Reliance Power could lose $55 mln bank guarantee in tariff dispute

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Reliance Power risks losing a 3 billion-rupee bank guarantee after a court said distribution companies could seek damages from Reliance over a delayed $3.2 billion power project in the southern state of Andhra Pradesh.

The Delhi High Court lifted a prohibition it had imposed on the distribution companies in March that barred them from taking 'coercive steps' against the project. Reliance on Tuesday said it has appealed the order and has filed for arbitration to resolve the dispute.

Controlled by billionaire Anil Ambani, Reliance Power stopped construction on the plant after changes in export rules by Indonesia, its main source of coal for the proposed plant, raised prices and made the project nonviable.

Indonesia's rule changes have made about 9,000 megawatts (MW) of power projects in India nonviable, including a 4,000MW plant being developed by Tata Power, because the projects cannot raise tariffs to reflect higher fuel costs.

Reliance originally bid to supply power at a fixed rate, but is now arguing that the project will not be feasible without a tariff hike and the Indonesian rule change constituted a force majeure event.

Reliance "has been unable to persuade this court...that the escalation in fuel price is a force majeure event providing it with the defence of non-performance of its obligation under the power purchase agreement," the court said.

Eleven state distribution companies, which have purchase contracts with the unit of Reliance Power developing the 4000MW project, have demanded Reliance pay 4 billion rupees or give up a bank guarantee for delaying the project.