 635.13 Cr. pertain to Unit-1 and has been included

accordingly in the capital cost of Unit-1 in the MPERC Order. Thus, the

cost of common facilities to be apportioned to Unit-2 works out to

Rs. 527.17 Cr. (1162.30-635.13) which is less by Rs. 16.85 Cr. as

compared to the cost (Rs. 544.60 Cr.) indicated in the Petition dated

13.01.2014 by LAPL. The difference, it is observed, is on account of the

reason that whereas in Annexure –B3 of Petition dated 13.01.2014, the

cost of land and land development for Unit-2 has been given as Rs.

28.94 Cr. but in the information provided to E & Y by LAPL, it has been

given as Rs. 11.51 Cr. The cost pertaining to land for Unit-2 was

subsequently also intimated by LAPL as Rs. 11.50 Cr. (Land cost Rs. 4.28,

Land development cost Rs. 7.22) in the reply filed by LAPL on 30.10.2014

in response to various queries of the Commission sought vide letter

dated 22.10.2014.

256 | P a g e

The Commission in Order to have further clarity on the issue of

cost of land apportioned to Unit-2, vide interim Order dated 15.12.2014,

directed LAPL to furnish clarification on the following:-

“Details of apportionment of cost of land and land development

cost: The land and development cost was earlier given as Rs. 28.94

cr. in the Petition dated 13.01.2014 but subsequently while

submitting reply to clarification sought by commission land and

development cost was indicated as Rs. 11.5 cr but corresponding

reduction in completed project cost was not made, this may be

clarified.”

In reply to the above, LAPL vide filing dated 19.12.2014,

submitted that all the costs including land development, Design,

Engineering, Supervision and other expenses towards land have been

grouped in the land cost of Rs. 28.94 cr. mentioned at Sr. No. (A) in the

Form 5B and the same is different from the land cost (Rs. 12.00 cr.)

mentioned under project appraisal by lenders. LAPL further submitted

that in the project appraisal, land development cost is covered in the

Non-EPC cost and other items i.e. Design, Engineering etc. are covered

under respective heads. The break-up of the land cost of Rs. 28.94 cr. as

given in the Form 5B has now been given as under:-

i) Land cost : Rs. 4.28 cr.

ii) Land development cost : Rs. 7.22 cr.

257 | P a g e

iii) Cost incurred towards Design Engineering : Rs.17.44 cr.

and other expenses.

The Commission, after careful consideration of the submissions

(supra), is not satisfied with the clarification given in respect of

difference of Rs. 17.44 cr. in the cost of land as intimated vide reply

furnished by LAPL on 30.10.2014 (Rs. 11.50 cr.) and the cost of Rs. 28.94

cr. mentioned in Form 5B in view of the following reasons:-

a) If LAPL’s explanation is accepted i.e. in the project appraisal

cost, the cost of land development (Rs. 7.22 cr.) is covered in

Non-EPC cost and the cost pertaining to Design Engineering etc.

(Rs. 17.44 cr.) is covered in the respective heads, then the cost

of land as given at Sr. No. 1 of the Project appraisal cost should

have been Rs. 4.28 cr. but it has been mentioned as Rs. 12.00 cr.

b) When LAPL was asked in the first instance vide Commission’s

letter dated 22.10.2014 to explain the different figures of cost of

land given in Annexure-B3 of Auditor’s certificate for

apportionment of cost (Rs. 28.938 cr.) and as mentioned in the

project appraisal (Rs. 12.00 cr.), LAPL in their reply furnished on

30.10.2014 had stated that cost of land and land development

was Rs. 11.51 cr. as already indicated in the E&Y report based on

information furnished by them. LAPL in their reply furnished on

30.10.2014 did not mention that the balance cost of Rs. 17.44 cr.

258 | P a g e

pertained to Design Engineering & other expenses in respect of

land. It is only when again questioned by the Commission, vide

above given query that if the cost of land and land development

was Rs. 11.51 cr., then why corresponding reduction (of Rs.

17.44 cr.) was not affected in the capital cost, that the LAPL has

come out with this explanation.

c) The total land and site development cost sought to be given by

the generation company against (A) in the prescribed Form 5B of

the HERC Regulations, 2008, lists following components to be

included under this head:-

Land including Lease Rental.

Rehabilitation & Resettlement (R&R).

Preliminary investigation & Site Development.

As clearly mentioned in the E&Y Report, LAPL had not

undertaken any Rehabilitation and Resettlement for land

acquired for Unit-2 as the land was leased by the State Govt. So

the cost indicated against Sr. No. (A) could have included only

cost of land, cost of site development and lease rentals. As there

is no mention of Design Engineering and other expenses under

this head, so there was no question that LAPL could have

included, as claimed, Design Engineering and other expenses

pertaining to land under this head.

259 | P a g e

d) Another reason to substantiate that clarification given is not

plausible is that, if Rs. 17.44 cr. of the total cost of land

(Rs. 28.94 cr.) pertained to Design Engineering and other

expenses for land, the same would not have been included in

the Auditor’s certificate for cost of common facilities pertaining

to Unit-2 as the Design Engineering and other expenses are

covered under different head and do not form part of common

facilities.

In view of above, Commission observes that LAPL has not been

able to satisfy the Commission regarding the difference of Rs. 17.44 cr.

in the cost of land as mentioned in the Annexure B-3 of the Petition

(Rs. 28.94 cr.) and as given by LAPL to E &Y (Rs. 11.51 cr.) and

mentioned as such by E&Y in their Report while working out the cost of

common facilities. The cost of land to the extent of Rs. 17.44 cr. included

in the cost of common facilities as also in the capital cost on COD is,

therefore, disallowed.

The Commission, therefore, has considered the cost of

common facilities apportioned to Unit-2 as Rs. 526.58 Cr. i.e.

apportioned cost as per Annexure–B3 in the Petition dated 13.01.2014

less excess cost of land & land development amounting to Rs. 17.44 Cr.

(28.94-11.5) booked to Unit-2 by LAPL but disallowed by the

Commission on account of reasons stated above. Necessary

260 | P a g e

adjustment to this effect has been made while approving the capital

cost. Regarding the apportionment of cost of various facilities between

Unit -1 & 2, E & Y, based on their review, has stated that the same is in

Order and the Commission has accepted their recommendations.

Having observed as above, the Commission has proceeded to

examine the completed project cost as on COD claimed by LAPL with a

view to apply prudence check, the reasons for time and cost overrun

and various components of cost overrun in the light of

submissions/counter submissions, relevant Regulations and relevant

judgments of APTEL etc.

The Commission observes that the completed project cost of

Rs. 1667.39 cr. broadly comprises of:-

Rs. in Crores

i) Capitalized cost as on date of synchronization i.e.

25.03.2010

1459.59

ii) Administrative and direct expenses incurred from

26.03.2010 to 06.05.2011

50.51

iii) IDC and finance charges from26.03.2010 to

06.05.2011

133.07

iv) Margin money 24.22

Total 1667.39

261 | P a g e

The Commission has examined the capital cost in two parts as

under:-

i) The capitalized cost on the date of synchronization (25.03.2010).

ii) Expenses incurred from date of synchronization to COD.

It has been submitted by the Petitioner that the project lead

Lender PFC had approved the revised project cost and project cost

overrun. In support of the same, the Petitioner has submitted a copy

of the Note on cost overrun funding prepared by PFC and forwarded to

the Petitioner vide PFC letter dated 23.04.2010. This Note, as stated

therein, was prepared by PFC based on the cost overrun report

received by PFC from M/s Development Consultants Pvt. Ltd. (DCPL),

the Lenders’ Engineer, vide letter dated 15.01.2010. In this Note, PFC

estimated revised project cost as Rs. 1521.97 cr. considering the

synchronization of the Unit on 22.03.2010 with the assumption that

Unit was planned to be put on commercial operation on 30th June,

2010. Expenditure incurred or to be incurred upto the date of

synchronization was considered and balance expenditure upto COD

(30.06.2010) was assumed to be met out of the revenue that would be

available from sale of infirm power. The revised project cost estimate

and the break -up /reasons of cost overrun as given by PFC in this Note

are reproduced below:-

Revised Project Cost Estimate (Rs. in Millions)

Particulars Original Project

Cost

Revised

Project Cost

Cost

Overrun

1 2 3 4 (4-3)

1 Land 120.00 120.00

262 | P a g e

2 EPC Cost

Off-shore CIF supplies 4,702.00 4,483.91 (218.09)

On-Shore Ex works Supplies 2,260.00 2,319.30 59.30

Engg., Transport, Testing & Comm. 1,108.00 1,133.03 25.03

Civil and Construction Works 1,980.00 2,675.30 695.30

3 Non –EPC cost (including Land Development 920.00 1,123.60 203.60

4 Design, Engineering Construction Supervision

& Pre4perative Expenses

285.00 583.20 298.20

5 Tools & Spares 20.00 20.00 -

6 Preliminary Expenses 25.00 11.40 (13.60)

7 Start-up Fuel 110.00 110.00 -

8 Training of O & M Staff 12.00 12.00 -

9 Financial Charges incl. up-front fee 117.00 142.81 25.81

10 Interest During Construction 1,388.20 2,242.95 854.75

11 Margin Money for working capital 242.21 242.21 -

12 Physical contingencies 111.00 - (111.00)

Total (Rs. in millions) 13,400.41 15,219.71 1,819.30

Break-up/reasons for cost overrun are listed below in brief:-

Particular Cost

overruns

(Rs. cr.)

Major reasons for overrun/Areas with increased /modified

scope of works

1 EPC Cost

Off –shore CIF

supplies

(21.81) Saving in the CIF contract in rupee terms due to forex

variation

On-shore Ex works

supplies

5.93 Supply (Ex-works) contract with ZPPL-Extra spares for

critical systems and special tools & plants for maintenance,

in Order to minimize downtime of plant

Engg., Trans, Testing

& Comm.

2.50 Services contract with ZPPL-Delay in supply of material

due to force majeure requiring extended hiring of cranes

and extra deployment of manpower for erection

Civil and construction

works

69.53 Civil contract with ZCIPL-Increase in span of mill and

bunker in Order to match with the requirement of traverse,

of the hoist, and also to provide operational ease; Deck

sheeting in TG building for construction of roof slabs to

expedite construction activities; requirement of pile

foundation for stacker re-claimer hopper entailing additional

expenditure towards manpower and material; price

escalation towards reinforcement steel, structural steel and

cement.

2 Non-EPC Cost

(including Land

Development)

20.36 Under no-EPC contract with LITL-Increase in plinth area. In

the residential colony; construction of road over bridge in

accordance with eh directives of the state authorities

miscellaneous and R & R works requested by local state

bodies and affected village people carried out by LITL

263 | P a g e

3 Design, Engineering,

Construction

Supervision &

Preoperative

Expenses

29.82 Increase in pre-operative expenses based on general

increase in price levels in view of expenditure already

incurred and balance to be incurred till Feb ’10.

4 Preliminary Expenses (1.36) Provision available against preliminary expenses

5 Financial charges incl.

up-front fee

2.58 Variation between estimated and actual expenditures

incurred/to be incurred on the project.

6 Interest During

Construction

85.48 Increase in IDC primarily due to extended period on

account of delay in commissioning and also increase in

interest rates during the construction period, estimated upto

Feb ‘2010.

7 Physical contingencies (11.1) Provision available against contingency provision.

8 Cost overrun 181.93

The actual expenditure upto the date of synchronization i.e.

25.03.2010 was, however, lower (1459.59+24.22=1483.81). It has been

mentioned by PFC in this Note that ‘the details of cost overrun have

also been reviewed by the Lenders’ Engineer M/S DCPL and have been

found to be in Order. Another important observation made by PFC in

this Order is that ‘the COD has been delayed due to force majeure event

of earth quake in China in May ‘08 and the commissioning has been

further delayed due to delay in delivery of generator rotor of Unit-1 for

use in Unit-II, subsequent to damage to the turbine generator of Unit-1

in Jan’09 and usage of Unit-II equipment in Unit-1to optimize the

commissioning time of the Units’.

The Commission observes that Lender’s Engineer report

submitted by LAPL is of December, 2009 and LAPL has failed to submit

Lender’s Engineer report in respect of completed cost of Rs. 1667.39 cr.

as on COD i.e. 07.05.2011 despite asking for the same by the

Commission.

264 | P a g e

As may be seen, the major components of cost overrun

listed/reviewed by PFC in their Note based on Lenders’ Engineer report

on cost overrun corresponding to revised cost estimate of Rs. 1521.71

cr. (which accounted for the expenses incurred or to be incurred up to

February, 2010) are as under:-

Sr. No.

Particulars Cost overrun (Rs. crores)

1. EPC cost

On-shore Ex works supplies 5.93

Civil and construction works 69.53

2. Non-EPC Cost (including Land Development) 20.36

3. Design, Engineering, Construction Supervision &

Preoperative Expenses

29.82

4. Interest During Construction 85.48

The break-up of actual cost overrun corresponding to the

completed project cost of Rs. 1667.39 cr. is given below in the following

table. For the sake of comparison, the break-up of the cost overrun as

given in the Note of PFC corresponding to revised cost of Rs. 1521.71

cr. is also depicted along side.

Particulars Initial appraised Project Cost (by PFC) in 2005 (Rs. Crore)

Revised Project Cost as approved by Lender (Rs. Crore

Cost overrun w.r.t Revised project cost

Completed Project cost (Rs. Crore)

Cost overrun w.r.t completed project cost

1 2 3 4 5 6

Land 12 12 0 4.28 -7.72

EPC & Non-EPC Cost 1,097.00 1173.51 76.51 1,152.90 55.9

Off-shore CIF Supplies 470.2 448.39 -21.81 430.34 -39.86

On Shore Ex works Supplies 226 231.93 5.93 231.93 5.93

Engg. Transportation, Testing, & Commissioning

110.8 113.3 2.5 110.75 -0.05

Civil and Construction Works 198 267.53 69.53 267.53 69.53

Non-EPC Cost (including Land 92 112.36 20.36 112.35 20.35

265 | P a g e

Development)

Design, Engineering Construction Supervision & Pre- Operative Expenses

28.5 58.32 29.82 58.32 29.82

Preliminary Expenses 16.7 15.34 -1.36 2.96 -13.74

Tools & Spares

Start-up fuel

Training of O&M Staff

Financial Charges incl. up-front fee

11.7 14.28 2.58 11.35 -0.35

Interest During Construction 138.82 224.3 85.48 229.78 90.96

Sub-Total (Capital cost incurred up to 25/03/10)

1,304.72 1497.75 193.03 1,459.59 154.87

Physical contingencies 11.1 0 -11.1 0 -11.1

Margin Money for working capital

24.22 24.22 0 24.22 0

Total Capital Cost up to synchroniszation 25/03/10 (A)

1,340.04 1521.97 181.93 1,483.81 143.77

Expenses charged to P & L before COD (26/03/10 to 06/05/11) during the infirm power period (Operating expenses & Admin.

0 0 - 50.51 50.51

IDC, & Financing Charges) (B) 0 0 - 133.07 133.07

Total Capital Cost up to COD 06/05/11 (C) = (A) + (B)

1,340.04 1521.97 181.93 1,667.39 327.35

Revenue from infirm power up to COD (D)

0 0 - 469.93

Less: Fuel Expenses (coal & sec. oil) incurred during infirm power period (E)

0 0 - 158.65

Net Revenue to be adjusted against capital cost during infirm power period (F) = (D) - (E)

0 0 - 311.28

Completed Capital Cost as on COD (G) =(C-) - (F)

1340.04 1521.97 181.93 1,356.11

As may be seen from the above table, cost overrun

corresponding to the actual capitalized cost of Rs. 1459.59 cr. as on

date of synchronization in respect of EPC cost (i.e. On-shore

266 | P a g e

ex - works supplies and Civil & Construction Works), Non-EPC cost

(including land development) and Design Engineering construction

supervision & preoperative expenses remained at the same level as

mentioned in the Lender’s Engineer report. Cost overrun on account

of IDC up to the date of synchronization increased to Rs. 90.96 cr.

against Rs. 85.48 cr. given in the Lender’s Engineer report. Besides

saving in On-Shore Ex works supplies increased to Rs. 39.60 cr. as

against Rs. 21.81 cr. mentioned in Lender’s Engineer report.

The total cost overrun up to COD after utilizing the

provision for contingencies, available fund on preliminary expenses

and saving in FOREX works out to Rs. 327.35 cr. comprising of cost

overrun of Rs. 143.77 cr. up to synchronization and Rs. 183.58 cr.

from synchronization to COD (Rs. 50.51 cr. + Rs. 133.07 cr., pre-

operative expenses and IDC & FC from synchronization to COD).

Major component of cost overrun is increase in IDC of Rs. 224.03 cr.,

Rs. 90.96 cr. up to synchronization and balance Rs. 133.07 cr.

thereafter upto COD . The balance cost overrun of Rs. 103/- cr.

(approx.), as stated in Lender’s Engineer report, is on account of

‘claims arising from EPC/ Non-EPC contractors and/ or their sub

contractors due to escalating market situations with regard to cost of

raw material and services, extra works claimed by EPC/Non-EPC

contractors including additional works undertaken by LAPL.

267 | P a g e

The various components of cost overrun which the

Commission shall hereinafter examine are listed in the table given

below for ready reference:-

Sr. No. Cost overrun component Cost overrun

1. EPC cost

On-shore Ex works supplies 5.93

Civil and construction works 69.53

2. Non-EPC Cost (including Land

Development)

20.36

3. Design, Engineering, Construction

Supervision & Preoperative

Expenses

29.82

4. IDC upto synchronization 90.96

5. IDC 133.07

6. Pre operative expenses from synchronization to COD

50.51

Before examining the various components of cost

overrun for their admissibility or otherwise, the Commission has

examined the reasons of time overrun i.e. reasons for delay in

synchronization and then delay in declaring COD after synchronization

of the Unit on 25.03.2010 so as to ascertain whether the delay was on

account of reasons attributable to LAPL or was it on account of

reasons beyond their reasonable control.

I) Reasons for delay in synchronization Unit:-

The Petitioner in their submissions/ arguments has stated that

synchronization of Unit was delayed due to Force Majeure events,

which were beyond their reasonable control, of (i) earthquake in

China on 12.05.2008 which damaged manufacturing facilities of DEC

resulting into delay in supply of main plant equipment and BTG

268 | P a g e

components and (ii) new visa policy enforced by GOI in

September/October, 2009 which resulted into non availability of

Chinese Engineers for erection and commissioning for some time and

that the Commission had in the Order dated 02.02.2011.

acknowledged the aforesaid events and held that Force Majeure

events did happen. The Respondent on the other hand has argued

that, in the Order dated 02.02.2011, the Commission had considered

the China earthquake and visa issue as Force Majeure mainly in view

of Respondent not replying to the notice of Force Majeure given by

the Petitioner which was required as per the PPA/PSA but at the same

time it was also held that no cost implication will be there and the

Petitioner is entitled only to the time overrun. The Petitioner,

therefore, cannot now seek cost implication on the reliance of said

Order. It has further been argued by the Respondent that in the

absence of PPA, the applicable provision is section 56 of the Contract

Act, which relieves the affected party from the performance of

obligation during the period of Force Majeure but there is no cost

implication to the other party.

E&Y in their report have stated that the delay in commissioning

can be attributed to two reasons i) earthquake in China and ii) visa

issue of Chinese workers. While Lender’s Engineer in his report of

December, 2009 on Cost Overrun has stated in respect of delay in

commissioning of the Unit.

269 | P a g e

‘in view of the delay in the execution of the project due to Force

majeure event of earthquake in China, and delay in delivery of

Generator rotor of Unit #1 (which was sent to China for repair and

reuse in Unit#2 to reduce the restoration period consequent to the

damage of Unit#1 steam turbine generator prior to oil

synchronization on 30.01.09), the COD targeted in September, 2009

could not be achieved.’

In this respect Commission observes that LAPL in their

submissions/arguments have entirely relied on Lender’s Engineer

report for acceptance of their cost overrun claims but when it

comes to acceptance of reasons of delay as mentioned in the

Lender’s Engineer report, it has been argued by the Petitioner that

reference of diversion of Rotor of Unit -2 for Unit-1 as reason of

delay in synchronization of Unit -2 in the Lender’s Engineer report is

of general nature and there has been no delay in synchronization of

Unit-2 on this account. Commission, however, differs with the

Petitioner and considers that diversion of Rotor of Unit -2 for Unit-1

as also usage of Unit-2 equipment in Unit-1 to optimize the

commissioning of the Units, as mentioned by PFC in their note on

cost overrun enclosed with the Petition, is also one of the reason

for delay in synchronization of Unit-2.

The other reason for delay in synchronization of the Unit

in Commission’s view is China earthquake because of which some

270 | P a g e

equipment of Unit -2 was delayed on account of damage to

manufacturing facilities of DEC during the earthquake. Commission

is not inclined to accept that visa issue has also been a reason of

delay in synchronization of the Unit because firstly, it does not find

mention as reason of delay in the Lender’s Engineer report which

was prepared in December, 2009 where as the Chinese Engineers,

as per the Petitioner, had left the site in September/October, 2009.

Had it been the reason for delay in synchronization, it must had

been mentioned in the Lender’s Engineer report. Secondly, in the

Lender’s Engineer report it has been recorded that “the overall

project progress achieved in October, 2009 is reported as 96%

…..and synchronization of the Unit is now targeted in February,

2010”. It can be inferred from the above that absence of some

Chinese Engineers from the site had not affected the pace of the

project.

The Commission after considering submissions/counter

submissions in this regard, agree with the Lender’s Engineer’s

report that synchronization of Unit-2 was delayed due to i) earth

quake in China ii) diversion of rotor of Unit-2 for Unit-1 and usage

of Unit-2 equipment in Unit-1 for optimizing commissioning of the

Units. Whereas the first reason was clearly beyond reasonable

control of the Petitioner, the second reason can only be attributed

to the Petitioner.

271 | P a g e

II) Reasons for delay in declaring COD:-

It has been submitted by the Petitioner that COD of the

Unit was primarily delayed due to non availability of Long Term

Open Access (LTOA) which was purchaser’s ie PTC’s obligation. It has

also been submitted that though an interim Loop in loop Out (LILO)

arrangement was made for connecting Unit-2 to the 400 KV Korba-

Sipat transmission lines for evacuation of power, continuous full

load operation Unit-2 was not possible in the absence of LTOA and

that due to non-operationalization of LTOA, transmission constraints

persisted throughout the period of generation of infirm power

which prevented the continuous full load operation of Unit-2 and

which (transmission constraints) were beyond reasonable control of

the Petitioner.

E&Y in the report have stated that delay in achieving COD

was mainly on account of non-availability of LTOA which prevented

full load operation of the Unit-2. However, E&Y in response to

Commission’s queries further stated, vide clarifications furnished

subsequent to their report, that most of the reasons advanced by

LAPL for delay in achieving COD as per CERC’s Order dated

09.02.2012 in case of Petition number 289 and 290 of 2010 and IA

8/2011 were technical in nature and analysis of the same was

beyond scope of their assignment. This implies that E&Y while

stating that COD was delayed due to non-availability of LTOA had

not kept in view various reasons advanced by LAPL in the

272 | P a g e

proceedings before CERC in the said case other than visa issue and

non-availability of LTOA.

LAPL, in response to Commission’s interim Order dated

15.12.2014, vide their filing dated 19.12.2014 in respect of delay in

COD has reiterated their earlier submission.

The additional submissions made by LAPL in this regard

are reproduced below:-

“it is a fact on record that Lanco could not declare COD as long term

open access (LTOA) for Unit-2 was not in place for Unit-2 due to

delay in operationlization of the PGCIL Bilaspur Pooling Station along

with delay in commissioning of various transmission system

strengthening schemes in Western Region as enumerated in the

BPTA for Unit-2 signed by PTC with PGCIL. The obligation for

obtaining and maintaining LTOA was of PTC under the PPA (now

terminated). The other operational/technical reasons as given in the

CERC Order dated 09.02.2012 relate to normal commissioning

problems that could have been overcome by running the Unit on

continuous full load. This was not in the case of Unit-2 because of

restrictions and non-availability of power evacuation capacity in the

grid due to the aforesaid reasons. It is submitted that had the long

term open access and power evacuation been arranged by the

beneficiaries on time, there would not have been any delay in

273 | P a g e

conducting the required testing and achieving the COD. The delay in

COD was on account of non availability of long term open access,

grid restrictions & non availability of the transmission system for full

power evacuation from Unit-2, which was admittedly the

responsibility of PTC.”

PTC in their written submissions filed on 30.12.2014 in

response to interim Order dated 15.12.2014, on the issue of delay in

COD after synchronization of Unit-2, has submitted that delay in

declaration of COD was solely on account of Lanco. It has been

stated that PTC’s obligation to evacuate power under open access

comes only after the unit is commissioned. PTC in support of their

argument has cited regulation 8(7) of the CERC Open Access

Regulations, 2009 wherein it has been provided that “ a generating

station including captive generating station which has been granted

connectivity to the grid shall be allowed to undertake testing

including full load testing by injecting its infirm power into the grid

before put into commercial operation, even before availing any type

of open access, after obtaining permission of the concerned Regional

Load Dispatch Centre….. “.

PTC, to emphasize their point, has further cited para 37

of the CERC Order dated 09.02.2012, referred to above, wherein it

has been held that “…… existence of LTOA for evacuation of power

from the generating station has no relevance before commercial

274 | P a g e

operation of the unit of the generating station”. In response to the

allegation of LAPL that commissioning was delayed due to non-

availability of sufficient transmission capacity, PTC has stated that in

terms of Article 4.1(v), the obligation to commission the project was

solely that of the Petitioner. PTC has further stated that it is because

of various technical issues involved that the commissioning of Unit-2

got delayed. In support of its argument, PTC has cited para 7(c) of

the above referred CERC Order wherein the reasons advanced by

LAPL in the proceedings before CERC for delay in achieving COD

(reproduced in the later part of the Order) have been given. PTC has

also cited para 40 of the said CERC Order wherein at the end of the

said para, CERC has held that “…….A summary of the problems is

mentioned at para 7(c) of this Order. We are of the view that both

the units of the generating stations had certain teething problems

which has contributed to some extent to the delay in declaration of

the commercial operation apart from the mater of termination of

the PPA being sub-judice before the Hon’ble Supreme Court.”

PTC has further stated that construction of dedicated 400

kV line from the project upto WR pooling station was part of LTOA

and was included in the scheme for evacuation of power from Unit-

2; Even though PGCIL had completed the WR pooling station on

04.04.2012 (correct date is 01.04.2012), Lanco did not construct

dedicated line until 09.06.2014 and therefore lanco was (also)

responsible for non availability of LTOA.

275 | P a g e

In this context Commission observes as under:-

a) WRLDC in its reply/submissions before CERC in the case referred to

above had stated that ‘considering the delay in Commissioning of

schedule of WR pooling station near Sipat, a System Protection

Scheme (SPS) has been put in operation progressively for both

Units of LPL starting from 01.09.2010 to ensure grid security as

well as evacuation of power from both Units of LAPL’.

It is therefore apparent that after 01.09.2010 as per

WRLDC, a system was in place to evacuate power from both Units.

There could be occasional transmission constraints but, it is felt, it

was very much possible for LAPL to manage through WRLDC and

CEA/WRPC to run Unit-2 on full load for requisite period for trial

run for declaration of COD. From the reply filed by LAPL on

19.12.2014, it is evident that LAPL never took up the matter on

these lines with WRLDC or any other appropriate authority.

b) LAPL’s argument for delay in declaration of COD after the

synchronization of Unit-2 on 25.03.2010 is that it could not declare

COD as LTOA for Unit-2 was not in place due to delay in

operationalization of the PGCIL Bilaspur (near Sipat) pooling

station along with delay in commissioning of various transmission

system strengthening schemes in the Western Region (WR). LAPL

276 | P a g e

further stated that obligation of obtaining and maintaining LTOA

was of PTC. But as stated by PTC in their reply filed on 30.12.2014,

the transmission scheme for evacuation of power from Unit-2 and

for operationalization of LTOA also included a dedicated 400 kV DC

line from the project to the WR Pooling Station, Bilaspur which was

to be constructed by LAPL itself. This line, as stated by PTC in their

reply, was not constructed by LAPL until 06.09.2014. From the

CERC Order dated 03.01.2014 enclosed with PTC’s reply, it is

observed that WR Pooling Station, Bilapsur, along with systems

covered under the scheme was put into commercial operation by

PGCIL w.e.f 01.04.2012 whereas the dedicated 400 kV line was not

constructed by LAPL until 06.09.2014 as already stated. So, LAPL

was equally responsible for non operationalization of LTOA.

c) The argument of PTC that LTOA was to come into force only after

commissioning of the Unit is not entirely true. Whereas the power

transfer from a generating station under LTOA commences only

after COD, the associated transmission system for evacuation of

power should be in place by the synchronization of the Unit i.e

connectivity as per the power to be evacuated is required to be

provided by the time of synchronization so that the station can

undertake testing including full load testing for trial run and inject

infirm power into the grid, the LTOA gets operationlized only after

COD. In this case though transmission system associated with

LTOA was not in place at the time unit was synchronized, but, as

277 | P a g e

already stated, LILO arrangement was there for evacuation of

power and as stated in para (a) a system was in place for

evacuation of power from both the units subject however to

occasional transmission constraints. Commission agrees that

without the transmission system required for operationalizing

LTOA it may not had been possible for LAPL to run the unit on full

load on sustained basis but Commission is not inclined to accept

that trial run for MCR was not possible without that.

d) PTC in their reply has stated that there were certain technical

issues with Unit-2 which delayed its commissioning and has cited

para 7 of the CERC Order dated 09.02.2012 in this regard. CERC in

para 7 (c) of the said Order has given the reasons that were

advanced by LAPL for delay in declaration of COD of Unit-2 during

the proceedings before CERC in the said case and the same are

reproduced below:-

i) Heavy steam leakage from the turbine side leading to

resynchronization on 07.04.2010;

ii) Tripping on 09.04.2010 and 10.04.2010 due to EH oil leakage

from the control valve;

iii) Shutdown from 26.05.2010 to 21.06.2010 due to

problems in the coal mills, gear box and coal mill motor;

278 | P a g e

iv) Time taken for rectification of the problems due to non-

availability of expert Chinese engineers on account of change

in VISA policy;

v) Heavy, leakage of flue gas in the duct leading to the chimney

due to faulty design at joint plane;

vi) Fire accident in coal mills and consequent failure of

grinding rolls;

vii) Problems in ash handling system due to choking of ash

evacuation from the ESP hoppers and problem in wetting

heads;

viii) Delay in commissioning of dry ash handling system and water

circulation system; and

ix) Overloading of transmission line and high frequency

conditions prevailing in the system and consequent grid

security issues affecting operation of the Unit continuously at

full load and completion of testing and achieving

stabilization.

From the above, it is apparent that transmission

constraints due to non-availability of LTOA cannot be said to be the

only reason for delay in declaration of COD, Unit-2 did face a number

of technical problems post synchronization and besides there was

delay in commissioning of ash handling and water circulation systems.

All these factors also caused delay in the commercial operation of the

Unit. These problems could be on account of faulty design, sub -

279 | P a g e

standard quality of equipment procured, poor workmanship during

construction etc. for which only the Petitioner can be held

responsible. The very fact that when LAPL declared COD, LTOA was

still not operationalized, clearly establishes that delay in declaration

of COD cannot be entirely attributed to non-availability of LTOA.

In view of position brought out above, Commission

concludes that delay of 14 months in declaration of COD after

synchronization cannot solely be attributed to the transmission

constraints due to non-availability of the transmission system

associated with LTOA, for which also LAPL is partially responsible,

but there were other reasons for the delay as given above which can

only be attributed to the Petitioner.

Now the Commission shall examine the various components of

cost overrun.

I. Increase in EPC cost:-

a) Increase in cost of on-shore Ex-works supplies: Rs. 5.93 cr.

As stated in the Lender’s Engineer report as also in the

PFC cost overrun report, the increase is on account of

procurement of extra spares for critical systems and special

tools & plants for maintenance in Order to minimize the down

time of the plant. The Respondents have submitted that the

extra spares were for maintenance and should be part of O&M

280 | P a g e

cost and further that the Commission should allow

maintenance spares as per applicable regulations.

The Petitioner in the reply filed on 30.10.2014 to

the query on extra spares have submitted that the cost of initial

spares included in the BTG package is Rs. 4.33 cr. and after

including additional cost of Rs. 5.93 cr. for extra spares, the

total cost of spares works out to Rs. 10.26 cr. i.e 1.47% of the

total plant & equipment cost. This, however, is not correct. The

cost of initial spares of Rs. 4.33 cr. as per the document

submitted is only for initial spares for Turbine-Generator Island.

The cost of initial spares for other packages has not been

shown separately.

The Commission observes that as per HERC Tariff

Regulations, 2008, initial spares to the extent of 2.5% of the

plant and equipment cost can be included in the capital cost. As

already stated above the cost of initial spares in respect of all

the packages other than Turbine-Generator Island have not

been separately mentioned and are included in the respective

packages. Further in the Auditor’s certificate submitted by the

Petitioner in respect of Capital cost on COD, it has been

mentioned that ‘the value of initial spares is included in the cost

of respective machineries’. PFC in its cost overrun report has

stated that extra spares were procured for critical system and

281 | P a g e

special tools & plants for maintenance and to minimize the

down time.

In view of above, Commission is of the considered

view that cost of extra spares of Rs. 5.93 cr. should form part

of O&M cost and cannot be booked to the Capital cost.

Accordingly, cost overrun of Rs. 5.93 cr. and towards extra

spares is disallowed.

b) Increase in cost of Civil and Construction Works: Rs. 69.53 cr.

As per lender’s engineer report, the increase has

occurred due to additional claims by LAPL’s civil contractor

Zelan Construction (India) Pvt. Ltd.(ZCIPL) as under:-

Sr. no.

Particular Additional claim (Rs. cr.)

i) Increase in Span of Bay of Mill and Bunker building from 12 m to 17 m in Order to match with the requirement of traverse of the hoist and also to provide operational ease

23.93

ii) Deck sheeting in TG building for construction of roof slabs to expedite construction activities.

8.18

iii) Requirement of pile foundation for stacker re-claimer hopper

9.27

iv) Price escalation towards reinforcement steel, structural steel and cement.

33.24

The Petitioner has submitted that these claims are on

account of change in scope and PFC have approved the same

after due diligence. Respondents have submitted that

282 | P a g e

Commission should cross verify the extended scope to

ascertain whether it was part of DPR and should also apply

prudent check.

The Commission observes that contract for civil and

construction works on Zelan Projects Pvt. Ltd. (ZPPL) and for

Engineering Transportation, Erection, Testing and

Commissioning on ZCIPL were turn- key contracts on firm price

basis, the responsibility of design, engineering, construction,

supply, erection, testing and commissioning was with turn-key

contractors and accordingly there was no question for any

additional claims.

In the correspondence enclosed with Lender’s Engineer

report, there is a letter from the Petitioner to ZPPL/ ZCPIL

wherein the Petitioner have written to ZPPL/ ZCPIL that under

the Agreement the responsibility for complete design for 300

MW Unit rested with ZPPL/ZCPIL and as such no additional

claims would be entertained. Further, from the correspondence

submitted, it is apparent that extension in the span of Mill and

Bunker building was done in Unit-1 also. Similarly, Deck

sheeting in TG building to expedite construction activities was

also done in Unit-1. Therefore, Petitioner should have taken

care of these changes while awarding contracts for Unit-2.

Further, Deck sheeting was used in T.G. building for saving time

in construction and expenses incurred should be considered to

have been paid back in the form of saving on account of

283 | P a g e

reduced time of construction and accordingly no additional

claim on this account should arise. Similarly, regarding

additional claim for requirement of pile foundation for stacker

reclaimer, it is observed that in a turn- key contract for

construction the terms and conditions of the contract should

necessarily provide that the foundation of the type required as

per site conditions shall be provided and accordingly, no

additional claim should arise for providing pile foundations for

stacker reclaimer.

In view of these observations, it is felt that these

additional claims have arisen on account of imprudence on the

part of LAPL in selecting the contractors/ sub-contractors, in

finalizing the terms and conditions of the contracts and in

handling the contracts. The Commission, therefore, is not

inclined to accept additional claims in respect of increase in span

of Mill & Bunker building, use of deck sheeting in TG Building

and requirement of pile foundation for Stacker Reclaimer.

Regarding the additional claim for price escalation

towards increase in prices of Steel and Cement, Commission

observes that it has been claimed by the Contractor ZCIPL that

prices of cement, reinforcing steel and structural Steel had

increased by 39%, 138% and 114% from Feb, 2006 to August,

2008 and an additional amount of Rs. 36.94 cr. had been

284 | P a g e

incurred by the Contractor on this account. LAPL on its part has

raised additional claim for Rs. 33.24 cr. stating that they have

asked the Contractor to absorb 10% increase. Commission

observes that in a firm price contract the risk of escalation in

prices has to be entirely with the Contractor. But considering

that the increase in prices was too steep, the Commission

considers that at best the increase beyond 10% can be shared by

LAPL and Contractor fifty- fifty. Accordingly, one half of the claim

on this account is accepted and the rest i.e. Rs. 16.62 cr. is

disallowed.

Therefore, out of cost overrun of Rs 69.53 cr. under this

heading, cost overrun of Rs. 16.62 cr. is accepted and the

balance Rs. 52.91 cr. is disallowed.

II. Increase in Non-EPC cost: Rs. 20.36 cr.

As per Lender’s Engineer report, the increase of Rs. 20.36

cr. in the Non-EPC cost has occurred on account of additional

claims raised by LAPL’s Non-EPC contractor Lanco Infratech Ltd.

(LITL) as under:-

Sr. No.

Particular Additional claim (Rs. cr.)

i Increase in plinth area in residential colony from 87800 Sq.ft. to 146200 sq.ft

6.38

ii Construction of road over bridge in accordance with the directives of the state authorities

14.95

iii Miscellaneous and R& R works requested by local state bodies and affected villages people

0.97

285 | P a g e

From perusal of the Lender’s Engineer report, it is

observed that additional claim for Residential colony/Township

has arisen on account of increase in number of dwelling Units

from 88 in the original contract placed on LITL to 124 Units and

increase in the plinth area from 87800 Sqft to 146200 Sqft.

Petitioner has neither furnished any justification for increase in

the number of dwelling Units/plinth area in the Residential

colony/Township nor this could be an essential requirement for

the project.

Regarding other two works i.e. Road over Bridge and

Misc. Civil and R&R works, it is obvious from the

documents/correspondence enclosed with the Lender’s Engineer

report that construction of Road over Bridge was carried out as

per requirement/directive of the district authorities and misc. Civil

Works and R&R works were also carried out as requested by local

authorities and affected villages people.

In view of above, Commission finds no justification for

allowing cost overrun of Rs. 6.38 cr. for additional work in the

Residential colony/Township. But the cost overrun in respect of

other two works is admitted considering that these were

unavoidable for LAPL and have been carried out as per

requirements of District/Local authorities. Therefore, out of cost

286 | P a g e

overrun in the Non-EPC cost, cost overrun of Rs. 14.95+0.97 i.e

Rs.15.92 cr. is admitted and balance cost overrun of Rs. 6.38 cr.

is disallowed.

III. Increase in Design, Engineering, Construction Supervision &

Preoperative Expenses: Rs. 29.82 cr.

It has been stated in the Lender’s Engineer report that

due to increase in general price level and inflation rate, there was

an increase in the pre-operative expenses from Rs. 28.50 cr. as

per approved cost to the level of Rs. 58.32 cr. resulting in cost

overrun of Rs. 29.82 cr. As per the details furnished, actual pre-

operative expenses up to the date of synchronization i.e. up to

25.03.2010 has also been at the same level i.e. Rs. 58.32 cr. as

estimated in the Lender’s Engineer report. The Commission

observes that the increase of Rs. 29.82 cr. in the pre-operative

expenses is not only on account of general price rise but is also

due to delay in commissioning of the Unit from September, 2009

to March, 2010. As per Commission’s estimate on the basis of

increase in WPI and CPI during the project construction schedule,

out of increase of Rs. 29.82 cr. in pre-operative expenses, increase

to the extent of Rs. 11.70 Crore is due to, increase in inflation i.e.

general price rise from September, 2006 to September, 2009 and

the balance increase of Rs. 18.12 Crore is on account of

cumulative effect of increase in price level and also due to

287 | P a g e

extension in the pre-operative period from Sept, 2009 to March,

2010 on account of delay in synchronization of the Unit.

Thus, the cost overrun of Rs. 29.82 cr. due to increase in

pre-operative expenses can be considered to be comprising of

two components i.e first component of Rs. 11.70 cr. which is

entirely on account of general increase in price level and second

component of Rs. 18.12 cr. which is on account of time overrun

from September, 2009 to March, 2010 i.e. due to delay in

synchronization of the Unit.

To examine the admissibility of each of these components, it

would be relevant to refer to the Hon’ble APTEL’s Order dated

27.04.2011 in case of Maharashtra State power Generation

Corporation Ltd. V/s MERC (Appeal no. 72 of 2010) wherein

Hon’ble APTEL has laid down principles for applying prudent

check on time overrun related costs. Relevant part of the Order is

reproduced below:-

“ 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

288 | P a g e

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,

mismanagement of finances, slackness in project

management like improper co-ordination between the

various contractors etc.

ii) Due to factors beyond the control of the generating

company e.g. delay caused due to force majeure like natural

calamity or any other reasons which clearly establish,

beyond any doubt, that there has been no imprudence on

the part of the generating company in executing the project.

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

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

overrun has to be borne by the generating company.

However, the Liquidated Damages (LDs) and insurance

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

generating company could be retained by the generating

company. In the second case the generating company could

be given benefit of the additional cost incurred due to time

overrun. 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

289 | P a g e

proceeds could be shared between the generating company

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

delay with respect to some benchmarks rather than

depending on the provisions of the contract between the

generating company and its contractors/ suppliers. If the

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

may result in imprudent time schedule not in accordance

with good industry practices.

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

consonance with the provisions of Section 61 (d) of the Act,

safeguarding the consumers’ interest and at the same time,

ensuring recovery of cost of electricity in a reasonable

manner.”

If examined in the light of principles laid down in the

above Order of Hon’ble APTEL, the first component of Rs. 11.70

cr. of cost overrun in respect of pre-operative expenses becomes

admissible as the same was entirely due to general increase in

prices level i.e on account of reasons beyond the control of the

Petitioner.

The increase of Rs. 18.12 cr. in the pre-operative

expenses has occurred on account of delay in synchronization of

the Unit. The synchronization of Unit-2, as discussed in para (12)

(i), was delayed due to (a) earth quake in China and (b) due to

diversion of rotor and some other supplies of Unit -2 to Unit-1.

Whereas the first reason was beyond the control of the

290 | P a g e

Petitioner, the second reason is attributable to the Petitioner.

Accordingly 50% of the cost overrun component of Rs. 18.12 cr. is

disallowed in line with the principles laid down in the above

referred Hon’ble APTEL’s Order.

Therefore of the cost overrun of Rs. 29.82 cr. due to

increase in preoperative expenses, cost overrun of Rs. 20.76 cr.

(11.70 + 50% of 18.12) is admitted and the balance Rs. 9.06 cr. is

disallowed.

IV. Increase in IDC up to synchronization : Rs 90.96 cr.

i) As per the original project cost of Rs. 1340.04 cr. , the

Petitioner was to raise the debt of Rs. 1072.03 cr. and the

provision for IDC in the Project cost was Rs. 138.82 cr. As per

the details furnished in the Petition the gross loan drawn in

actual up to COD i.e. 07.05.2011 was Rs. 1025.54 cr. with a

repayment period of 12 years and with a floating rate of

interest.

ii) The IDC incurred as on the date of capitalization i.e.

25.03.2010 has been given as Rs. 229.78 cr. [Refer Table under

para (11)]. Thus the cost overrun due to increase in IDC up to

the date of capitalization or the date of synchronization of the

Unit, works out to Rs. 90.96 cr.

iii) The Petitioner has submitted that the delay in

synchronization of the Unit has occurred due to Force Majeure

events of China earthquake and Visa issue which were beyond

reasonable control of the Petitioner and as such actual IDC up

291 | P a g e

to synchronization should be considered in the capital cost.

Petitioner has submitted as under on the increase in IDC up to

synchronization.

“The interest rate on loan as per the original appraised

project cost of Rs. 1340.041cr. in year 2005 was 8.5% (as

mentioned in page no. 111 of 144 of DPR). By the time, the

financial closure of Unit-2 was achieved in September, 2006, the

interest rates had started increasing. The first disbursement of

term loan which commenced in September, 2006 was at interest

rate of 10.25%. By September 2009, when the disbursement were

continuing, the interest rate of the loan portfolio had become

12.09% which was much higher then the interest rate of 8.5 %

envisaged in the original appraised project cost.

The increase in IDC was about Rs. 41.09 cr. only on account of

increase in interest rates on loan from initial 8.5% to weighted

average of 12.09% during the construction period from year 2005

to September 2009. Additionally, an amount of Rs. 49.878 cr. was

the IDC which was the cumulative effect of time extension due to

force majeure events and also the increased weighted average

interest rate of the loan portfolio upto capitalization on

25.03.2010.

Thus, the increase in IDC from the originally appraised project

cost in year 2005 to the capitalized project cost in March 2010 was

Rs. 90.96 cr. for the above mentioned reason……”

292 | P a g e

The Respondents, on the other hand, submitted that the

Petitioner is not entitled to any IDC and IEDC or cost overrun on

account of any alleged Force Majeure conditions in terms of Order

dated 02.02.2011 of the Commission where it was held that the

Petitioner is entitled only to the time overrun on account of Force

Majeure conditions and no cost implications will be there.

iv) The Commission observes that the Hon’ble Supreme

Court in its Order dated 16.12.2011 has held that ‘the State

Electricity Regulatory Commission, Haryana will decide the

dispute uninfluenced by the observations made in the impugned

Orders passed before today by the Appellate Tribunal and/ or

any Authority in this case…’ As such the Commission cannot

rely on its Order dated 02.02.2011 to disallow overrun cost on

account of increase in IDC as argued by the Respondents.

v) As per the Petitioner, out of total increase of Rs. 90.96 cr.

up to synchronization, increase of about Rs. 41.09 cr. is on

account of increase in the interest rates on loans from 8.5% to

weighted average interest rate of 12.09% during the original

construction period from September, 2006 to September, 2009.

The balance increase of Rs. 49.87 cr. was due to cumulative

effect of time extension due to Force Majeure events and due

to increased weighted interest rate.

E&Y in their report has worked out IDC as per the

proposed debt scheduled for the original project cost at the

293 | P a g e

interest rates as prevailing during the original construction period

of September, 2006 to September, 2009, as Rs. 201.30 cr. The

increase in IDC due to increase in interest rates, therefore, works

out to Rs. 62.48 cr. (201.30-138.82). But E & Y in their calculations

have taken the total debt as Rs. 1072.03 cr. as proposed for the

original project cost where as actual loans raised by the Petitioner

up to COD add up to Rs. 1025.54 cr. only as already stated. The

Petitioner has, however, worked out the increase for the actual

loans drawn i.e. for Rs. 1025.54 cr. and as per the actual interest

rates prevailing from September, 2006 to September, 2009. The

Commission has considered the increase in IDC on account of

increased interest rates as per the calculations of the Petitioner.

vi) Thus, the Commission has considered that out of total

cost overrun of Rs. 90.96 cr., Rs. 41.09 cr. is on account of

increase in interest rates, which was beyond the reasonable

control of the Petitioner, and the balance Rs. 49.87 cr. is on

account of delay in the synchronization of the Unit. As already

held by the Commission earlier in para (12) (i), the

synchronization of Unit-2 was delayed due to the reasons partly

beyond control of the Petitioner and partly attributable to the

Petitioner.

Accordingly, in line with the principles laid down by the

Hon’ble APTEL in the Order referred to above, out of total cost

overrun of Rs. 90.96 cr. on account of increase in IDC up to

294 | P a g e

synchronization, increase of Rs. 41.09 cr. on account of increase in

interest rates and 50 % of Rs. 49.87 cr. on account of delay in

synchronization of the Unit is admitted and the balance 50% of Rs.

49.87 cr. is disallowed. In the nutshell, out of total cost of overrun

Rs. 90.96 cr. on account of increase in IDC upto synchronization, Rs.

66.03 cr. is admitted and the balance Rs. 24.93 cr. is disallowed.

V) IDC from date of synchronization to COD : Rs. 133.07 cr.

i. As per the Auditor’s certificate in respect of completed

Capital Cost furnished by the Petitioner, the project cost was

capitalized on the date of synchronization i.e 25.03.2010 at Rs

1459.59 cr. (exclusive of margin money of Rs.24.22 cr.) and

the expenses there after upto COD have been shown to be

booked to ‘Profit and Loss Account’. The IDC incurred during

this period add upto Rs. 133.07 cr.

ii. The Petitioner in respect of IDC of Rs. 133.07 cr. has submitted

as under:-

“Rs. 133 cr.: Interest up to COD from synchronization date

(26.03.2010 to 07.05.2011) is due to evacuation/transmission

constraints which were beyond the reasonable control of

Lanco as it was purchaser’s obligation to obtain long term

open access. During this period infirm power revenue was

295 | P a g e

much higher than the IDC which has been adjusted in Unit-II

capital cost and the same has been certified in the Auditor

Certificate as per the HERC Tariff Regulations, 2008”.

The Respondent, as already stated, has submitted that in

terms of Order dated 02.02.2011 of the Commission; the

Petitioner is not entitled to any IDC and IEDC or cost overrun

on account of any alleged Force Majeure conditions.

iii. E & Y in their report in response to the query of the

Commission that whether the O&M costs and IDC incurred

during the extended period of achieving COD should be

capitalized with the project cost, has given their opinion as

under:-

“It is our opinion that if the net revenue from sale of infirm

power is being taken into account for adjustment of project

capital cost, then the associated O&M cost incurred for

generating power as well as the IDC incurred during the

production of infirm power should be taken into account for

determination of project capital cost”.

iv. As already held in para (12) (ii), the delay of 14 months in

declaration of COD after synchronization cannot be solely

attributed to non-availability of LTOA as contended by the

296 | P a g e

Petitioner but there were other reasons for the delay which

are attributable to the Petitioner.

Going by the principles laid down in the ibid Order

of the Hon’ble APTEL, 50% of the IDC of Rs. 133.07cr. incurred

from synchronization of the Unit-2 to COD needs to be

disallowed. The Commission, however, feels that since the

benefit of net earnings from sale of inform power is being

passed on to the consumers by way of reduction of the

completed capital cost to that extent, the IDC of Rs. 133.07

cr., in all fairness and in line with the recommendations of

consultant E&Y, should be taken into account for

determination of capital cost on COD.

Therefore the IDC of Rs. 133.07cr. incurred from

synchronization of the Unit-2 to COD is admitted for

including in the capital cost on COD and no part of the same

is disallowed.

VI Pre-operative expenses from synchronization to COD: Rs.

50.51cr.

i) the details of Pre-operative expenses incurred from the

date of synchronization to COD as per the audited

financial statements submitted by the Petitioner are as

297 | P a g e

under. The Normative O&M expenses as per CERC

Regulations, 2009 for the corresponding period as

worked out by E&Y are also depicted for comparison:-

26.03.2010 to 31.03.2010 (6 days)

01.04.2010 to31.03.2011 (365 days)

01.04.2011 to 06.05.2014 (36 days)

Total (Rs. in Crores)

Administrative Expenses

12.48 22.68 1.56 36.72

Direct Expenses 0.0 13.01 0.78 13.79

Total 12.48 35.69 2.34 50.51

CERC Normative O&M Cost

0.79 50.76 5.29 56.84

ii) The Commission observes that the administrative

and direct expenses claimed by the Petitioner are

nothing but the O&M expenses incurred by the Petitioner

in generating the infirm power from date of

synchronization to COD. E&Y have compared the O&M

expenses claimed by the Petitioner with normative O&M

expenses for 300 MW Units as per CERC Regulations,

2009 and have found that the expenses claimed are on

lower side as is apparent from the Table given above. It

has also been stated in the E&Y report that O&M

expenses incurred from 26.03.2010 to 31.03.2010 i.e

Rs. 12.48 cr. are exceptionally high and that the one

major component considered in this O& M cost of Rs.

12.48 cr. is the net exchange fluctuation during the

construction which is Rs 7.17 cr. Commission observes

298 | P a g e

that even after taking into account the said adjustment of

Rs. 7.17 cr., the balance O&M cost of Rs.5.31 cr. is much

higher considering that it is only for 6 days and the actual

O&M expenses for the full FY 2010-11 are Rs. 35.69 cr.

The Commission further observes that the Hon’ble

APTEL have directed this Commission to determine the

tariff for the disputed period which commences from

07.05.2011 as per HERC Tariff Regulation, 2008. The

normative O&M cost as per HERC Tariff Regulations for

300 MW Unit-2 of LAPL works out to Rs. 13.40 cr. for FY

2010-11, Rs. 0.22 cr. for 6 days of FY 2009-10 (on prorata

basis) and Rs. 1.32 cr. for 36 days of FY 2011-12. Thus,

the normative O& M cost for the period of generation of

infirm power works out to Rs. 15.01 cr. only against

actual expenses of Rs. 50.51 cr. The Commission,

however, is of the view that the normative O&M cost as

per tariff regulations should apply only after COD and it

may not be appropriate to restrict the O&M expenses

during the period of generation of infirm power to

normative O&M cost.

However, as already stated above, the O&M

expenses for 6 days period of FY2009-10 are very high

even after considering the adjustment of Rs. 7.17 cr.

299 | P a g e

Commission, therefore, restrict the O&M expenses for

the period 26.03.2010 to 31.03.2010 to Rs. 0.59 cr.

(worked out on prorata basis from actual expense of Rs.

35. 69 cr. for the FY 2010-11) plus Rs. 7.17 cr. on account

of the said adjustment i.e. to Rs. 7.76 cr. and balance

amount of Rs. 4.72 cr. is disallowed.

Therefore, out of pre-operative expenses of Rs. 50.51 Crore for

the period 26.03.2010 to 06.05.2011, an amount of Rs. 4.72 Crore. is

disallowed on account of reasons stated above.

The project cost on COD prior to netting off the net earnings

from sale of infirm power works out as under:-

(Rs. in Cr.)

i)

Project cost on COD as per Auditor’s certificate 1667.39

ii)

Less cost overrun disallowed as per paras (13) I to (13) VI.

103.93

iii)

Less excess cost of land and land development booked to apportioned cost of common facilities as per para (9)

17.44

iv) Approved project cost on COD 1546.56

Therefore, the approved project cost on COD prior to netting

of the net earnings from sale of infirm power works out to Rs. 1546.56

Crore.

300 | P a g e

Infirm Power:-

i) In its previous tariff Order this Commission had considered

Rs. 332.31 Cr. as net revenue earned on account of sale of infirm power.

The Commission, in view of the further details provided by LAPL for

Unit–1, has revisited the entire gamut of sale of infirm power, fuel and

other costs etc.

The details of revenue earned from sale of infirm power in respect of

Unit-2 from 22.03.2010 to 06.05.2011 as also the details of fuel

expenses have been provided in the Auditor’s Certificate dated

12.01.2014 for capital cost on COD as under:

(Rs. in Cr.)

Year Revenue from sale of infirm power

Fuel expenses Net earnings

FY 2009-10

(26.03.2010 to

31.03.2010)

1.35 0.60 0.75

FY 2010-11 424.58 142.41 282.17

FY 2011-12

(1.04.2011 to

06.05.2011)

44.00 15.64 28.36

Total 469.93 158.65 311.28

Thus, the net earnings from the sale of infirm power from

22.03.2010 to 06.05.2011 as per details furnished by the Petitioner have

been given as Rs. 311.28 cr.

ii) The Respondent HPPC have submitted /argued that as per financial

statements of Lanco filed for the year 2009-10 and 2010-11, the sale of

301 | P a g e

infirm power from Unit 1 & Unit 2 before declaration of commercial

operation aggregate to Rs 1889.10 cr. and in addition there has been

sale of infirm power during the period 01.04.2011 to 06.05.2011 the

details of which have not been furnished.

iii) Commission observes that requisite details have been provided by the

Petitioner. The break-up of total sales of Rs. 1889.12 cr. from Unit-1

and Unit-2 during the year FY 2009-10 and FY 2010-11 have been

furnished as under:-

a) Sales Revenue Unit-1- Infirm power : 629.63 cr.

(Before COD 09.04.2010)

b) Sale Revenue Unit-1-short term : 869.32 cr.

(After COD 09.04.2010)

c) Sale Revenue Unit-1 –UI : (-) 35.76 cr.

(After COD) in the year 2010-11

d) Sales Revenue from Unit-2- infirm power : 425.93 cr.

(Before COD 07.05.2011) for FY 2010-11

Total 1889.10 cr.

Further, sales revenue from infirm power from Unit-2 from

01.04.2011 to 06.05.2011 has also been furnished as Rs. 44.00 cr.

Commission also observes that MPERC in its Order on Unit-1 has taken

the revenue from sale of infirm power from Unit-1 as Rs. 629. 63 cr.

302 | P a g e

iv) The net earnings from sale of infirm power from Unit-2 have also

been examined by E& Y in their report and have been found to be in

Order. The recommendations given by E&Y in their report in this

regard are reproduced below:

“The total revenue from Unit-2 as per statutory auditor

from sale of infirm power during the period from

26.03.2010 to 06.05.2011 is Rs. 469.93 cr. which is higher

than total UI charges Rs. 425.26 cr. considering Unti-2 on

standalone basis during the same period.

Actual coal consumption during infirm power sale

is slightly lower than EY estimated figures. Similarly, oil

consumption is also lower than regulatory allowable

consumption during infirm power sale but the difference

in case of oil consumption is significant to the tune of

66.92%.”

In view of the above, Commission has considered Rs. 311.28

cr. as the net earnings from sale of infirm power generated from Unit-2

from 22.03.2010 to 06.05.2011.

The capital cost on COD for determination of tariff accordingly

works out as under:-

(Rs. in Cr.)

Approved project cost on COD 1546.56 Net earnings from sale of infirm power 311.28

Net capital cost on COD 1235.28

The Commission has, therefore, considered (admitted) Capital

Cost of Unit-2 of LAPL for the purpose of tariff determination as per

303 | P a g e

Order of Hon’ble APTEL as Rs. 1235.28 cr. The Commission observes

that the net capital cost on COD as determined by the Commission for

Unit-2 is comparable with the net capital cost for Unit-1 for LAPL

(Rs. 1236.40 cr.) determined by Hon’ble Madhya Pradesh Electricity

Regulatory Commission in its Order dated 27.04.2011.

The Commission observes that against Rs. 1,356.11 Crore

claimed by LAPL and Rs. 1007.73 cr. considered by this Commission in its

previous Order dated 17.10.2012, the net capital cost for determination

of tariff after applying prudence check works out to Rs. 1235.28 cr.i.e.

4.11 cr. per MW.

The above Capital Cost i.e. Rs. 4.11 cr./MW compares well with

the Capital Cost of coal based power plant of similar capacity and

vintage including the Capital Cost of 2 X 300 MW DCR TPS Yamunanagar

Power Plants commissioned in Haryana by the State owned power

generating company i.e. HPGCL . Thus, after applying the aforesaid

prudence check to each item of cost overrun, the Commission is of the

considered view that there is no need to further go into micro details of

allocation of common costs between LAPL Unit – 1 & Unit – 2.

9.0 Financial Structure (Debt: Equity):-

The Petitioner has submitted that the debt drawn for the

Project was Rs. 1025.18 Crore constituting 75.56% of Capital Cost and

the balance 24.44% is the equity capital. Per Contra the Respondent

304 | P a g e

(HPPC) argued that the Debt:Equity ratio of 80:20 as originally envisaged

for the project should be considered in relation to LAPL Unit – 2.

The Commission observes that the Debt: Equity ratio envisaged

in the original scheme was 80:20. As the tariff in the present case is to

be determined in accordance the HERC Regulations, 2008, the debt –

equity ratio has been considered in accordance with the regulation 15 of

the said Regulations which provides that “provided further that where

deployment of equity is less than 30%, the actual debt and equity shall

be considered for determination of tariff”. As per the information

provided by the Petitioner the debt as on COD i.e. 7.05.2011 was Rs.

968.403 Crore. Accordingly, the Commission has considered the debt

as Rs. 968.403 Crore and the balance part of the approved Capital Cost

i.e. 266.877 Crore as Equity which translates into a debt: equity ratio of

78.39 : 21.61 i.e. 3.6 : 1 as against 4:1 in the approved financial package

and 2.5:1 proposed by the Petitioner.

Return on Equity (ROE) has been claimed by the Petitioner at

15.5% for the 24.44% equity corresponding to the project cost of

1356.11 Crore as submitted by the Petitioner based on Regulation 15 of

the CERC Regulations, 2009. While objecting to this HPGCL/HPPC has

submitted that the approved financial package in this case was 80% debt

and 20% equity. Accordingly, HPGCL/HPPC has proposed that the capital

cost duly scrutinized subject to prudence check and approved, should be

apportioned in 80:20 ratio and ROE should be restricted to 20% of the

approved Capital Cost.

305 | P a g e

The Commission has considered the submissions of the

parties on the issue of ROE and observes that HERC Regulations, 2008

provides as under:-

(iii) Return on Equity:

Return on equity shall be computed on the equity base

determined in accordance with regulation 15 @ 14% per

annum.

As the Commission is mandated to determine the tariff as per

HERC Tariff Regulations, 2008 hence, for the purpose of tariff

determination the Commission has considered 14% ROE in line with

the ibid Regulations as against 15.5% claimed by the Petitioner.

Interest on Loan has been claimed by the Petitioner based on

actual interest payments made to the lenders in line with Regulation

16 of CERC Regulations 2009. Interest on Loan for the balance period

of 2011-12 and FY 2012-13 has been estimated on the basis of

prevailing interest rates and in accordance with the terms of Loan

Agreements executed with the lenders. On this issue HPGCL/HPPC has

submitted that the interest on working capital should be calculated on

normative basis and that the actual amount of capital employed by

the generating company from time to time in regard to coal

consumption etc. is irrelevant and the working capital needs to be

uniform throughout the tariff period of FY 2009-10 to FY 2013-14.

The Commission has considered the above submissions of the

contesting parties on the issue of interest on term loan and working

306 | P a g e

capital loan and in line with HERC Regulations, 2008, has considered

12.76% interest on term loan worked out on the basis of actual

interest on loan drawl by LAPL and 13% interest on working capital

loan arrived at on the basis of SBI Prime Lending Rate as applicable for

the relevant year. The above interest rates have been applied on the

normative debt and working capital requirement approved by the

Commission.

Operating & Maintenance Expenses (O&M): The Petitioner has

claimed O&M expenses of Rs. 17.88 lakhs/MW and 18.91 lakhs/MW

as applicable for a 300 MW set for the years 2011-12 and 2012-13

respectively in accordance with Regulation 19(a) of CERC Regulations,

2009. While contesting this claim, HPPC has submitted that O&M

expenses need to be ascertained in terms of CERC Regulations, 2004

based on the capital cost finally determined by the Commission. They

have further submitted that under the Tariff Regulations, 2009, the

O&M Expenses are on normative basis and need to be allowed only

on that basis. Any claim on the part of the Petitioner contrary to the

above is wrong.

The Commission has considered the above submissions and

observes that while the Petitioner has considered O&M expenses as

per CERC Norms, 2009, HPGCL/HPPC has proposed that the same

should be as per CERC Regulations, 2004. In this regard the

Commission observes that the Hon’ble APTEL in its Order dated

3.01.2014 has clearly said that the O&M expenses should be

307 | P a g e

determined as per the Tariff Regulations of the State Commission.

Hence, for the purpose of tariff determination in the present case

O&M expenses @ 1% of the Capital Cost as admitted by the

Commission in accordance with HERC Regulations, 2008, has been

considered for FY 2011-12. Further, for FY 2012-13 the same has

been escalated @ 4% to arrive at the allowable O&M expenses.

Additionally, the Commission observes that the Petitioner had

filed a separate application under Regulation 33 of the HERC Tariff

Regulations, 2008 praying for relaxation of Regulation 16 (iv)(c) of the

said Regulations concerning O&M expenses in view of the higher

actual O&M expenses incurred by them in LAPL Unit – 2. They have

submitted that the actual O&M expenses now being claimed by them

are lower than the normative O&M expenses admissible as per CERC

Tariff Regulations, 2009 whereas the same are higher than the

normative O&M expenses as per HERC Tariff Regulations, 2008. This

application/petition of LAPL was also heard along with the main

petition. The prayer of the Petitioner was vehemently opposed by the

Respondent HPGCL/HPPC. The Commission has considered the

submissions of the parties and is of the considered view that the tariff

in the present case is determined as per the remand Order of the

Hon’ble APTEL, wherein, on the issue of O&M expenses the Hon’ble

APTEL has specifically said that “O&M expenses should be determined

as per the Tariff Regulations of the State Commission”. In view of the

same the Commission finds no merit in the prayer of the Petitioner.

Hence, petition no. HERC/PRO - 5 of 2014 is accordingly disposed of.

308 | P a g e

10. Energy Charges:-

The Petitioner has proposed Normative Gross Station Heat Rate

of 2410 Kcal/kWh as per Regulation 26(ii)(B) of CERC Regulations

2009, while HPGCL/HPPC has submitted that the same ought to be in

line with CERC Regulations, 2004.

The Commission observes that the Station Heat Rate

(Kcal/kWh) envisaged at the DPR stage which formed the basis of

contracted tariff was 2500 Kcal/kWh. The Commission observes that

the SHR, due to inherent improvement in technology, has witnessed

substantial improvement in the case of 300 MW thermal

powerhouses which is also reflected in the actual performance

reported by the Petitioner in the case of their Unit – 2.

However, the Commission, for the purpose of determining

tariff for the disputed period, has considered SHR of 2410 Kcal/kWh

i.e. 2450 Kcal/kWh prescribed for 300 MW thermal units, minus 40

Kcal/kWh as the boiler feed pumps in the case of LAPL Unit - 2 are

electrically operated, in line with HERC Regulations, 2008.

Auxiliary Energy Consumption: The Petitioner has proposed

auxiliary energy consumption in accordance with Regulation 26(iv) of

CERC Regulation 2009, the Normative Auxiliary Consumption has

been considered at 9% since the Unit has electrically driven boiler

feed pump and uses induced draft cooling towers. As the same is in

line with regulation 11 (5) of the HERC Regulations, 2008, 9%

309 | P a g e

auxiliary energy consumption has been considered by the

Commission for the purpose of tariff determination in the present

case.

Landed cost and the GCV of coal:-

Regulation 17 (4) of the HERC Regulations, 2008 provides as under:

“(4) Landed Cost of Coal: The landed cost of coal for the purpose of

computation of energy charges shall be arrived at after considering 0.8%

normative transit and handling losses of the quantity of coal dispatched

by the coal supply company. The cost shall be considered as per the

notifications of the Central Government or Coal Companies. In the

absence of any recent notification, the weighted annual average cost of

the current year adjusted for known changes shall be considered as the

cost while computing generation tariff. The Commission may relax the

norm in the light of achievability of the norm and circumstances specific

to the generating station”.

For the period commencing from May, 2011 to December, 2011

the Petitioner has proposed landed cost of coal based on actual

receipts and consumption respectively. It was submitted by the

Petitioner that landed cost of coal has been computed in accordance

with Regulation 21(7) of CERC Regulations, 2009 adopting normative

transit and handling loss of 0.8%. The Petitioner has submitted that

Energy Charges for the period January, 2012 to March, 2012 of 2011-

12 and FY 2012-13 may be allowed to be recovered in accordance

with the CERC formula.

With regard to the tariff computed for the period from 7th May,

2011 to December, 2011, the Petitioner has submitted that the Letter

310 | P a g e

of Assurance (LoA) issued by South Eastern Coalfields Ltd.(SECL) vide

letter dated 18.9.2006 guaranteed coal supply to the extent of 1.445

Million Tons Per Annum (MTPA). However, due to various directions

issued by Government of India pursuant to new coal distribution

policy, the actual coal supply was reduced progressively and stands at

the current allocation of 0.94 MTPA against the requirement of about

1.62 MTPA for meeting 85% PLF.

The Commission observes that as per the month wise details of

coal procured by LAPL Unit – 2 from SECL (linked coal mines),

Imported coal and coal procured through e–auction and open market

in FY 2011-12 and FY 2012-13, the weighted average cost of landed

coal as per LAPL works out to Rs. 2063/MT for FY 2011-12 and

Rs. 2323/MT for FY 2012-13 and the weighted average GCV of coal

from all sources works out to 3293 and 3144 Kcal/Kg respectively. As

far as cost of coal is concerned the Commission observes that a mix of

coal with varying costs have been used at LAPL Unit-2 i.e. SECL

(Linkage Coal), e-auction coal, open market coal and imported coal.

The landed cost of coal including transit & handling loss and cost of

transportation of the same ranges from Rs. 1172/MT (SECL Linkage

Coal), Rs. 3812/MT (Open Market Coal) Rs. 6050/MT for the imported

coal. The pricing of coal for the purpose of tariff determination

became complex as the power generated from LAPL Unit – 2 was

being supplied to Haryana, Chattisgarh as well as accounted for under

UI mechanism even after the claimed COD in May, 2011. The

311 | P a g e

Petitioner has submitted that the Commission may consider allowing

the energy charges based on month wise weighted average landed

cost of the coal computed after considering the opening stock of coal

at the beginning of the month, coal received during the month, coal

consumed during the month and the closing stock of coal at the end

of the month as per the details submitted by them in the petition. It

was further submitted that month wise GCV of coal as on fired basis

may be considered for determining variable/energy charges.

While objecting to the cost of coal and GCV as claimed by the

Petitioner, the Respondent i.e. HPPC/HPGCL submitted that as the

entire project LAPL Unit – 2 was conceived on the basis of linkage coal

from SECL hence, it was the responsibility of LAPL to arrange coal

from SECL and there should not be any obligation on the part of HPPC

to pay for the energy charges in excess of price that would be

applicable for the supply of coal by SECL. It was further submitted that

coal procured by LAPL through other means including e – auction,

direct purchases, imported coal etc. should be entirely at the risk and

cost of LAPL. Additionally, it was submitted that entire quantum of

supply from SECL should be accounted for generation and sale of

electricity to HPPC.

The Commission observes that allocation of coal supply

to LAPL was as per the Memorandum of Understanding (MoUs)

between SECL and LAPL dated 24.07.2010 and dated 30.08.2011.

From the documents/details placed on record by LAPL it is observed

312 | P a g e

that the coal supply was stopped in the beginning of FY 2011-12,

despite direction from CIL (letter dated 30.03.2011) to continue

supply to all developers till June 2011 with allocation quantity as per

previous MOU dated 24.07.2010. Supply of coal was, however,

resumed from September 2011 with the signing of MoU dated

30.08.2011. Further, the reason behind the delay of five months (April

to August 2011) in resuming the coal supply could not be ascertained.

LAPL, however, has furnished copy of its letters dated 11.05.2011 to

CEA, letter dated 04.07.2011 to SECL, and letter dated 19.07.2011 to

the Ministry of Coal asking for resumption of coal supply on

immediate basis in support of their contention that they have made

sufficient efforts to secure linkage coal from SECL.

Additionally, the Commission observes that the coal supply was

stopped from May 2012 through a letter dated 17.05.2012 in the

absence of valid PPAs with DISCOMs of Haryana and Chhatisgarh.

However, LAPL had one PPA dated 12.01.2011 with Chhattisgarh State

Power Trading Company Ltd. and also, as per the directions of the

Hon’ble Supreme court, power was to be supplied to Haryana

Discoms. Subsequently, the coal supply was restored in July 2012 on

the direction of Ministry of Coal. SECL vide their letter dated 20th Sep

2012 reduced the coal supply to 65% of the LAPL Unit-2 and this

curtailment became effective from 1st July 2012, due to which

adjustments in coal supply were made in subsequent months. It is

also noted that power from Unit-2 was supplied to CSPTCL till 1st

313 | P a g e

October 2012. However, as evident from the submissions dated

24.12.2014 made by PTC , from 21.03.2013 LAPL indicated its inability

to supply power to Haryana as well on account of fuel shortages.

Further w.e.f 21.08.2014 LAPL started issuing day-ahead availability

without providing any details regarding availability of fuel, source or

cost of fuel which would be used to generate and supply of power.

It has been observed that on many coal invoices which are

provided as Unit-2 coal procurement invoices there is mention of

Unit – 1 instead of Unit - 2. On this LAPL submitted that only one FSA

was in place with SECL for Unit-1 at that time and coal for Unit-2 was

being supplied by SECL under MOU route. However all the invoices

raised by SECL for both Unit-1 (under FSA) and for Unit-2 (under

MOU) had the recipient’s address as “Urga Unit-I, Korba (CG)”. It is

further observed that ‘Unit-II’ appeared in the invoices only when

SECL resumed coal supply to Unit-2 from July 2012 onwards. It was

mentioned by LAPL that the difference between allocated quantity

and actual received quantity is due to usage of different coal wagons

from the accounted one (BOBRN vis a vis BOXN wagons). Similar

difference is observed for Unit-1 as well.

The Commission observes that substantial quantum of power

sent out from LAPL Unit 2 after COD till March 2013, was under

Unscheduled Interchange (UI) mechanism. Thus the Commission was

required to take a view whether the cost of coal procured from other

314 | P a g e

sources at a much higher price and used for UI should be passed on to

the consumers of Haryana or not and further whether month wise

GCV of coal or weighted average GCV of coal for the year should be

considered for tariff determination.

The HERC Tariff Regulation, 2008, does not provide details/

methodology for adjustment of the capital cost after accounting for

revenue from UI after COD, and hence, a mechanism had to be

devised wherein the landed cost of coal for supply of power to

Haryana could be calculated considering the coal from other sources

namely, imported, open market, e-auction etc. to be first allocated for

UI and remaining coal to be considered for Haryana.

In this regard E&Y suggested the following methodology

for working out the coal cost for supply of power to Haryana

Discoms:-

i) The cost of coal procurement for power supply to Haryana is

adjusted for 0.8% normative transit and handling losses since

the coal considered for power supply to Haryana is primarily

linkage coal.

ii) To calculate the landed cost of coal each month, weighted

average yearly rate is used for coal from different sources.

315 | P a g e

iii) Rate of coal from different sources is calculated from the

quantity and value of coal procured and is as per form-19 Fuel

Summary, provided by LAPL.

iv. In Order to calculate the cost of coal for supplying power to

Haryana Discoms, the following broad methodology was

adopted,

a. First, required coal used for generation of UI power is

allocated in the Order of imported, open market, e-auction and

then linkage. Coal used for generation of UI is fulfilled at the

end of each month.

b. Second, the remaining required coal required for

generation of power supplied to Haryana & CG Discoms is

allocated in the Order of remaining amount of linkage,

remaining amount of e-auction, remaining amount of open

market and finally remaining amount of imported coal. Coal

with respect to Haryana & CG is not sufficient for the months of

Jun, Jul & Aug’11 and May’12 and, hence, coal transferred from

Unit 1 is assumed to have fulfilled the shortfall.

c. Third, as per LAPL submissions, certain amount of

coal was transferred to unit -2 from unit-1 and for the purpose

of this analysis, this transferred coal is assumed to be kept in a

transfer account. Coal from this transfer account is considered

to have been used for meeting the shortfall for the months of

Jun, Jul & Aug’11 and May’12, as mentioned above. The transfer

316 | P a g e

of coal stock from Unit-1 to Unit-2 is considered at the actual

rate as provided by LAPL in form-19 Fuel Summary. It is

pertinent to mention that transfer of coal to unit-2 from unit-1

has only been considered to the tune of fulfilling the shortfall for

the months mentioned above.

d) GCV for various types of coal is different, but for the

purposed of this analysis, coals from all sources are considered

to have the same GCV”.

On the above methodology suggested by E&Y, LAPL vide their

reply/clarification furnished vide affidavit dated 18.12.2014 submitted

that the methodology of E&Y considering the supply of coal from

other sources i.e. imported, open market, e-auction etc. to be first

allocated for UI and the remaining coal to be considered for the

Discoms for computation of energy charges is not correct. The main

reasons given by LAPL are as under:-

a) That the linkage coal was sufficient to meet only 46%

average PLF in FY 2011-12 (up to April 2012). Further the

linkage coal supplied from July 2012 to March 2013 was

sufficient to meet only 26% average PLF and thus sufficient

linkage coal was not available even to run the plant at technical

minimum limit of 50% PLF.

317 | P a g e

b) There was progressive reduction of linkage coal

supplied by SECL over a period of time which necessitated

procurement of coal from available alternate sources i.e. e-

auction/open market/imported coal during the period of supply

of power to PTC for Haryana.

c) During the period July 2012 to March 2013, LAPL was

forced to run the Unit at minimum technical loads due to grid

restrictions, at times with steam bypass valve in open mode

with average PLF of around 52.7%. Under these circumstances

LAPL had no option but to inject power as UI.

On the issue of same GCV of coal taken for coal

procured from different sources, LAPL submitted that, “any

analysis which considers the same GCV of coal procured from

different sources will give wide variations in the month wise

cost of coal”.

In response to the observations of LAPL on the

methodology of coal cost computation and GCV, E&Y further

clarified as under:-

“With regard to GCV of coal:-

In this regard, we would like to explain that in

light of limited information on GCV obtained from the

318 | P a g e

coal invoices provided to EY, GCV of Linkage coal and

e-Auction coal are same (Grade F as mentioned in

most of the invoices). For Open market coal, as per

some of the invoices GCV of coal is found to be in the

range of 2856-3322 kcal/kg which is similar to the GCV

of Linkage and e-Auction coal. No mention of GCV is

found in case of imported coal invoices. Considering

the higher rate of imported coal and general industry

knowledge, the GCV of imported coal would have been

higher than coal from other three sources. However

quantum of imported coal is only 0.73% of the entire

coal used from COD to 31st Mar’13 as per our cost of

coal calculation. Therefore, the impact of considering

same GCV irrespective of sources of procurement

would not be significant.

With regard to Sale of power under UI mechanism

after COD:-

As per latest submission filed by LAPL dated

19.12.2014 pursuant to the case no HERC/PRO-05 of

2014, LAPL mentioned, “During certain months,

especially from July 2012 to March 2013, due to grant

of partial open access or complete rejection of open

access applications, the schedule of PTC (Haryana)

was not sufficient to run the coal based Unit even at

319 | P a g e

minimum technical loads (50%). There were times

when Lanco had to run the Unit at technical minimum

loads by opening the steam bypass valve. Under these

circumstances, Lanco had no option but no inject

power as UI.”

It is agreed that at times Lanco had to inject UI

power so as to maintain certain economical minimum

PLF. However the extent of sale of UI power has to be

considered especially in a situation wherein there was

a shortage of cost effective Linkage coal. The monthly

actual PLF is calculated based on no of days of

declared availability/Quantum requested to

NRLDC/WRLDC in the following table. As observed in

the following table, there are certain months

(highlighted) when considerable UI power was sold

with the Unit run at high PLF even when the

availability of Linkage coal was less.

Haryana

Sent out (MUs)

Chhattisgarh

Sent out (MUs)

UI (MUs) Percentage

of UI

No of days

of declared availability

*

Actual PLF

considering only

available days

Percentag

e of Linkage

coal procured

May-11 77.94 75.34 49.15% 25 94.28% 0%

Jun-11 57.71 9.60 75.45 52.85% 30 73.13% 0%

Jul-11 34.53 21.12 12.23 18.02% 11 95.42% 0%

Aug-11 85.17 42.17 33.12% 28 69.80% 0%

Sep-11 97.98 32.51 24.91% 29 68.93% 35%

Oct-11 95.63 49.38 23.63 14.01% 31 82.83% 34%

320 | P a g e

Nov-11 87.00 45.60 18.66 12.34% 30 76.82% 54%

Dec-11 81.37 43.48 15.05 10.76% 31 68.96% 100%

Jan-12 85.56 44.63 19.20 12.85% 31 76.48% 100%

Feb-12 80.04 41.76 10.44 7.89% 29 70.09% 100%

Mar-12 95.16 44.64 17.50 11.13% 31 77.89% 100%

FY12 878.09 300.21 342.18

Apr-12 100.80 45.00 18.22 11.11% 30 84.00% 53%

May-12 74.36 39.99 4.71 3.96% 24 76.65% 4%

Jun-12 0 NA

Jul-12 22.03 11.76 12.82 27.50% 9 85.88% 56%

Aug-12 66.31 27.19 45.15 32.56% 31 70.29% 80%

Sep-12 73.50 27.04 28.59 22.14% 30 66.69% 0%

Oct-12 57.50 1.92 62.99 51.46% 31 61.51% 44%

Nov-12 23.37 86.66 78.76% 30 57.73% 47%

Dec-12 33.23 61.38 64.88% 29 51.38% 49%

Jan-13 90.08 26.07 22.45% 31 57.77% 46%

Feb-13 70.48 27.57 28.12% 28 54.66% 47%

Mar-13 25.11 38.65 60.62% 21 47.55% 78%

FY13 636.77 152.90 412.81

* Source: Annexure-E- PTC(Haryana) Availability Summary as submitted by LAPL dated 19.12.2014 In absence

of the revenue details from sale of UI power and any relevant HERC regulation detailing out the treatment of the surplus earning from sale of UI power after adjusting for the fuel

In absence of the revenue details from sale of UI

power and any relevant HERC regulation detailing out

the treatment of the surplus earning from sale of UI

power after adjusting for the fuel charges after COD, it

cannot be assessed whether there should be any

impact of UI surplus on the determination of tariff of

the power sold to Haryana. EY is of the opinion that

excess sale of UI power has no bearing on the tariff of

321 | P a g e

power sold to Haryana Discoms as long as no unjust

fuel charges is loaded on the consumers of Haryana

Discoms. However in this case LAPL had to resort to

expensive sources of coal procurement because of

shortage of Linkage supply from SECL. On one hand,

LAPL had to procure expensive coal in Order to run the

plant at above the minimum economical PLF. On other

hand, LAPL, being aware of the 150 MW scheduling

cap as mentioned by PTC, could have reduced the PLF

to the extent possible so as to avoid the excess usage

of uneconomical coal.

In this context, since no optimum justifiable

quantum of UI revenue can be estimated, the best

possible course of settlement would be by using the

landed cost of coal for supply of power to Discoms in

such a way so that the coal from other sources

namely, imported, open market, e- auction etc. is first

allocated for UI and remaining coal along with Linkage

coal is considered for Discoms”.

Accordingly, as per E&Y methodology the

weighted average coal cost for supply of power to Haryana for

322 | P a g e

FY 2011-12 and FY 2012-13 works out as under:-

Power scheduled to Haryana

Coal quantity used for generating power for Hry

Value of coal used for generating power for Hry.

Weighted average rate

(MUs) (MT) (Rs.) (Rs./MT)

FY 2011-12 878.09 706,270.01 1,24,67,59,71 1,765.27 FY 2012-13 636.77 539,840.20 89,64,75,73 1,660.63

The Commission has carefully considered the

methodology adopted by E&Y for working out weighted

average coal cost as well as the submissions of LAPL on the

same. The Commission, from the generation data/details of

energy sold to Haryana, Chhattisgarh and injected as UI,

provided by LAPL and as analyzed by E&Y observes that LAPL

has been generating power in excess of minimum technical

limit despite the admitted shortage of linkage coal. Thus, the

argument of LAPL that they had to inject UI in Order to

maintain minimum technical limit of generation does not hold

any ground. The Commission is, therefore, of the view that the

methodology adopted by E&Y for working out the weighted

average cost of coal is the only just and fair mechanism to

ensure that higher cost incurred by LAPL on procurement of

costlier coal for generation of UI is not passed on to the

consumers of Haryana. However, there are certain aberrations

in the ibid methodology.

323 | P a g e

They are as under:-

i) The normative coal transit & handling loss of 0.8 has been

applied by E&Y for coal consumption worked out for Haryana

from all sources including imported coal.

ii) Coal from the transfer account was considered to

have been used for meeting the shortfall for the months of

June, July & August, 2011 and May, 2012 after exhausting the

coal available from all other sources. Consequently, in some of

the months costlier imported coal and open market coal was

assigned for generation with reference to Haryana schedule

despite the availability of cheaper transferred coal.

iii) E&Y while computing weighted average cost of coal

has not taken into account 6156.82 MT of Coal, which as per

LAPL clarification, was attributed to accounting adjustments in

the month of November, 2012.

iv) After July, 2012, SECL vide letter dated 28th

September, 2012, restricted the supply of linkage coal up to

65% of 273 MW or 59% of 300 MW i.e. corresponding to the

capacity of LAPL Unit – 2 covered under PPA with Discoms of

Haryana through PTC and accordingly supply of linkage coal for

Chattisgarh stood discontinued. However, E&Y in their

324 | P a g e

calculations of weighted average cost of coal have considered

linkage coal for Chattisgarh even beyond July, 2012.

In view of the deficiencies (supra) in the E&Y calculations

of weighted average cost of coal the Commission adopted the

methodology for computation of weighted average cost of coal for

determination of fuel/variable cost. The methodology adopted by

the Commission is in line with the E&Y calculations except that the

aberrations as mentioned above have been appropriately addressed.

In these calculations, the Commission has used the data regarding

month wise coal consumption, source wise coal receipts and

corresponding rates as provided by LAPL. The coal transportation

charges and un–loading charges as provided by LAPL have been

considered for the purpose of tariff determination. Before proceeding

further on the methodology of computation of coal cost, the

Commission notes that to a specific query that ‘what was the process

followed for procurement of coal other than SECL coal and whether

any approval of Haryana/PTC was sought for procurement of e-

auction/open market/imported coal’ LAPL replied vide their filing

dated 19.12.2014 as under:-

“The power was supplied to PTC for onwards supply to

HPGCL/HPPC pursuant to APTEL’s interim Order dated 23.03.2011

which was continued by the Hon’ble Supreme Court Order dated

16.12.2011. There was no specific direction of the Court in respect of

fuel to be used for supply of power. In absence or shortage of linkage

325 | P a g e

coal Lanco had to make good the shortage by procuring coal from e-

auction tenders from SECL, tendering process for open market

domestic coal and imported coal to get the lowest prices of coal, for

supply of power generated from Unit – 2 under the above said

direction of APTEL ad the Hon’ble Supreme Court”.

It has been further submitted by LAPL that “PTC/HPGCL (HPPC)

has never raised objection on the usage of the type of Coal for

Unit – 2”.

The Commission has considered the above submissions of LAPL

and observes that the LAPL should have sought specific approval of

PTC/HPPC for procurement of Coal from costlier sources like open

market or imported coal.

The methodology adopted by the Commission for

computation of weighted average cost of coal for determination of

fuel/variable cost is as under:-

Step 1:-

The opening stock of quantum of coal from all sources i.e. SECL, E-

auction, Open Market, Import) has been considered along with its

value (as per LAPL at the time of CoD) for the gross generation for the

power supplied to Haryana, Chhattisgarh and that injected under UI

Mechanism.

326 | P a g e

Step 2:-

Source wise procurement of coal is taken along with its value. Transit

& handling loss (0.8%) for coal supplied through linkage (SECL) is also

taken into account white computing the final quantity of coal received

through linkage. Further the cost of coal Transportation and

unloading charges as supplied by LAPL, as already stated, have also

been considered while computing the cost of coal received by LAPL

during the month.

Step 3:-

By adding to the source wise monthly opening stock of coal the

source wise monthly procurement of coal, the total quantity of coal

(sources wise) along with its value has been arrived at for the month.

Step 4:-

From the source wise quantity/value of coal for the month arrived at

in Step – 3, the Coal from the costlier sources, starting with the

costliest, has been considered to have been used for power

accounted through UI mechanism after CoD. Accordingly the value of

coal considered to have been used for power accounted through UI

mechanism has been worked out. Month wise balance quantity of

coal along with its value in respect of each source has been computed

after off-setting the coal used for UI Power.

327 | P a g e

Step 5:-

From the balance source wise and month wise coal stock as computed

above, the Coal from cheaper sources, starting with the cheapest has

been considered for generation of power for supply to Haryana &

Chhattisgarh Discoms. The sources wise coal used for generation of

power supplied to Haryana and Chhattisgarh has been computed

along with its value. From the same, the weighted average value of

coal used for generation of power supplied to Haryana and

Chhattisgarh is computed month wise (up to June, 2012).

SECL vide their letter dated 28th September, 2012, reduced the coal

supply to 65% of the LAPL Unit-2 capacity and this curtailment

became effective from 01st July 2012. This restriction was imposed

considering that 177 MW (65% of 273 MW or 59% of 300 MW)

capacity of Unit – 2 is covered under PPA with Discoms of Haryana

through PTC. The Commission therefore w.e.f. July, 2012 has

considered that of the source wise balance coal in each month after

off-setting the coal used for UI Power, the costlier Coal has been

considered to have been used for generation of power for Chattisgarh

and the balance from each source to have been used for supply of

power to Haryana.

Step 6:-

The source wise balance coal, after accounting for as above for

generation during the month, is the closing stock for the month and is

328 | P a g e

transferred to the next month along with its value in source wise

manner.

In certain months, the coal has been transferred from Unit-1 to Unit-

2. The weighted average cost of transferred coal is computed. If the

same turns out to be the cheapest, the same is considered to be used

for generation of power supplied to Haryana & Chhattisgarh. The

transfer of coal stock from LAPL Unit – 2 back to Unit – 1 has been

done at the same value as considered by LAPL in their petition.

The details of coal cost computation are placed at Annexure – E

and the summary of the weighted average cost of coal arrived on the

basis of the methodology mentioned above is presented in the table

that follows:-

Computation of Weighted Average Rate of Coal

Power scheduled to Haryana

Coal quantity used for generating power for Haryana.

Value of coal used for generating power for Haryana

Weighted average rate for Haryana

FY

(MUs) (MT) (Rs. Millions) (Rs./MT)

2011- 12

878.09 706,270.01 1169.61 1656.03

2012-13

636.77 539,840.20 915.54 1695.95

In view of the fact that LAPL has not followed any mutually

agreed procedure for procurement of Coal other than linkage Coal,

the Commission directs that for future supply of power by LAPL from

Unit – 2 to PTC/HPPC a mutually agreed procedure shall be evolved

329 | P a g e

and followed for procurement of Coal other than linkage Coal till

further Order is passed in the matter by the Hon’ble Supreme Court.

Secondary Fuel Oil Consumption:-

The consumption of secondary fuel oil has been considered at 2.0

ml/kWh as per regulation 11 (4) of the HERC Regulations, 2008 and

the same has been valued as per the invoices from the oil companies

provided by the Petitioner.

Target Availability/Plant Load Factor:-

The Target Availability/Plant Load Factor, for the purpose of tariff

determination in the present case, has been considered at 80% in line

with regulation 11 (2) (a) of the HERC Regulations, 2008.

Depreciation:-

The regulation 16 (ii)(a) of the HERC Tariff Regulations, 2008 provides

as under:-

“(a) Depreciation For the purpose of tariff, depreciation shall be

computed in the following manner, namely:

(i) the value base for the purpose of depreciation shall be the historical

cost of the asset;

(ii) depreciation shall be calculated annually, based on straight line

method over the useful life of the asset and at the rates prescribed in

Appendix II to these regulations.

The residual life of the asset shall be considered as 10% and depreciation

shall be allowed up to maximum of 90% of the historical capital cost of

the asset. Land is not a depreciable asset and its cost shall be excluded

330 | P a g e

from the capital cost while computing 90% of the historical cost of the

asset. The historical capital cost of the asset shall include additional

capitalisation on account of Foreign Exchange Rate Variation up to

31.3.2008 already allowed by the Commission.

(iii)on repayment of entire loan, the remaining depreciable value shall be

spread over the balance useful life of the asset.

(iv) depreciation shall be chargeable from the first year of operation. In

case of operation of the asset for part of the year, depreciation shall be

charged on pro rata basis”.

The depreciation, in the present case, has been accordingly

computed on the project cost i.e. Rs. 1235.28 Crore admitted by the

Commission less land cost of Rs. 11.51 Crore and margin money of Rs.

24.22 Crore i.e. on a value of Rs. 1199.55 Crore at the weighted

average rate of 3.59% computed by LAPL.

In addition to the above, the Commission, in line with HERC

Regulations, 2008, has also considered Advance Against Depreciation

(AAD). The calculations for AAD are given in Annexure – D.

Income Tax:-

On the issue of Income Tax, for the purpose of tariff

determination regulation 16 (vii) of HERC Regulations, 2008 provides

as under:

“Income Tax:

(a) Tax on the income streams of the generating company from its core

business, shall be computed as an expense at the rates applicable from

time to time and shall be recovered from the beneficiaries.

331 | P a g e

(b) Any under-recovery or over-recovery of tax on income shall be

adjusted every year on the basis of income-tax assessment under the

Income-Tax Act, 1961, as certified by the statutory auditors. Provided

that tax on any income stream other than the core business shall not

constitute a pass through component in tariff and tax on such other

income shall be payable by the generating company.

Provided further that the benefits of tax-holiday as applicable in

accordance with the provisions of the Income-Tax Act, 1961 shall be

passed on to the beneficiaries.

Provided also that in the absence of any other equitable basis the credit

for carry forward losses and unabsorbed depreciation shall be given in

the proportion as provided in the second proviso to this regulation.

Provided also that income-tax allocated to the generating station shall be

charged to the beneficiaries in the same proportion as annual fixed

charges.

(c)Recovery of income tax shall be done directly by the generating

company from the beneficiaries without making any application before

the Commission.

Provided that incase of any objections by beneficiaries to the amounts

claimed on account of income tax the generating company may make an

application before the Commission for its decision.

Provided further that in case the objections of the beneficiaries are found

to be invalid by the Commission then they shall make payment of the

amount claimed by the generating company alongwith late payment

surcharge at the rates as applicable from time to time”.

332 | P a g e

Accordingly, the amount of tax paid/to be paid by LAPL- 2 has

been considered as per actual for FY 2011-12 and FY 2012-13 i.e. Rs.

7.68 Crore and Nil respectively. For FY 2013-14 onwards the Income

Tax shall be payable as actually paid by LAPL in respect of Unit – 2.

In view of the above, the tariff worked out by the Commission

at generator’s bus for the disputed period beginning 7th May, 2011,

for supply of power from LAPL Unit – 2 to Haryana based on the

norms approved in this Order is as under (till further Order is passed

in the matter by the Hon’ble Supreme Court).

Tariff Tariff (Rs./kWh)

7th May, 2011 to 31st

March, 2012.

2.8875

FY 2012-13 2.9218

Implementation of the Tariff Order:-

This Order shall be reckoned to have come into effect from the

date of commencement of supply from LAPL Unit – 2 in compliance of

the Interim Order dated 03.01.2011 of the Hon’ble APTEL for the

period FY 2011-12 and FY 2012-13. For the subsequent period of

dispute, tariff shall be worked out based on cost parameters and

norms approved in this Order till further Order is passed in the matter

by the Hon’ble Supreme Court.

333 | P a g e

The details of tariff calculations are given in Annexure A to E

of this Order.

The tariff petition filed by LAPL in pursuance of the Hon’ble APTEL’S

judgment dated 3.01.2014 is accordingly disposed of.

This Order is signed, dated and issued by the Haryana Electricity

Regulatory Commission on 23rd January, 2015.

Date: 23.01.2015 (M.S. Puri) (Jagjeet Singh) Place: Panchkula Member Chairman

334 | P a g e

ANNEXURE - A

Parameters Unit Derivation LANCO AMARKANTAK UNIT - 2

7

th May11 to

March 2012 1

st April 12 to

31st March 2013

329 days 365 days

Capacity (MW) MW 300 300

Target Availability/PLF (Normative) % 80 80

Capital Cost Rs. Million 12352.8 12352.8

Equity Rs. Million 2668.77 2668.77

Equity % 21.6 21.6

Debt Rs. Million 9684.0 9684.0

Debt % 78.40 78.40

D/E Ratio 3.62:1 3.62:1

Return on Equity % 14.00 14.00

Interest on Term Loan % 12.76 12.76

Interest working Capital % 13.00 13.00

Depreciation Rate (weighted average) % 3.59 3.59

Gross Generation at normative PLF MU A 1895.04 2102.40

Auxiliary Energy Consumption % 9% 9%

Generation (Ex-bus) MU A1 1724.49 1913.18

Station Heat Rate (SHR) Kcal/kwh B 2410 2410

Specific Oil Consumption ml/kwh C 2 2

Gross Calorific Value of Oil Kcal/litre D 10200 10200

Gross Calorific Value of Coal K.cal/Kg E 3293 3144

Overall Heat G.cal F=(A*B) 4567046.40 5066784.0

Heat from Oil G.cal G=(A*C*D)/1000 38658.82 42888.96

Heat from Coal G.cal H= (F-G) 4528387.58 5023895.04

Oil Consumption KL I=G*1000/D=A*C 3790 4205

Coal Consumption MT J=(H*1000/E) 1375155.66 1597930.99

Cost of Oil per KL Rs/KL K 56582.00 54608.00

Landed Cost of Coal (weighted average) # Rs/MT L 1656.03 1695.95

Total Cost of Oil Rs .Mln M=(K*I)/10^6 214.45 229.62

Total Cost of Coal Rs.Mln N=(J*L)/10^6 2277.30 2710.01

Total Fuel Cost Rs.Mln O=M+N 2491.75 2939.63

Fuel Cost Rs./kWh P=O/A1 1.4449 1.5365

Fixed Cost Rs./kWh 1.4426 1.3853

Tot al Cost Rs./kWh 2.8875 2.9218

# including normative coal transit and handling loss of 0.8% on linkage coal from SECL.

Specific Coal Consumption (725.66 gms/kWh)

335 | P a g e

ANNEXURE – B

FIXED COST COMPUTATION (Rs. Millions)

EXPENSES 7 May 11 to 31 March 2012 FY 2012-13 FY 2013-14 FY 2014-15

No. of Days 329 No. of Days 365 No. of Days 365 No. of Days 365

Operation & Maintenance (O&M) 111.34 128.47 133.61 138.95

Depreciation @ weighted avg rate of 3.59% 388.16 430.64 430.64 430.64

Interest & Finance Charges @ 12.76% 1071.96 1143.86 1068.19 958.08

W/C Interest @ 13 % 160.60 194.35 194.35 194.35

ROE @ 14% 339.46 376.60 376.60 376.60

Fixed Cost 2071.52 2273.92 2203.38 2098.62

Advance Against Depreciation 339.44 376.36 376.36 376.36

Income Tax (MAT) @ 20.01% 76.80 0.00 as per actual as per actual

Total Fixed Cost (Rs. Millions) 2487.76 2650.28 2579.74 2474.98

Fixed Cost (Rs./kWh) 1.4426 1.3853 1.3484 1.2936

ANNEXURE – C

WORKING CAPITAL COMPUTATION (Rs. Million) HERC Regulations 16 (vi) of 2008

ITEMS DERIVATION LAPPL 7 May to 31 March

2012 LAPPL 1 April to 31

March 2013

Coal Stock 2 months 421.08 451.67

Oil Stock 2 months 39.65 38.27

O&M Expenses 1 months 10.29 10.71

Spares (P&E) 1% of historical cost 69.29 72.06

Receivables 2 months 830.21 922.28

W/C Requirement 1370.53 1494.98

Int (@13% 160.60 194.35

ANNEXURE – D

Advance Against Depreciation (AAD) Rs. Millions

Particulars 2011-12 2012-13

1 1/10th of the Loans 968.403 895.64

2 Repayment of the loans as considered for working out interest on loan

727.6 807.00

3 Minimum of the above 727.6 807.00

4 Less : Depreciation during the year 388.16 430.64

5 (A)1 Balance amount (3-4) 339.44 376.36

6 Cumulative repayment of the loans 727.60 1534.60

7 Less : Cumulative Depreciation 388.16 818.80

8 (B) Balance amount (6-7) 339.44 715.80

9 Advance Against Depreciation (minimum of A & B) 339.44 376.36

ANNEXURE - E

336 | P a g e

COAL COST COMPUTATION

Month

Coal quantity used for Haryana Schedule (MT)

Coal quantity used for Chhattisgarh Schedule (MT)

Coal quantity used for UI Power (MT)

Linkage Coal E-auction Coal

Qty. used for Haryana Schedule (MT)

Rate (Rs. /MT)

Qty. used for Chhattisgarh Schedule (MT)

Rate (Rs. /MT)

Qty. used for UI Power (MT)

Rate (Rs. /MT)

Qty. used for Haryana Schedule (MT)

Rate (Rs. /MT)

Qty. used for Chhattisgarh Schedule (MT)

Rate (Rs. /MT)

Qty. used for UI Power (MT)

Rate (Rs. /MT)

May-11 65,820.46 - 63,624.75 65,820.46 1,172.39 - - 63,624.75 1,172.39 - - - - - -

Jun-11 46,871.69 7,797.06 61,280.01 46,871.69 1,172.39 7,797.06 1,172.39 26,280.01 1,172.39 - - - - - -

Jul-11 29,548.77 18,073.27 10,465.72 - - - - - - - - - - - -

Aug-11 68,670.16 - 34,000.48 4,841.86 1,172.39 - - - - 31,093.06 3,060.00 - - - -

Sep-11 76,481.43 - 25,376.72 47,563.86 949.85 - - - - 28,917.57 3,184.07 - - - -

Oct-11 80,597.70 41,617.84 19,915.55 50,324.93 1,012.35 25,986.04 1,012.35 - - 30,272.77 2,942.29 15,631.80 2,942.29 - -

Nov-11 69,123.85 36,230.43 14,825.87 47,135.41 967.94 24,705.46 967.94 - - 21,988.44 2,865.48 11,524.98 2,865.48 - -

Dec-11 64,154.28 34,280.79 11,865.82 57,334.30 998.77 30,636.54 998.77 - - 6,819.99 2,865.48 3,644.25 2,865.48 - -

Jan-12 67,302.48 35,106.47 15,102.94 50,055.84 1,351.72 26,110.24 1,351.72 - - 17,246.65 2,865.48 8,996.23 2,865.48 14,695.60 2,865.48

Feb-12 62,405.30 32,559.29 8,139.82 48,351.93 1,067.72 25,227.10 1,067.72 - - 14,053.37 2,865.48 7,332.19 2,865.48 8,139.82 2,865.48

Mar-12 75,293.88 35,320.71 13,846.60 51,756.04 1,077.83 24,279.00 1,077.83 - - 23,537.84 2,865.48 11,041.71 2,865.48 13,846.60 2,865.48

Apr-12 83,618.29 37,329.59 15,114.34 51,163.21 1,086.17 22,840.72 1,086.17 - - 32,455.08 2,817.38 14,488.87 2,817.38 15,114.34 2,817.38

May-12 60,868.69 32,734.52 3,855.45 2,451.47 1,079.39 1,318.38 1,079.39 - - 11,926.28 2,791.52 6,413.82 2,791.52 - -

Jun-12 - - - - - - - - - - - - - - -

Jul-12 21,481.25 11,467.07 12,500.66 17,725.68 1,079.24 - - - - - - - - - -

Aug-12 56,778.12 23,281.51 38,659.81 56,778.12 1,093.02 - - - - - - - - - -

Sep-12 62,158.72 22,867.64 24,178.47 6,557.44 1,093.02 - - - - 21,485.93 2,987.63 - - - -

Oct-12 52,084.94 1,739.18 57,057.92 39,420.75 1,099.37 - - - - 3,664.19 2,980.77 1,739.18 2,980.77 12,695.00 2,980.77

Nov-12 21,059.67 - 78,092.89 21,059.67 1,101.31 - - 20,905.83 1,101.31 - - - - 176.58 2,980.77

Dec-12 30,923.19 - 57,119.03 30,923.19 1,091.73 - - - - - - - - - -

Jan-13 73,600.39 - 21,300.65 58,717.23 1,088.74 - - - - - - - - - -

Feb-13 56,157.03 - 21,967.22 40,822.14 1,098.93 - - - - - - - - - -

Mar-13 21,109.91 - 32,492.95 21,109.91 1,091.20 - - 9,159.64 1,091.20 - - - - - -

ANNEXURE - E

337 | P a g e

Month

Open Market Coal Imported Coal Transferred Coal

Qty. used for Haryana Schedule (MT)

Rate (Rs. /MT)

Qty. used for Chhattisgarh Schedule (MT)

Rate (Rs. /MT)

Qty. used for UI Power (MT)

Rate (Rs. /MT)

Qty. used for Haryana Schedule (MT)

Rate (Rs. /MT)

Qty. used for Chhattisgarh Schedule (MT)

Rate (Rs. /MT)

Qty. used for UI Power (MT)

Rate (Rs. /MT)

Qty. used for Haryana Schedule (MT)

Rate (Rs. /MT)

May-11 - - - - - - - - - - - - - -

Jun-11 - - - - - - - - - - - - - -

Jul-11 - - - - 6,638.95 3,812.90 - - - - 3,826.77 6,122.33 29,548.77 985.40

Aug-11 30,357.29 3,633.01 - - - - - - - - 34,000.48 6,056.40 2,377.96 985.40

Sep-11 - - - - 13,633.00 3,298.59 - - - - 11,743.72 6,056.40 - -

Oct-11 - - - - 19,915.55 3,237.69 - - - - - - - -

Nov-11 - - - - 14,825.87 3,208.28 - - - - - - - -

Dec-11 - - - - 11,865.82 3,208.28 - - - - - - - -

Jan-12 - - - - 407.35 3,208.28 - - - - - - - -

Feb-12 - - - - - - - - - - - - - -

Mar-12 - - - - - - - - - - - - - -

Apr-12 - - - - - - - - - - - - - -

May-12 14,789.58 3,375.33 7,953.68 3,375.33 3,855.45 3,375.33 - - - - - - 31,701.36 1,123.88

Jun-12 - - - - - - - - - - - - - -

Jul-12 3,755.56 3,459.72 11,467.07 3,459.72 12,500.66 3,459.72 - - - - - - - -

Aug-12 - - 23,281.51 3,453.40 38,659.81 3,453.40 - - - - - - - -

Sep-12 34,115.35 3,445.36 22,867.64 3,445.36 24,178.47 3,445.36 - - - - - - - -

Oct-12 - - - - 44,362.93 3,405.56 - - - - - - 9,000.00 1,221.77

Nov-12 - - - - 40,853.66 3,402.71 - - - - - - - -

Dec-12 - - - - 57,119.03 3,561.25 - - - - - - - -

Jan-13 14,883.16 3,708.17 - - 21,300.65 3,708.17 - - - - - - - -

Feb-13 15,334.90 3,569.86 - - 21,967.22 3,569.86 - - - - - - - -

Mar-13 - - - - 23,333.31 3,495.57 - - - - - - - -

ANNEXURE - E

338 | P a g e

Month

Transferred Coal Haryana Schedule Chhattisgarh Schedule UI Power

Qty. used for Chhattisgarh Schedule (MT)

Rate (Rs. /MT)

Qty. used for UI Power (MT)

Rate (Rs. /MT)

Total quantity of coal used (MT)

Total Cost (Rs.) Weighted Average rate (Rs./MT)

Total quantity of coal used (MT)

Total Cost (Rs.) Weighted Average rate (Rs./MT)

Total quantity of coal used (MT)

Total Cost (Rs.) Weighted Average rate (Rs./MT)

May-11 - - - - 65,820.46 77,166,952.23 1,172.39 - - - 63,624.75 74,592,740.33 1,172.39

Jun-11 - - 35,000.00 2,136.26 46,871.69 54,951,698.29 1,172.39 7,797.06 9,141,159.31 1,172.39 61,280.01 105,579,554.22 1,722.90

Jul-11 18,073.27 985.40 - - 29,548.77 29,117,245.65 985.40 18,073.27 17,809,331.83 985.40 10,465.72 48,742,420.78 4,657.34

Aug-11 - - - - 68,670.16 213,452,581.56 3,108.37 - - - 34,000.48 205,920,380.93 6,056.40

Sep-11 - - - - 76,481.43 137,254,043.73 1,794.61 - - - 25,376.72 116,094,274.64 4,574.83

Oct-11 - - - - 80,597.70 140,018,071.68 1,737.25 41,617.84 72,300,453.62 1,737.25 19,915.55 64,480,375.88 3,237.69

Nov-11 - - - - 69,123.85 108,631,679.71 1,571.55 36,230.43 56,937,983.85 1,571.55 14,825.87 47,565,535.44 3,208.28

Dec-11 - - - - 64,154.28 76,806,078.90 1,197.21 34,280.79 41,041,272.10 1,197.21 11,865.82 38,068,863.37 3,208.28

Jan-12 - - - - 67,302.48 117,081,229.38 1,739.63 35,106.47 61,072,174.70 1,739.63 15,102.94 43,416,746.33 2,874.72

Feb-12 - - - - 62,405.30 91,896,064.76 1,472.57 32,559.29 47,945,772.92 1,472.57 8,139.82 23,324,458.60 2,865.48

Mar-12 - - - - 75,293.88 123,231,434.68 1,636.67 35,320.71 57,808,440.99 1,636.67 13,846.60 39,677,102.31 2,865.48

Total FY 2011-12

706,270.01 1,169,607,080.57 1,656.03 240,985.87 364,056,589.30 1,510.70 278,444.30 807,462,452.82 2,899.91

Apr-12 - - - - 83,618.29 147,010,433.13 1,758.11 37,329.59 65,629,657.65 1,758.11 15,114.34 42,582,873.56 2,817.38

May-12 17,048.64 1,123.88 - - 60,868.69 121,486,726.34 1,995.88 32,734.52 65,334,241.35 1,995.88 3,855.45 13,013,422.08 3,375.33

Jun-12 - - - - - - - - - - - - -

Jul-12 - - - - 21,481.25 32,123,419.48 1,495.42 11,467.07 39,672,808.46 3,459.72 12,500.66 43,248,758.88 3,459.72

Aug-12 - - - - 56,778.12 62,059,714.41 1,093.02 23,281.51 80,400,332.59 3,453.40 38,659.81 133,507,724.03 3,453.40

Sep-12 - - - - 62,158.72 188,899,152.05 3,038.98 22,867.64 78,787,311.65 3,445.36 24,178.47 83,303,596.16 3,445.36

Oct-12 - - - - 52,084.94 65,255,915.55 1,252.87 1,739.18 5,184,105.09 2,980.77 57,057.92 188,921,337.23 3,311.04

Nov-12 - - 16,156.82 1,800.06 21,059.67 23,193,317.63 1,101.31 - - - 78,092.89 191,646,815.27 2,454.09

Dec-12 - - - - 30,923.19 33,759,740.93 1,091.73 - - - 57,119.03 203,414,993.78 3,561.25

Jan-13 - - - - 73,600.39 119,116,723.90 1,618.43 - - - 21,300.65 78,986,330.11 3,708.17

Feb-13 - - - - 56,157.03 99,604,213.65 1,773.67 - - - 21,967.22 78,419,813.37 3,569.86

Mar-13 - - - - 21,109.91 23,035,218.79 1,091.20 - - - 32,492.95 91,558,187.72 2,817.79

Total FY 2012-13

539,840.20 915,544,575.87 1,695.95 129,419.52 335,008,456.78 2,588.55 362,339.39 1,148,603,852.18 3,169.97