Appellate Tribunal for Electricity says the price they agreed on to sell power would not be binding on them if there is a significant rise in the price of coal
New Delhi: In a partial victory for power firms Adani Power Ltd and Tata Power Co. Ltd, the Appellate Tribunal for Electricity (Aptel) on Thursday said the price they agreed on to sell power would not be binding on them if there is a significant increase in the price of coal.
Aptel added that the relief available to them would be driven by their Power Purchase Agreements (PPAs). Mint has not reviewed these but understands that, in general, such agreements provide a wide latitude in case of what is called a force majeure.
The two firms had bid to supply power at a certain price, but saw their models being turned on their head by an increase in the price of imported coal (the fuel they planned to use) as well as a change in law in Indonesia, the country from which they were importing coal.
Both had sought a renegotiation of the original contracts. Aptel, however, ruled that regulatory commissions cannot award compensatory tariffs to make up for higher costs incurred by the generators when tariffs have been determined through competitive bids.
Shares of both companies initially fell—on the understanding that the commission had no right to rework the contracts—but regained some ground after the tribunal provided the price relief.
Adani Power shares declined 2.92% to ₹ 33.20 on the BSE at the close of trading after recovering from ₹ 30.20; Tata Power shares ended 3.83% down at ₹ 64.10, bouncing back from ₹ 60.60.
Aptel directed the Central Electricity Regulatory commission (CERC) to determine the relief available to producers within the limits of the PPAs signed with distributors.
“If a case of Force Majeure or Change in Law is made out, relief provided under the PPA can be granted, under the adjudicatory power," the 486-page verdict added, putting the onus on the contracting parties.
Tata Power’s wholly owned subsidiary Coastal Gujarat Power Ltd (CGPL) and Adani Power went to the CERC seeking higher tariffs on the grounds that their input costs had gone up due to a devaluation in the rupee and higher costs of coal imported from Indonesia owing to a regulation passed by the Southeast Asian nation.
On 2 April 2013, CERC rejected Adani’s plea of force majeure (unforeseeable circumstances) 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. On 21 February 2014, CERC fixed a compensatory tariff payable to Adani Power.
That compensatory tariff will not be available to Adani after Thursday’s ruling by Aptel. But the appeals body seems to have recognized the plea of force majeure. Aptel said the increase in the price of coal would constitute an unforeseeable event under the PPA, bringing some relief to the power-generating companies. “If case of force majeure or change in law is made out, relief provided under the PPA can be granted to the generators," the tribunal said. But Aptel clarified that the provision of change in law couldn’t be applied for alterations in foreign laws (which could affect domestic companies).
The tribunal asked the CERC to assess the impact of the unforeseeable hike in coal prices on Adani Power and CGPL. Aptel asked the commission to provide appropriate relief to the two companies in accordance with their PPAs within three months.
A spokesperson for the Adani group declined to comment on the Aptel judgment. Lawyer Amit Kapur, partner at J. Sagar Associates (who represented Adani), said in a written response: “The judgement delivered by the Tribunal today upheld the claims of generators seeking relief qua the impairing and hindering impact of promulgation of Indonesian Regulations in 2010 which made the performance of the respective PPAs impracticable, altering the economic substratum of the Bids due to unprecedented rise in price of imported coal."
“This judgement is expected to resolve the problem of stranded PPAs in the country that have been impaired due to shortage in supply of domestic coal and the price changes in imported coal," he added.
Adani Power has power purchase agreements with Haryana utilities (Uttar Haryana Bijli Vitran Nigam Ltd and Dakshin Haryana Bijli Vitran Nigam Ltd) to supply 1,424 megawatts of power, produced using imported coal. It had also won a competitive bid to supply power to Gujarat Urja Vikas Nigam Ltd for 1,000 megawatts. The production was to be done at Adani’s Mundra project in Gujarat. In its agreement with the Haryana utilities, Adani did not include a clause for addressing increase in tariff for a 25-year period.
Several other cases on similar issues were listed before Aptel. Cases included those of CGPL, the GMR Group and Sasan Power Ltd, wholly owned by Reliance Power Ltd. CGPL was involved in developing a 4,000 megawatt ultra mega power project in Mundra in Gujarat using imported coal. Owing to the increased price in coal, CGPL would have suffered an estimated loss of ₹ 1,843 crore each year, and ₹ 47,500 crore after 25 years.
Reliance Power declined to comment.
Maulik Pathak in Ahmedabad contributed to this story.
Reliance Group firms have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!