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Adani Group Suffers a Setback As Supreme Court Rejects Compensatory Power Tariff

Two NGOs and several state-owned power distribution companies challenged the APTEL decision in the top court on the ground that power producers can not be allowed to charge higher compensatory tariffs for changes in import prices of coal, arisk inherent to the business.

Attorney general Mukul Rohatgi, appearing for the Centre, made it clear that he was only appearing in order to apprise the court that the electricity sector, having been privatised, has largely fulfilled the object sought to be achieved by the 2003 Electricity Act - which is that electricity generation, being de-licenced, should result in production of far greater electricity than was earlier produced. Nowhere do the PPAs state that coal is to be procured only from Indonesia at a particular price.

The top court verdict came on a batch of petitions by NGOs and state discoms, contending that the aligning the export price of Indonesian coal with the global market price does not create unforeseeable circumstances that prevent the power generating companies from fulfilling a contract under the PPAs.

It began in 2010 when Tata Power and Adani Power claimed they are entitled to charge a tariff due to certain change in regulations in Indonesia made coal export expensive.

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Tata Power and Adani Power have been embroiled in a long-running dispute with state-run distribution companies over charging more for electricity after Indonesian coal supplies became costlier.

The bench set aside the orders of the commission and Electricity Appellate Tribunal, which remitted the matter to the commission.

CERC had estimated the tariff relief for Adani Power at Rs 0.29 per unit and Rs 0.26 per unit for the power purchase agreements with distribution utilities in Gujarat and Haryana respectively, based on the prices of coal and index exchange rate in March 2016. In fact, even after taking into account the compensation of 40 paise per unit, Tata Power's tariff remains the lowest among all those who had originally bid for the Mundra plant.

Reportedly, the court allows plea against Tata Power and Adani Power's compensatory tariff. In any event, the fundamental basis of the PPAs between the parties was not premised on the price of coal imported from Indonesia. While Adani Power's 4,620 mw unit is in a pact to sell 1,000 mw at Rs 2.35 a unit, another 1,000 mw at Rs 2.89 to Gujarat and is also in pact to sell power to Haryana at Rs 2.94 per unit. The commission, taking note of the report of an expert committee, awarded the compensatory power tariff.

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