SC says Tata Power, Adani cannot charge compensatory tariff

NEWDELHI: Tata Power Co Ltd and Adani Power Ltd were dealt a major setback on Tuesday when the Supreme Court set aside an earlier tribunal ruling that allowed the power producers to charge compensatory tariff from consumers.

The ruling will likely weaken the finances of both companies, particularly Adani Power, which may have to write off some of the extra revenues it had booked in anticipation of a favourable verdict. Adani Power shares plunged 16% to ₹37.20, while those of Tata Power fell 1.95% to ₹85.40 on the BSE on Tuesday.

A bench comprising justices Pinaki Chandra Ghose and Rohinton F Nariman ruled on a batch of appeals challenging a 2016 order of the Appellate Tribunal for Electricity (Aptel) which held that an unforeseen increase in the cost of coal would be a “force majeure event” under the power purchase agreements (PPAs) between power-generating companies and distributors.

The companies 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 Mundra.

“The impugned order is set aside. The only benefit we are allowing is if the force majeure event is related to Indian laws,” the court said.

Aptel had referred the decadelong issue to the Central Electricity Regulatory Commission (CERC) to grant relief to Tata and Adani in accordance with the PPAs. In December, CERC came out with a compensation formula that allowed the companies to recover the higher costs stemming from the rise in the price of imported coal. This order will also stand nullified now.

Tata Power’s Coastal Gujarat Power Ltd (CGPL) unit and Adani Power’s 4,000 megawatt (MW) coal-fired project in Mundra, Gujarat, have PPAs with state discoms in Rajasthan, Gujarat, Haryana and Punjab.

The annual impact for Tata Power could be a negative of ₹800-1,000 crore if they want to run this plant at minimum PLF (plant load factor), according to Rupesh Sankhe, an analyst at Reliance Securities. “Since the (Mundra) plant will not be viable for Tata Power, it could look at an option of foregoing its equity of ₹4,000 crore in the plant and asking lenders to come forward and take (over) this project. ”

In the December quarter, CGPL reported an under-recovery of 70 paise per unit, which led to a loss of ₹244 crore for the unit.

“CGPL/Tata Power considers it very unfortunate that neither Regulatory Powers of CERC nor Forced Majeure as adjudicated by Aptel, have been accepted by Hon’ble Supreme Court,” Tata Power said in an emailed statement. “The final order got uploaded in the evening and the company is studying it. ”

For Adani, this ruling will have more severe consequences, not just because of the additional revenues it had booked, but also due to its high leverage levels. In the past four years, the company has included likely compensatory tariffs of ₹8,800 crore—an amount higher than its net worth of ₹7,948 crore, according to analyst estimates. Adani Power’s consolidated debt at the end of September was ₹49,547 crore.

However, Adani Power itself, in a statement to BSE said that “its preliminary analysis showed that it will get benefit in respect of its power purchase agreement (PPA) for 1,424 MW to Haryana state distribution companies (discoms), PPA for 3,300 MW with Maharashtra Discoms and in PPA for 1,200 MW with Rajasthan Discoms. The company would decide further course of action once the final order of Supreme Court is available.”