Major relief for Tata Power, Adani in compensatory tariff case

12 December 2016

In a major breather for private electricity generators Tata Power and Adani Power in the controversial compensatory tariff case, the Central Electricity Regulatory Commission (CERC) today ruled the two firms are entitled to relief in the form of compensation for higher coal cost for their flagship power plants in Gujarat.

The commission allowed the relief as compensation — for higher cost of coal than envisaged due to change in Indonesian regulation in 2010 — to the two firms in similar orders passed Tuesday. CERC also clarified that its order would be subject to the outcome of a pending appeal in the Supreme Court.

“The difference between the coal price based on the Coal Sales Agreements and Free on Board (FoB) price of coal ex-Indonesia shall be paid by the Procurers to the Petitioner as relief for Force Majeure due to promulgation of Indonesian Regulations in proportion to the share of the Procurers in the contracted capacity from Mundra UMPP,” the power regulator said in its order passed in the case of Tata Power’s Mundra UMPP.

CERC, however, said the relief will be offset to the extent of profits earned by the two groups from sale of coal to the two projects by mines where the companies have stake. “The profit earned on account of sale of coal at Benchmark price corresponding to the quantity of coal received from the mines in Indonesia in which investments have been made by Tata Power or Coastal Gujarat Power Ltd (CGPL) shall be adjusted as per formulation given in this order,” the commission said.

Both Tata and Adani Power — which operate 4,000 Megawatt and 4,620 Mw power plants in Gujarat’s Mundra — had sought the regulator’s intervention arguing they suffered losses due to high cost of imported coal. In April 2013, CERC had allowed Tata Power and Adani Power to raise power tariffs from the projects to compensate for an unexpected increase in coal cost due to change in Indonesian law. In February 2014, the commission decided 52 paise per unit compensatory tariff for Tata Power’s plant and 41paise per unit for Adani Power’s project.

Following this, the procuring states of the two projects moved Supreme Court that stayed the compensation and referred the matter to the Appellate Tribunal of Electricity. The tribunal upheld the tariff, which was challenged again by the distribution companies.

Welcoming the order, Tata Power said the decision is an important step in resolving the major impasse affecting imported coal based power projects in the country that got impacted due to extraneous factors well beyond the control of developers.

“Even after considering the indicative compensatory tariff the cost would be much lower and competitive than the average purchase price of all five States, and is substantially lower than the current market. Mundra UMPP takes care of close to 2 per cent of India’s Power needs and despite acute financial losses it has been providing support to all consumers including industries of the five prominent Indian states,” Tata Power said.

In the case of Adani Power, the commission directed the company to ensure sourcing domestic coal for both the Haryana and Gujarat PPAs to the maximum extent in order to reduce dependence on imported coal.

Source – ET