Dispute over Naphtha-fueled power: Tribunal directs KSEB to compensate BSES Rs 240 cr

Thiruvananthapuram: The Electricity Appellate Tribunal has ordered the Kerala State Electricity Board (KSEB) to pay Rs 240 crore to BSES, a subsidiary of Anil Ambani’s Reliance Group. The payment is for electricity generated by burning naphtha fuel held by the company after its contract expired in 2015, and for the collected naphtha. KSEB was required to accept the power even though it did not need it.

The tribunal found that the Kerala government and KSEB had lured BSES by promising to extend the contract, and said the company’s expectations were legitimate. If the Rs 240 crore is paid, the cost will be passed on to consumers in electricity bills.

Beginning in 1999

In 1999, BSES and KSEB entered into an agreement in Kochi for power purchase. Production was based on naphtha, with the rate rising to Rs 9 per unit depending on fuel prices. A fixed charge of 90 paise per unit was also paid.

The contract expired in 2015. KSEB had purchased power only occasionally due to high costs. In 2015, during the UDF government, the company expressed interest in renewing the contract. Pressure was placed on KSEB. The board said renewal was possible only if the company switched from naphtha to the cheaper LNG, but the company did not get approval for the change.

The company approached the Regulatory Commission for renewal. The government issued an order noting an in-principle agreement to extend the deal for two years with conditions, leaving the decision to the commission. The commission rejected the application after BSES and KSEB failed to agree on rates and terms.

Naphtha as a security issue

In November 2014, while the contract was still active, KSEB directed the company to maintain sufficient naphtha stock. The company collected an estimated 10,400 tonnes. After the contract expired and production stopped, the stockpile became a security concern.

When the district collector ordered the removal of the stock, the company moved to the High Court. The court directed the firm to burn the naphtha, charge only grid-use rates, and supply electricity to KSEB or sell it to others. Alternatively, it could hand over the stock to institutions such as FACT.

Asked for Rs 25.41 instead of Rs 4

The company refused to hand over the naphtha to other institutions, citing a leaking pipeline. Instead, it complied with the initial order to burn the stock and charged grid-use rates, producing 6.19 crore units in a month. It was entitled to about Rs 4 per unit. However, the company demanded Rs 157.34 crore, including charges at the previous contract rate and fixed costs.

This brought the cost to Rs 25.41 per unit. The commission allowed only the grid-use rate as directed by the High Court. The company then appealed to the tribunal and secured a favourable order.

Under the verdict, KSEB must pay Rs 157.34 crore plus eight years of interest. The tribunal relied on the principle of “legitimate expectation,” which is rarely accepted by Indian courts.

A meeting chaired by Minister K Krishnankutty on Monday will decide whether to appeal the ruling.