BEFORE THE GUJARAT ELECTRICITY REGULATORY COMMISSION GANDHINAGAR Petition No. 1411 of 2014 In the matter of: Approval of Capital Cost for 500 MW Ukai Unit No. 6 in respect of PPA between GSECL and GUVNL.
Petitioner : Gujarat State Electricity Corporation Limited
Sardar Patel, Vidyut Bhavan, Race Course,
Vadodara.
Represented by : S/Shri M.B.Kaka, A.J.Mehta and R.M.Bhadang
V/s.
Respondents : Gujarat Urja Vikas Nigam Ltd (GUVNL)
Sardar Patel Vidyut Bhavan,
Race Course, Vadodara – 390024.
Represented by : Ms. Shailaja Vachharajani with Shri D.P.Modi
CORAM: Shri Pravinbhai Patel, Chairman Dr. M.K. Iyer, Member (Fin.)
ORDER
1. The present petition has been filed by the petitioner, seeking approval of
capital cost of Rs. 3013.42 Crores for 500 MW Ukai Unit No. 6 in respect of
PPA between GSECL and GUVNL.
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2. The facts mentioned in the petition are briefly stated as under:
2.1 The Petitioner has submitted that on completion of work of the said 500
MW Ukai Unit No. 6, Commercial Operation Date (COD) was achieved on
08.06.2013. Against the orders placed and payments made/ payable by the
Petitioner to the EPC Contractor and other agencies, the Project Cost, as
certified by M/s NJP & Associates, Chartered Accountants, Vadodara
worked out to Rs. 3013.42 Crores as given in the table below which does
not include the penalty of Rs. 89.52 Crores deducted @ 5%.
Capital Cost Particulars (in Rs. Crs)
EPC Contractor (BHEL) Orders 2087.01
Non EPC Contractor Orders 90.99
Revenue Expenditure 124.13
Interest During Construction Period 655.59
Fuel Consumption During Trial Run 55.70
Total Capital Cost 3013.42
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2.2 The Petitioner has submitted that as per the Electricity Act, 2003, the
Petitioner does not require permission or license from CEA or other
authority for installing a thermal generating station. A High Power
Committee of Government of Gujarat (GoG) was formed for development of
power stations in the State to meet the growing demand for power. The
High Power Committee, vide Minutes of Meeting (MoM) No.
GPCL/TECH/HPC/24549 dated 28th March, 2006 approved setting up of
490 MW Unit No. 6 at Ukai Thermal Power Station premises based on
Single Tender obtained from M/s BHEL and to negotiate with M/s BHEL as
GIPCL was already in process of negotiation with M/s BHEL for their
250/300 MW expansion project and that International Competition
Bidding (ICB) route would have consumed more time.
2.3 The Petitioner’s Board approved 1 x 490 MW indigenous Coal based
extension Unit No. 6 at Ukai TPS as per Board Resolution No. 81.07.1172
dated 11.02.2007. Thereafter, the Board also approved to accept the EPC
offer of M/s BHEL at Rs. 1950 Crs. excluding mandatory spares for 1x490
MW indigenous Coal based extension Unit No. 6 at Ukai TPS vide BR No.
86.42.1286 dated 05.09.2007, and to enter into the following divisible
order/contract:
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Supply of Plant and Equipment
Erection and Commissioning
Civil Works
and reckoning completion period from date of receipt of Letter of Intent
(LOI) along with initial advance.
The Board of the Petitioner further resolved to approve following works:
1. Demolition of Central Store, Fire Tender House, water tanks, etc.
2. Construction of Central Store, Fire Tender House, water tanks, one
more gate for entry of materials, diversion of drains, strengthening &
widening of roads etc., Installation of HCSD system, if required.
3. Construction of marshalling yard for unloading coal of Unit No. 6.
4. Procurement of the imported cables for switch yard.
The Petitioner submitted that as per the site condition, the Ukai TPS is
surrounded by Canal of PWD from Ukai Dam on one side and on another
side there is a natural stream of water on western part to southern part.
Ash dyke is located behind the Canal and it is in between Canal and a
natural stream known as Ghoda Nala on northen part. Also, Canal passes
on eastern part of the TPS and hence, entire TPS is having shortage of
land. Under the circumstances, the Petitioner had no option but to
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demolish Central Store, Fire Tender House, water tanks, etc. to create
space for construction of Ukai Unit No. 6 and hence, obtained the
necessary Board approval in this regard.
2.4 The Petitioner’s Board approved to appoint a Project Consultant vide BR
No. 81.07.1172 dated 11.02.2007, and accordingly, the Petitioner awarded
contract to M/s TCE Consulting Engineers Ltd., Bangalore for the work of
Consultancy and Detailed Engineering Services for 1x490 MW Ukai Unit
No. 6 vide Order No. PP/PMI/PL.3/Ukai-6/Consultancy/1878 dated
02.07.2007, for Rs. 5.49 Crore and subsequently issued Amendment Order
No.PP/PMI/ PL.3/ Ukai-6/Consultancy/2377 dated 17.08.2007 modifying
the terms of payment.
2.5 The Petitioner issued Letter of Intent (LoI) vide Letter No. PP/SE(P-II)/EE-
III/Ukai-6/BHEL-MKtg/2559 dated 07.09.2007 to M/s BHEL for Design,
Engineering, Manufacture, Supply, Transportation to site, Erection, Testing
Commissioning and Trial run including PG Tests for the Plant on EPC basis
including civil works for 1 x 490 MW Ukai Coal based TPS Extn. Unit No. 6
for Rs. 1950 Crores based on the Board approval.
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2.6 From time to time, the Petitioner issued Amendments for additional scope
of work or certain modifications in the Terms & Conditions of the
contract/LoI which are tabulated hereunder:
Amend- Amendment Item Increase in ment Letter No. Contract No. PP/SE(P&P)/ amount. If Ukai-6/BHEL- any (Rs. Mktg/ dated Crores)
1 2951/17.10.2007 Para-3 at Page No. 3 - Clause modified. Nil
2 1572/08.07.2007 Unit Capacity changed from 490 MW to 500 Nil MW
3 1825/29.07.2009 Firm Price changes from Rs. 1950 Cr. To Rs. 5.00 1955 Cr.
4 0870/22.04.2010 Procurement of 220/400 KV Imported 23.45 cable included.
5 2141/19.11.2010 Additional cost for Supply, erection, testing, 2.78 commissioning & Civil works of Control & Relay Panels for 400/220 KV ICT, 400 KV Bus Coupler,400 KV Bus Transfer, 400 KV Asoj line & necessary Power cables, control cables, Cable trench material & SCADA for additional 400 KV Bays - EXCL. TAXES & DUTIES.
6 1146/26.09.2011 Additional cost for Civil works of RCC Box 1.20 culvert below stacker Reclaimer
- Total Additional Cost 32.43
Total Contract Value increased to Rs. 1982.43 Crores i.e. Original Rs. 1950 Crores plus Rs. 32.43 Crores as above
2.7 The Petitioner’s Board also approved to procure the recommended
mandatory spares for said Unit vide BR No. 91.14.1382 dated 15.04.2008
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at an approximate cost of Rs. 108 Crores. A detailed Order No.
PP/SE(P&P)/Ukai-6/BHEL/Spares /1519 for Spares was issued on
01.07.2008, for a total price Rs. 104.58 Crores. The scope of work was
covering the design, engineering, manufacturing, assembly, shop testing,
shop inspection, packing/forwarding, shipping, loading/unloading at
manufacturing units/sub-vendors’ premises, transportation up to Ukai TPS
on freight to pay basis, Delivery F.O.R. ex-works etc., exclusive of taxes &
duties, service tax, Insurance and transportation charges.
2.8 The Petitioner also issued orders to parties other than the EPC Contractor
for Balance of Plant activities worth Rs. 90.99 Crores.
Thus, the total contract value amount, including Original EPC order plus all
the Amendments thereto plus Mandatory Spares order plus orders to
parties other than the EPC contractor for Balance of Plant activities works
out to Rs. 2178 Crores (1950+32.43+104.58+90.99).
2.9 The Petitioner submitted that expenses were incurred towards various
activities such as Consultancy, Employees’ salary, Head Office Supervision
Charges, Interest During Construction, payment towards cost of oil and
washed coal for Unit No. 6 of Ukai TPS as under:
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(i) (a) Consultancy Charges:
The Petitioner had engaged M/s TCE Consulting Engineers Ltd.,
Bangalore for the work of Consultancy and Detailed Engineering
Services for the said Unit No. 6 vide Order No. PP/PMI/PL.3/Ukai-
6/Consultancy/1878 dated 02.07.2007, for Rs. 5.49 Crores and
subsequently issued Amendment Order No. /PP/PMI/PL.3/Ukai-
6/Consultancy/ dated 17.08.2007 modifying the terms of payment. The
total payment of Rs. 5.71 Crores was made to the consultant.
(b) Salaries: An expenditure of Rs. 5.92 Crores was incurred towards the salaries for
the staff engaged for the said Unit.
(c) Head Office Supervision Charges (HOSC): Petitioner submitted that an amount of Rs. 112.49 Crores was incurred
towards Head Office Supervision Charges (HOSC) for the entire
construction of the said Unit up to the date of commissioning.
(ii) Interest during Construction (IDC): The Petitioner had availed loan of Rs. 1775 Crores from Power Finance
Corporation Limited (loan No. 19401008) for Ukai Unit No. 6. In order
to meet the increase in the cost of the said Unit, PFC sanctioned
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additional loan of Rs. 283.70 Crores. The interest on the said loans paid
by the Petitioner during the construction period was Rs. 655.59 Crores.
(iii) Fuel Cost: (a) The commissioning activity was started from the light-up of Boiler
in March-2012. Expenditure of Rs. 43.92 Crores was incurred for
use of Oil in the Boiler light-up for testing, trial-run etc.
(b) After commissioning of entire system including coal mills’
commissioning, the activity to achieve full load required running
of coal mills at full load and using coal for the same, for which an
expenditure of Rs. 11.78 Crores was incurred till the date of
declaration of Commercial Operation.
(c) Thus, the Petitioner has claimed total expenditure of Rs. 55.70
Crores net of UI Income for infirm power on account of units
generated during commissioning.
2.10 The Petitioner submitted that the total Order value of EPC Contractor
[BHEL] amounts to Rs. 1818.14 Crores plus applicable taxes & duties. As
per the EPC contract BHEL was required to construct and commission the
Unit within 40 months from the LOI along with initial advance. Since the
project was delayed by BHEL, liquidated damages of Rs. 89.52 Crore up to
February 2014 were recovered/deducted by the petitioner. The petitioner
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submitted that overall total Capital Cost incurred for 500 MW Ukai Unit No.
6 works out to Rs. 3013.42 Crores including IDC and pre-operative charges
and submitted Chartered Accountant’s Certificate certifying the same.
2.11 The Petitioner submitted that it was very difficult task to demolish Central
Stores as at the time of issuance of LoI, the R&M works for Unit No. 1 was
in progress and also the works of R&M for Unit No. 2 was scheduled to
commence immediately on completion of R&M of Unit No. 1. Thus, the
material handling of R&M works was in full swing, along with regular
material management for all other Units under operation, when the work
to demolish Central Store was commenced. It was highly difficult to
demolish and to discontinue the services of the Central Stores, Fire Tender
House and water tanks for a fully operating TPS. But looking to the space
constraints as stated above, the Petitioner had no alternative but to
demolish these constructed premises and install new premises at other
places where the design of new Unit No. 6 was permitting. This delayed the
project execution and completion.
2.12 It is further submitted that these were conditions beyond the control of the
Petitioner, i.e. Force Majeure Conditions which delayed the construction
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activities immediately after issuance of Letter of Intent by the petitioner,
which are stated below:
(i) The work of demolition and construction of new Central Stores
and other premises was delayed due to heavy rain of about 2234
mm against average rainfall of 1500 to 1600 mm every year,
which was about 1.5 times high.
(ii) During such heavy rains, it was difficult to construct buildings, to
level the ground due to muddy condition of soil.
(iii) Soil with landscape of the Ukai TPS was full of uneven crest-
troughs.
(iv) There were certain other issues of Force Majeure nature which
delayed the construction activity considerably.
2.13 The Petitioner submitted that after acceptance of LoI by M/s BHEL on
18.10.2007, the Petitioner started demolition of Central Stores, Fire Tender
House, water tanks, etc. and construction of the same at their new
designated places in phased manner to create space for Unit No. 6.
Commencement of boiler foundation works could be possible on
17.11.2008 i.e. 1 year after the LoI.
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3.0 RESPONDENT’S SUBMISSION
3.1 The respondent, GUVNL filed a reply, contending, inter alia, that the
petitioner included an amount of Rs. 55.70 Crores towards fuel cost
capitalized. But it has not provided details of the quantity of Furnace Oil,
Light Diesel Oil and Coal used and units generated during testing and
before declaration of CoD. Therefore, GUVNL is not in a position to verify
the fuel efficiency against the parameters agreed in the PPA. Cost of Oil
used during testing and generation of infirm power of Rs. 43.92 Crores is
very high. The respondent has requested that the petitioner should provide
month wise quantity of various fuels consumed and the actual units
generated during such period.
3.2 The petitioner has claimed Rs. 655.59 Crores as Interest During
Construction in the petition but has not provided detailed computation of
the same. The petitioner may be advised to furnish the computation
including details of amount borrowed, interest payments made to the
lenders and the period for which the interest was paid.
3.3 The petitioner has claimed Rs. 90.99 Crores as Non-EPC Cost. GSECL has
included the cost of construction of new road, repairing of road,
Construction of staff quarters etc. amounting to Rs. 7.68 Crores. As Ukai
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Unit No. 6 is in the same premises of already existing Ukai Unit No.1 to 5,
the original cost of the aforesaid infrastructure would have been
considered in the capital cost of Ukai Unit No. 1 to 5. Hence, the petitioner,
GSECL needs to justify the reasons for including cost of
repairing/modification of existing assets in the capital cost of Unit No.6.
Repairing and Maintenance cost should ideally be met through amount
paid towards O & M expenses in the tariff by GUVNL. Therefore, such
expenses included in the capital cost may be disallowed.
4. The matter was kept for hearing on 7.06.2014. Shri M.B.Kaka, on behalf the
petitioner, reiterated the facts as stated in para 2 above.
5. Smt. Shailaja Vachharajani, on behalf of the respondent reiterated the facts
as stated in para 3 above.
6.0 PETITIONER’S REPLY
6.1 In response to submission made by Ms. Shailaja Vachharajani, Shri
M.B.Kaka, on behalf of the petitioner submitted that the petitioner claimed
Rs.55.70 Crores towards Fuel Cost capitalized as per following details:
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(Rs. in Crores)
2011-12 2012-13 2013-14 (upto CoD) GRAND TOTAL QTY AMT QTY AMT QTY AMT QTY AMT FO (IN KL) - - 5,138.47 22.451 3,649.010 15.921 8,787.48 38.373 LDO (IN KL) 56.311 0.397 714.050 4.522 97.200 0.627 867.561 5.547 WASH COAL (IN MT) - - 5,000.00 1.643 34,433.60 11.003 39,433.60 12.647 UI INCOME (PRE- OPERATIVE EXP.) ------(0.874) UI INCOME - (PRE- OPERATIVE EXP.) ------0.0060 Grand Total 55.70
6.2 He further submitted that cost of oil used during the testing and generation
of infirm power was Rs.43.92 Crores. The consumption of oil during testing
and generation of infirm power was very high, because 500 MW Ukai Unit
No. 6 is a Sub Critical Plant and being a Sub Critical Plant, consumption of
oil is high as compared of 210 MW plant. During stabilization and teething
period, the machine was required to operate on oil.
6.3 The Petitioner submitted that it has claimed Rs. 655.59 Crores as Interest
During Construction (IDC) being the amount of interest paid to PFC for the
period from April 2008 to June 2013 on term loan for Ukai Unit No. 6.
6.4 The Petitioner submitted that it has claimed Rs. 90.99 Crores towards non
EPC cost, which includes cost of construction of new roads, repairing of
existing roads and construction of staff quarters amounting to Rs. 7.68
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Crores is as under:
Sr.No. Name of Party Subject Amount [Rs. in Crores]
1 M/s.I.S.I. Repairing of Road at 0.0198 Engineers- various locations inside Junagam P.H. at Ukai TPS.
2 M/s. Royal Infra Repairing of damaged 0.0199 Engg. Pvt.Ltd- road diverted @70.05 to Surat approach service building at Ukai TPS
3 M/s.Vraj Construction Construction of Type II 4.938 Co.-Amreli quarter 5 Blocks at Ukai TPS
4 M/s.Shiv Providing barrier on 0.002 Costruction Co- road behind 400KV Ukai switchyard area of UkaiTPS#6.
5 M/s.Vraj Construction Construction of Type II 2.700 Co.-Amreli quarter at Ukai TPS
TOTAL 7.68
Out of the total expenditure of Rs. 7.68 Crores an amount of Rs. 0.039
Crores (Sr. No. 1 & 2) was incurred towards repairing of roads and balance
amount was spent for Unit No. 6 of Ukai TPS.
6.5 The Petitioner submitted that Clause No.7 of the contract with M/s BHEL
stipulated that liquidated damages on account of delay in completion of
project shall be paid by M/s. BHEL to GSECL @ 0.5% of total contract price
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per full week of delay and pro-rated for a part of the week subject to a
maximum 10% of the contract price for the Unit.
The contract price as agreed between the parties is stated below:-
Sl. No. Particulars Amount in Rs. Crores
1. Works supply price 1199.25
2. Erection & Commissioning , Insurance charges 180.10 inclusive of Service Tax
3. Civil works including structural steel and 407.61 reinforcement steel inclusive of Service Tax
Total 1786.96
As the commissioning of the project was delayed by M/s BHEL from
7.01.2011 to 7.06.2013 i.e. 882 days, M/s. BHEL was liable to pay
maximum liquidated damages @ 10% of the contract value of Rs. 1786.96
Crores i.e. Rs. 178.69 Crores. However, in view of heavy rain, strikes and
non availability of evacuation system at site to the contractor, an amount of
Rs.89.52 Crores was considered recoverable from M/s BHEL, where M/s
BHEL was exclusively responsible for the delay. Therefore, Rs. 89.52 Crores
is withheld under retention money.
6.6 The petitioner submitted that he has adopted Accounting policy for
capitalization of the pre-operative expenses such as HOSC for
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expenditure towards employee cost and administrative cost amounting
to Rs. 112.49 Crores.
7.0 COMMISSION’S FINDINGS:
7.1 We have carefully considered the submissions made by the parties as also
the documents and records submitted by the petitioner including the
certificate of M/s NJP & Associates, Chartered Accountants, Vadodara. We
observe that the petitioner and the respondent have signed the Power
Purchase Agreement on 1.01.2011 and approached the Commission by
filling petition No. 1085/2011 for approval of the said PPA. The
Commission passed an order dated 27.06.2011 in petition No. 1085/2011.
In the said order it was decided and directed by the Commission that the
petitioner GSECL shall approach the Commission for approval of the capital
cost of 500 MW Unit No. 6 of Ukai TPS whenever the same is commissioned
by the petitioner. Hence, in compliance of the same order the present
petition is filed by the petitioner.
7.2 We note that the Board of the Petitioner had vide its BR No. 81.07.1172
dated 11.02.2007 decided to set up 490 MW indigenous coal based plant at
existing Ukai TPS site. The Board had also approved vide BR No.
82.42.1286 dated 5.09.2007 to accept the EPC offer of M/s BHEL at Rs.
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1950 Crores excluding mandatory spares for the above Unit and issue the
order/contract.
7.3 We note that the petitioner had issued Letter of Intent on 7.09.2007 to M/s
BHEL for design, engineering, manufacture, supply, transportation to site,
erection, testing, commissioning and trial run including PG test for the
plant on EPC basis including Civil Works for 1x490 MW Ukai Coal based
power project as under:
Sr. Contract Contract Price (In Schedule of Completion No. Crores)
1 Works contract for (i) Rs. 1199.25 40 Months from the zero supply of material and date, i.e. 6.10.2007 EPC 1x500 MW Ukai TPS (ii) Rs. 133.00 at Unit No. 6 Therefore, 40 months Total price inclusive completed on 6.02.2011 (i) Ex Works Supply of taxes and duties accordingly LD leviable from (F.O.R. Works/Sub- Rs. 1332.25 6.02.2011 onwards till the Contractor’s works/port date of commissioning. of entry basis) (Exclusive of Spares)
(ii) Taxes and Duties (ED with Cess @ 16.48% and CST @ 3% and Exit Tax @ 0.1)
2 Transportation and 210.14 6.02.2011 supply of material and erection and commissioning and MCE insurance
3 Civil Work 407.61 6.02.2011
TOTAL 1950.00
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7.4 We also note that the petitioner issued amendment No. (I) to (VI) to LoI
dated 7.09.2007 as stated below:
Sr. Date Letter No. Amendment No. Particulars of No. Amendment The Zero date of the 1 17.10.2007 No.PP/SE(P&P)/Ukai- I project shall be taken as 6/BHEL-Mktg/2951 the date of receipt of LOI and initial advance payment. All contractual obligations of M/s BHEL start from this date. Other terms and conditions of LOI dated 7.09.2007 remain unchanged.
The unit size read as 1x500 2 8.07.2007 PP/SE(P&P)/Ukai- II MW in place of 1x490 MW 6/BHEL-Mktg/1572
3 29.07.2009 PP/SE(P&P)/Ukai- III Firm price read as Rs. 1955 6/BHEL/1825 Crores instead of Rs. 1950 Crores.
4 22.04.2010 PP/SE(P&P)/Ukai- IV Firm Price read as Rs. 1955 6/BHEL/870 Crores plus Rs. 5,00,05,675.45 (i.e. Rs. 5 Crores) plus US $ 35,83,752,68 instead of Rs. 1955 Crores.
It is also stated that US $ component shall be paid in equivalent Indian Rupees at the prevailing rate at the time of supply.
5 19.11.2010 PP/SE(P&P)/Ukai- V The Amendment proposed 6/BHEL/2141 that the firm price reads as Rs. 1955 Crores plus Rs. 5,00,05,675.45 (i.e. Rs. 5
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Crores) plus US $ 35,83,752,68 plus Rs. 2.49 Crores (excluding taxes and duties for control and relay panels) instead of Price of Rs. 1955 Crores plus Rs. 5,00,05,675.45 plus US $ 35,83,752,68
6 26.09.2011 PP/SE(P&P)/Ukai- VI The firm price in LOI 6/BHEL/1146 amended to read as Rs. 1955 Crores plus Rs. 5,00,05,675.45 (i.e. Rs. 5 Crores) plus US $ 35,83,752.68 plus Rs. 2.49 Crores plus Rs. 1.20 Crores instead of Price of Rs. 1955 Crores plus Rs. 5,00,05,675.45 plus US $ 35,83,752,68.
The above amendment was due to additional cost for civil work of RCC Box Culvert below stacker reclaimer.
7.5 It is observed that the above amendments issued by the petitioner from
time to time indicate that the petitioner agreed to increase the original cost
of project stated in LOI dated 7.09.2007 with increase in the scope of work
in respect of 1x490 MW Unit of Ukai TPS. It is further observed that major
amendment was for the size of the Unit from 490 MW to 500 MW and
foreign exchange component incorporated in amendment No. IV was due
to supply of 4400 meters of 400 KV 1Cx1200 Sq.mm cable and 3280
meters of 400 KV 1C x 500 Sq.mm cable, testing, commissioning and civil
works of Control and Relay panels. Thus, the petitioner has claimed total
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cost of Rs. 1982.43 Crores towards the LoI issued for all the above works
including foreign exchange component.
7.6 We note that the petitioner had signed the agreements for
(a) EPC contract,
(b) Supply and transport of material
(c) Civil construction contract.
As per the Letter of Intent, amendments to LoI issued from time to time
and the agreements, M/s. BHEL was required to carry out various activities
like supply of the equipments, erection of the plant and machinery, testing
and commissioning of the same, construction of the civil works etc. All
these activities were to be completed by M/s BHEL within the time
schedule as specified in the LoI / Contract Agreements. We also note that
the LoI / Contract Agreements provide that in case of delay in construction
and commissioning of the project beyond 40 months after the zero date, it
attracts penalty in the form of liquidated damages.
According to aforesaid contracts, if there is delay in achieving COD of Unit
beyond 40 months from the zero date (Zero date 6.10.2007 and scheduled
competition date 6.02.2011), the contractor, i.e. BHEL shall pay to GSECL
Page 21 liquidated damages on account of delay in completion of the project.
Moreover, if there is shortfall in performance, in that case also liquidated damages are payable by BHEL to GSECL. The relevant portion of the contract is stated hereunder:
“7. Liquidated Damages (LD)
(a) LD on Account of Delay in completion:
In case the COD of units gets delayed (beyond 40 months from Zero Date) due to the CONTRACTOR, the CONTRACTOR shall pay to the
OWNER/PURCHASER the liquidated damages @0.5% of total contract price per full week of delay & pro-rated for a part of the week subject to a maximum 10% of the contract price for the unit.
(b) LD for shortfall in performance:
The total LD on account of shortfall in Performance against Gross Power output, Auxiliary Power Consumption and weighted plant gross cycle heat rate shall not exceed 10% of the contract price of the unit. If the combine liquidated damages for performance exceeds 10% of the contract value of the unit, OWNER reserves the right to reject the plant. In case such an option of rejection is being exercised, the CONTRACTOR shall replace the equipment
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with one, which shall meet the guaranteed values.
(c) Ceiling on the total Liquidated Damages:
Maximum liquidated damages payable on account of delay and shortfall in Performance under all eventualities shall not exceed 17.5% of the total contract price for the unit.
10. Zero Date of the Contract
Zero date of the project is taken as 06.10.2007”
From the above provisions it transpires that the BHEL is liable to pay the
liquidated damages if there is delay in completion of the project. It is also
provided that BHEL is required to pay LD if the performance parameters
are not achieved. Thus, the total LD payable on account of delay in
achieving COD and shortfall in performance in all eventualities is required
to be considered together with respect to the contract price. The maximum
ceiling of LD for delay in completion of the project is 10% of contract price.
Similarly, ceiling of LD for shortfall in performance is also 10% of the
contract price while the ceiling for total LD is 17.5% of total contract price.
7.7 We note that the contract price on the date of contract with M/s. BHEL Ltd. was Rs. 1950 Crores as stated below
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1x500 MW UKAI TPS Extension Unit 6 Sr. Description (Rs No. Crores) 1 Ex Works supply price without Taxed and Duties 1199.25 (Exclusive of Spares) 2 Taxes and Duties (ED @ 16.48%, CST @ 3% and EXIT 133.00 TAX @ 0.1%) 3 Ex Works Supply prices inclusive of T & D 1332.25 4 INLAND TPT Inclusive of Service Tax (@ 12.36%) 30.04 5 Erection & Commissioning and Insurance inclusive of 180.10 service tax (@ 12.36) 6 Civil Works including structural steel & reinforcement 407.61 steel inclusive of service tax (@ 2.06% on 100% Civil Price as prevalent on base date) 7 Grand Total Exclusive of Spares 1950.00
7.8 We also note that the original cost increased to Rs. 1982.43 Crores as
stated in para 7.5 above through various amendments. We also note that
the petitioner GSECL was mandated to purchase the mandatory spares of
Rs. 104.58 Crores with the plant. The petitioner was also required to incur
capital expenditure of Rs. 90.99 Crores for other than EPC work. Thus, the
total cost of the project works out to Rs. 2178 Crores.
7.9 We note that in addition to above, the petitioner incurred expenditure on
various heads as stated in table below which form part of the total project
cost.
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Sr. Particulars Rs. in Crores No.
1 Consultancy Charges for the work for Unit No.6 5.71
2 Salaries of the staff 5.92
3 Interest during Construction (IDC) 655.59
4 Head Office Supervision Charges (HOSC) 112.49
5 Fuel Charges 43.92
6 Expenditure to achieve full load required running of 11.78 coal mills
7 Total 835.41
7.10 With this, the total project cost has been worked out at Rs. 3013.41 Crore
(Rs. 2178+Rs. 835.41 crores), which has been confirmed and certified by
M/s. NJP & Associates, Chartered Accountants vide their certificate dated
28.03.2014.
7.11 Now we deal with the increase in the project cost and reasons stated by the
petitioner.
(1) The interest during the construction has been claimed at Rs.
655.59 Crores
The petitioner submitted that the increase in the IDC was due to
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following reasons:
(i) Calculation of interest by PFC at the rate prevailing as on the date of actual disbursement of loan
(ii) Delay in achieving SCOD of the project led to increase in requirement of IDC.
We note that the petitioner was sanctioned term loan of Rs. 1775 Crore by
Power Finance Corporation (loan No. 19401008) vide letter No. 03-02-
GSECL: Ukai TPS (1x490MW) dated 13.09.2007. The said loan was enhanced to Rs. 2058.70 Crores with the sanction of additional loan of Rs.
283.70 Crore by PFC vide letter No. 03/22/GUG/GSECL/UKAI/EXTN. UNI-
6/Vol-I/ 19401008 dated 13.10.2014. The terms and conditions of the sanction by PFC indicate that the loan was sanctioned with the rate of interest prevailing on the date of each disbursement as notified by PFC which at the time of sanction was of 11.50 % p.a. for pre COD period and
11.25% p.a. post COD, the effective rate, after timely payment rebate of
0.25%. The terms and conditions of the said loan also provide that in case the borrower could not draw the committed fund in scheduled quarter,
PFC will recover commitment charges on the un-drawn amount of the previous quarter from the first day of the following quarter till the date of actual drawl at the rate of 0.25% p.a. The commitment charges to be
Page 26
payable on quarterly basis on 15th day of April, July, October and January
every year after execution of loan documents till the drawl of loan by the
borrower. The petitioner has submitted the details of interest paid to
Power Finance Corporation for the period from April 2008 to 7.06.2013 on
quarterly basis as stated in table below along with copies of demand notice
from PFC:
(Rs. in Crores)
Sr. Particulars Year Total interest Rebate Commitm Total interest No. payable to PFC amount ent paid after charge, if rebate plus any paid Commitment charge
1 Interest on 2008-09 12.045 0.263 - 11.781 term loan
2 Interest on 2009-10 56.121 1.175 - 54.945 term loan
3 Interest on 2010-11 118.808 2.577 0.209 116.439 term loan
4 Interest on 2011-12 188.315 4.014 0.140 184.441 term loan
5 Interest on 2012-13 210.477 4.437 - 206.040 term loan
6 Interest on 2013-14 83.037 1.094 - 81.943 term loan upto 7.06.2013 i.e. day before COD date
Total 668.803 13.560 0.349 655.59
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On verification of the same, it transpires that the petitioner had paid interest of Rs. 655.59 Crore to PFC during the construction, i.e. prior to
COD.
The reasons advanced by the petitioner seem to be valid and genuine, we therefore, accept the IDC of Rs. 655.59 Crores.
We note that the petitioner had obtained the loan from the PFC as stated above. As a part of interest cost reduction measures the said loan was swapped/refinanced by the petitioner with loan from the SBI carrying lower rate of interest. The petitioner in support of the same submitted letter No. IFB/CR/AMT-IV/13-14/524 dated 11.06.2013 from SBI conveying sanction of term loan of Rs. 2059 Crores.
(2) Expenses on Oil and Other Fuels used during testing and
commissioning has been claimed at Rs. 55.70 Crores
From the records and documents submitted by the petitioner we found
that during the commissioning and stabilization period expenses of Rs.
55.70 Crores were incurred on fuel including for trial run operations
after adjustment of UI charges. Fuel was used by the petitioner to
generate the electricity under trial run and the electricity so generated
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was injected into the grid as infirm power. The petitioner received the
UI charges from UI pool account against the infirm power injected
during the trial run as per the provisions of the PPA. Following details
were submitted by the petitioner in response to the observations made
by the respondent:
(Rs. in Crores) 2011-12 2012-13 2013-14 (upto CoD) GRAND TOTAL QTY AMT QTY AMT QTY AMT QTY AMT FO (IN KL) - - 5,138.47 22.451 3,649.010 15.921 8,787.48 38.373 LDO (IN KL) 56.311 0.397 714.050 4.522 97.200 0.627 867.561 5.547 WASH COAL (IN MT) - - 5,000.00 1.643 34,433.60 11.003 39,433.60 12.647 UI INCOME (PRE- OPERATIVE EXP.) ------(0.874) UI INCOME - (PRE- OPERATIVE EXP.) ------0.0060 Grand Total 55.70
From the above we observe that the petitioner has given the details of the
quantum of fuel used along with its cost for the period from FY 2011-12 to
2013-14 upto COD. The petitioner in the rejoinder to reply of respondent
has stated that during commissioning activities, stabilization and trial run
period an expenditure of Rs. 43.92 Crores towards Oil and Rs. 12.65 Crores
towards Coal totaling to Rs. 56.57 Crores was incurred. Against this, a net
amount of Rs. 0.87 Crores receivable/received (Rs. 8744362 receivable
Page 29 less Rs. 60209 payable) as UI charges for infirm energy generated and injected into the grid during the trial run is deducted and hence Rs. 55.70
Crores is claimed as expenditure towards the cost of fuel utilized during the commissioning activities, stabilization and trial run period.
Subsequently, the Petitioner submitted a revised statement of UI charges
(as available on SLDC website) and it is observed that a net amount of Rs.
8.37 Crores was receivable/received as UI charges for infirm energy generated and injected into the grid during trial run period.
On consideration of the submissions by the petitioner we found that the claim of the petitioner for the expenses on fuel seems to be valid and legal as the petitioner had incurred an expenditure of Rs. 56.57 Crores towards the fuel used during the trial operation and in support of the same the petitioner has submitted the relevant documents on record. However, the petitioner has understated the net UI charges receivable/received towards infirm energy generated and injected into the grid. As per the revised statement submitted by the petitioner, the net UI Income is Rs. 8.37 Crores which is required to be reduced from the expenditure on fuel. Therefore, as against the prayer/request of the petitioner to allow capitalization of the fuel cost/expense incurred during the commissioning activities,
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stabilization and trial run period of Rs. 55.70 Crores, the Commission
approves capitalization of the fuel cost/expense of Rs. 48.20 Crores.
7.12 We note that the petitioner had engaged M/s TCE Consulting Engineers
Ltd.-Bangalore for the work of Consultancy and Detailed Engineering
Services for the said Unit No. 6 vide Order No. PP/PMI/PL.3/Ukai-
6/Consultancy/1878 dated 02.07.2007, for Rs. 5.49 Crores with
subsequent Amendment and has claimed Rs. 5.71 Crores towards the total
payment made to the consultant as part of project cost. However, on
scrutiny of documents submitted by the Petitioner in respect of the Orders
issued to parties other than the EPC Contractor for Balance of Plant
activities worth Rs. 90.99 Crores, it is found that the said Order No.
PP/PMI/PL.3/Ukai-6/Consultancy/1878 dated 02.07.2007, for Rs. 5.49
Crores has also been claimed as a part of the total claim of Rs 90.99 crores.
Since this is a duplication of claim towards consultancy, the separate claim
made by the petitioner for payment of Rs. 5.71 Crores made to the
consultant is disallowed by the Commission and the same has been allowed
by the Commission under the Orders issued to parties other than the EPC
Contractor for Balance of Plant activities worth Rs. 90.99 Crores which is
dealt hereafter.
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7.13 We note that the petitioner has submitted an expenditure of Rs. 5.92
Crores towards the salary for the staff engaged exclusively for the said
Unit, which appears to be genuine. Hence, we decide to approve the same.
7.14 The petitioner has also claimed Head Office Supervision Charges (HOSC) of Rs. 112.49 Crore for the construction of the said Unit up to the date of the Commissioning as stated below:
(Rs. Crores)
Year Head Office Total Allocation Allocation of Supervision of HOSC HOSC to UKAI -6
2009-10 527.32 80.90 36.83
2010-11 508.55 54.75 32.84
2011-12 679.88 52.52 20.47
2012-13 832.20 47.41 22.35
TOTAL 2547.95 235.58 112.49
The said expenses, as claimed by the petitioner, were accounted for as per
the accounting policy of the petitioner, which reads as under:
“It is the policy of company to load Head Office Supervision Charge consisting
administrative expenses and employee cost on the capital work in progress
incurred during the year @ 18% and 25% on the project and Generating
station respectively. Accordingly, UKAI – 6 being, a project, Company had
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loaded Head Office Supervision Charge @ 18% on capital work in progress
incurred during the year.”
Since the petitioner has been consistently following the aforesaid
accounting policy for allocation of expenses of Head Office to new projects,
we decide to approve the same.
7.15 We note that the petitioner has claimed Rs. 90.99 Crores as non EPC cost.
The respondent has objected to the cost of Rs. 7.68 Crores included in the
aforesaid cost towards construction of new road, repairing of road,
construction of staff quarters etc. In response to the above the petitioner
submitted detailed break up of expenses as stated in Para 6.4 of this order.
On verification, it is observed that expenditure of Rs. 0.04 Crores as shown
at Sr. No. 1 & 2 of the table in Para 6.4 above was incurred towards
repairing of the road and diversion of road etc. and balance expenditure of
Rs. 7.64 Crores was incurred on construction of staff quarters and barrier
on road of 400 KV switchyard of Ukai TPS-6
As the expenditure of Rs. 0.04 crores is not project specific, the same is
disallowed and the claim of the petitioner for Rs. 90.99 Crores towards
non-EPC cost is approved at Rs. 90.95 Crores.
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7.16 On verification of the reasons stated above, we find that the reasons
advanced by the petitioner for delay in achieving COD and increase in the
cost of the project appear to be genuine on which the petitioner had no
control.
7.17 We note that the petitioner’s plant achieved the COD on 8.06.2013 while as
per the agreement with BHEL the same was required to be achieved on or
before 6.02.2011. Thus, there was a delay of 852 in achieving COD from
7.02.2011 to 7.06.2013, i.e. 121.7 weeks. The total EPC cost excluding
mandatory spares is Rs. 1982.43 crores. As per the contract agreement, LD
is leviable @ 0.5% of total contract price for full week of delay and pro-
rated for a part of week, which works out to Rs. 1206.31 Crores. However,
the maximum ceiling for the LD for the delay in achieving the COD is 10%
of the contract price, which works out to Rs. 198.24 Crores. However,
considering the fact that the reasons attributable for delay were beyond
the control of the petitioner and some delay was attributable to BHEL, as
stated in foregoing para, we decide to approve 50% of the leviable penalty
in the form of liquidated damages i.e. Rs. 99.12 Crores. Since the petitioner
has retained an amount of Rs. 89.52 Crores, the balance stands recoverable
from BHEL. We, therefore direct the petitioner to recover the balance
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amount of liquidated damages expeditiously.
Moreover, the contract with BHEL also provides for penalty for shortfall in
performance with combined penalty limited at 17.5% of the contract price.
As the performance test results are not known, ideally the petitioner
should have withheld penalty amount on this account also. However,
considering the past experience of BHEL in attending the plant
requirements till it achieves guaranteed performance parameters, it
appears that the petitioner has not retained any penalty amount towards
the same. We decide to accept the same.
7.18 It is also mandatory to purchase spares for the project to utilise the same
as and when required during the O & M activities of the project after
commissioning of the plant. GSECL issued a detailed order vide order No.
PP/SE(PNP)/UKAI-6/BHEL/spares/1519 dated 1.07.2008 at a total price
of Rs. 104.58 Crores. Since such spares are essential and required during
the O & M activities of the plant at any time during the life span of the
project, we, therefore, approve the same.
7.19 Based on the above discussion the Commission approves the capital cost of
Rs. 2901.04 Crores for the 500 MW units No. 6 of Ukai TPS of the petitioner
as detailed below:
Page 35
Sr. Particulars Project Cost Project Cost No. Claimed Approved (Rs. in (Rs. in Crores) Crores) 1 BHEL EPC Orders with Amendments (I) to (VI) 1982.43 1982.43 2 Mandatory Spares 104.58 104.58 3 BHEL TOTAL (1) + (2) 2087.01 2087.01 4 Consultancy Charges for the work for Unit No.6 5.71 NIL 5 Salaries of the staff 5.92 5.92 6 Head Office Supervision Charges (HOSC) 112.49 112.49
7 Revenue Expenditure Capitalised, including 124.13 118.41 consultancy charges, salary to staff etc. (4)+(5)+(6) 8 Non-EPC expenses: Orders to parties other 90.99 90.95 than EPC contractor 9 Interest During Construction (IDC) 655.59 655.59 10 Fuel Consumption during trial run and UI 55.70 48.20 charges earned 11 Total Project Cost 3013.41 3000.16 12 LD from BHEL -99.12 Total Capital Cost 3013.41 2901.04
7.25 Based on the above, documents submitted by the petitioner and certificate
issued by the M/s. NJP & Associates, Chartered Accountants, , we decide to
approve the project cost of Rs. 2901.04 Crores in respect of Unit No. 6 of
Ukai TPS with financing pattern of debt of Rs. 2030.73 Crores (70%) and
equity of Rs. 870.31 Crores (30%).
The petitioner has in support of aforesaid submitted the loan sanction
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letters and loan agreements with PFC as stated above. We note that the
loan from PFC has subsequently been refinanced by the petitioner through
a term loan from State Bank of India as stated in earlier para, sanctioned
vide letter No. IFB/CF/AMT-V/13-14/524 dated 11.06.2013.
The petitioner has also submitted that the Board Resolution and other
documents in support of the equity deployed by the State Government in
various projects which include the equity deployed in the project of Unit
No.6 of Ukai TPS.
8. The petitioner shall consider the same in its tariff petitions accordingly.
9. We order accordingly.
10. With this order present petition stands disposed of.
Sd/- Sd/-
[DR. M. K. IYER] [PRAVINBHAI PATEL]
MEMBER (F) CHAIRMAN
Place: Gandhinagar Date: 17/04/2015
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