Adani Power, Tata Power and Essar Power had cited a change in Indonesian rules in 2010 as a force majeure event that raised the cost of coal imports from that country to fuel their electricity plants. Photo: Bloomberg
Adani Power, Tata Power and Essar Power had cited a change in Indonesian rules in 2010 as a force majeure event that raised the cost of coal imports from that country to fuel their electricity plants. Photo: Bloomberg

Supreme Court throws lifeline for Tata, Adani, Essar power plants

The Supreme Court has asked the CERC to submit in 8 weeks its decision of changes to PPAs that Adani Power, Tata Power and Essar Power have signed with power discoms to reflect the higher cost of imported coal

New Delhi: The Supreme Court on Monday offered a ray of hope to three troubled power projects run by Adani Power Ltd, Tata Power Co. Ltd and Essar Power Ltd by directing the apex electricity regulator to decide on changes to power purchase agreements (PPAs). The Supreme Court asked the Central Electricity Regulatory Commission (CERC) to submit in eight weeks its decision on changes to the PPAs the three Gujarat-based power producers have signed with distribution companies to reflect the higher cost of imported coal.

While the verdict effectively paves the way for renegotiation of power tariffs, the top court also allowed Energy Watchdog, a consumer rights group, to raise objections to any amendments before CERC. Power discoms in Maharashtra, Rajasthan, Punjab and Haryana have signed PPAs with Adani Power, Tata Power and Essar Steel.

With the power producers seeking an increase in tariffs to compensate them for losses because of higher cost of imported coal, a two-judge bench headed by justice Rohinton F. Nariman asked the regulator to decide on all issues related to PPA amendments.

Adani Power, Tata Power and Essar Power had cited a change in Indonesian rules in 2010 as a force majeure event that raised the cost of coal imported from that country to fuel their electricity plants.

In April 2017, the Supreme Court set aside a 2016 order of the Appellate Tribunal for Electricity (Aptel) that allowed Adani Power and Tata Power to charge so-called compensatory tariffs.

Experts said the verdict would help revive power projects. “It’s an opportunity for the regulator to balance the interests of all stakeholders, including customers, promoters and lenders, be pragmatic and ensure that capital assets built are utilized rightfully. It can pave the way for resolution of stranded assets in the sector," said Sambitosh Mohapatra, partner, power and utilities, PwC India.

Capacity of around 66 gigawatt (GW) in India is facing various degrees of financial stress. This includes 54.8GW of coal-based power assets, 6.83GW of gas-based assets and 4.57GW of hydropower assets.

The order on Monday came following recommendations of a committee constituted by the Gujarat government and chaired by former Supreme Court judge Justice R.K. Agrawal to look into the possibility of “contribution by each stakeholder, including banks, project developers and procurers, by way of concessions for mitigating hardship".

The panel noted that coal-based power projects needed to be salvaged and allowed to pass the impact of high fuel costs equitably to consumers, lenders and other stakeholders.

A Gujarat government official, requesting anonymity, said that one of the important observations of the committee in its draft report had been that the compensation would be done with “prospective" and not “retrospective effect". As per the draft, he said the burden on consumers would be about 40 paise per unit.

Tata Power’s Coastal Gujarat Power Ltd (CGPL) and Adani Power had earlier approached CERC seeking higher tariffs on the grounds that their input costs had gone up due to depreciation of the rupee and higher costs of coal imported from Indonesia, following a regulation passed by the South-East Asian nation in 2010. On 2 April 2013, CERC had rejected Adani Power’s plea of “force majeure" and “change in law", but constituted a committee to suggest payment of compensatory tariff to the power company. CGPL’s request was rejected on 15 April that year.

An Adani Group spokesperson declined to comment, saying “we are yet to read the order". An Essar Power spokesperson declined to comment on the Supreme Court order. A Tata Power spokesperson did not respond to phone calls and a text message.

In June 2017, Tata Power offered to sell a 51% stake in its subsidiary CGPL, which runs the 4,000 megawatt (MW) Mundra power plant, for a token sum of 1 to power discoms that had agreed to procure electricity from the project. Subsequently, Adani Power offered to sell a stake in its 4,620MW power plant, also located in Mundra, for 1. Essar Power made a similar proposal for its 1,320MW power plant in Salaya.

“Today’s verdict indicates that PPAs done by way of competitive bidding can be relooked into by Cerc for inter-state power generating stations," said a Gujarat Electricity Regulatory Commission official, requesting anonymity.

Maulik Pathak in Ahmedabad contributed to this story.

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