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Differences between the central and Maharashtra governments over Ratnagiri Gas and Power Pvt. Ltd (RGPPL) have deepened with the state government questioning the Centre’s right to intervene in the matter. RGPPL has been seeking INR.400 crore in “fixed costs” from Mahavitaranan amount which has been disputed by the state government utility.

“We don’t owe any dues to RGPPL and government of India has no right to recover so-called dues from our allocation of the central funds to the state,” said Maharashtra’s energy secretary Ajoy Mehta, in response to reports that the central government may deduct the amount from the funds allocated to the state from the Central kitty.

On 11 April, The Economic Times had reported that the finance ministry has suggested that the amount be deducted from the Central funds to be transferred to the state if the dispute is not resolved. The differences between RGPPL and Mahavitaran are linked to the lack of adequate fuel for the project and the cost of producing power.

RGPPL was allocated 7.6 metric million standard cubic meters per day (mmscmd) of gas from Reliance Industries Ltd’s KG-D6 gas field in 2008. However, gas supply started dwindling starting September 2011, which forced RGPPL to enter into an agreement with GAIL for alternative supply of regassified, liquid natural gas (R-LNG) through imports.

However, Mahavitaran was not ready to buy power produced from R-LNG, claiming that the cost of the power was higher than anticipated.

RGPPL then demanded a payment of the fixed costs which amounted to INR 400 crore, saying it is ready to supply power using R-LNG but Mahavitaran is reluctant to buy it. Typically, power tariff consists of two components—fixed costs such as the cost of machinery, debt servicing and salaries, and variable cost, which mainly consists of the cost of fuel.

Mahavitaran has refused to pay the fixed costs, claiming that the power purchase agreement (PPA) with RGPPL clearly states that RGPPL must obtain clearance from Mahavitaran before entering into any gas purchase agreement. In this case RGPPL had not got clearance from Mahavitaran before entering into an agreement with GAIL for importing R-LNG. In January 2013, RGPPL moved a petition before the Central Electricity Regulatory Commission (CERC), asking it to direct Mahavitaran to pay the fixed costs. In June 2013, CERC ruled in favour of RGPPL but Mahavitaran challenged CERC’s decision before the Appellate Tribunal for Electricity (ATE), which is currently hearing the case.

According to Kameswara Rao, head of energy, utility and mining practice at the audit and consultancy firm PricewaterhouseCoopers (PwC), the dispute should be sorted out at the level of the two corporations. “Even though both RGPPL and Mahavitaran are public sector entities, they are essentially commercial establishments and it is in the best interest of all stakeholders that disputes between commercial entities are resolved by the regulators or courts. And governments should restrain from intervening in such disputes,” he said.

RGPPL has already been struggling due to the lack of cost-effective fuel supply and the refusal of Mahavitaran to buy power from the project. Mahavitaran was to buy 95 Percent of the power produced by the project. As a result, RGPPL has outstanding debts of nearly INR8,500 crore, secured from various private and public banks including the State Bank of India, ICICI Bank Ltd, IDBI Bank Ltd and Canara Bank, which it is struggling to service.

To try and break the deadlock, the finance ministry had called a meeting of all stakeholders in March and warned that if the Maharashtra government did not resolve the dispute amicably, the central government may have to deduct the amount from state government’s share of Central funds.

NTPC and GAIL own 33 Percent stake each in the RGPPL, MSEB Holding Co. Ltd owns 17 Percent, and the rest is owned by its lenders. A finance ministry official, who did not wish to be identified said that though a final decision on the matter is yet to be taken, if one goes by the contract signed by the Maharashtra government and RGPPL, then the latter has a case, though it can be disputed. “A meeting was scheduled for last week to take a final call on the matter, but that now has been postponed,” he added.

Source-On Request