Compensation to Tata & Adani: Regulator provides relief, reduces impact

Tata Power and Adani Power finally get to cheer in the five-year old contentious issue of compensation for their respective power plants. The decision is likely to set a precedence for the sector which keeps fighting for compensation over change in laws/regulations/input prices.

The Central Electricity Regulatory Commission (CERC), in two respective orders, has allowed the two companies to get compensation for the increased cost of coal from the procurers. The procurers -- the states sourcing power from these plants -- would have to pay the amount. The latest order will need to be approved by the Supreme Court.

The matter pertains to the 4,000 Mw Ultra Mega Power Plant of Tata Power (Coastal Gujarat Power Limited-CGPL) in Mundra, Gujarat and 1980 Mw power plant of Adani Power at same location.

"The difference between the coal price based on the Coal Sales Agreements and FoB price of coal ex-Indonesia (i.e. the benchmark price as per Indonesian index or the actual price paid for purchase of the similar quality of coal whichever is lower) 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 Power Project/CGPL," CERC said in its order.

States will pay the per unit difference in cost arising out of Change in coal prices over and above at which the two companies signed power sale agreement.

This relief will be applicable in respect of coal imported from Indonesia for consumption corresponding to the actual or scheduled generation during the month, whichever is lower.

CERC has not mentioned the exact amount of compensation and the order would now be taken into consideration by the Supreme Court and deliver the final judgement. Its listed next on Dec 15. The apex court earlier this year had asked CERC to compute the compensation amount.

Legal experts said the relief to Adani could be lesser than Tata and the amount computed earlier by the CERC. The rate allowed over and above fixed tariff in 2014 was 52 paisa per unit for Tata and 41 paisa for Adani.

"While the Commission has allowed to provide relief in change of coal prices, it has not accepted request of Adani Power to provide relief for forex changes, transportation costs etc," said a legal expert based in Delhi.

Providing a scope of cushion for the procuring states and the end-consumers, the CERC has directed that Adani Power "should endeavor to source domestic coal for both Haryana and Gujarat PPA to the maximum extent to reduce dependence on imported coal, subject to technical feasibility." Unlike Tata Power, Adani is supposed to source some portion of domestic coal to balance costs, as per its power sale agreement.

Adani Power spokesperson said the legal team is studying the matter and would update if they can share any response.

This milestone case for the power sector has been going around in circles for five years now with twists added every year.

Adani Power’s project was commissioned in 2008 and Tata Power’s in 2012. They both were sourcing importing coal from Indonesian market, and had bid accordingly. Coastal Gujarat Power Limited (Tata Power’s SPV for the UMMP) has power purchase agreements with distribution companies in Gujarat, Rajasthan, Maharashtra, Punjab and Haryana to sell power at Rs 2.26 per unit. Adani Power had PPA with utilities in Gujarat and Haryana at Rs 2.35 per unit.

The Indonesian energy regulations changed its coal benchmark price in 2010 which lead to escalation of cost. “This should be pass through under ‘change of law’ and ‘force majeure”, Tata and Adani said in their petition to CERC in 2012.

CERC quashed ‘force majeure and change of law and invoked special regulatory powers for itself under Section79 (1) of the Electricity Act to compute compensatory tariff. In February 2014, CERC came out with compensatory tariff of 52 paisa per unit for Tata and 41 paisa for Adani.

Tata Power in a statement said the order was good for consumers.  "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."

 

The CERC decision was 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, the company said. "We are studying the order and the detailed financial impact shall be worked out after analysis of the order ."

State governments that procure power went to APTEL contesting the decision. APTEL upheld the decision in July 2014 allowing Tata Power and Adani Power to charge higher tariffs from state utilities since March 2014 on account of a rise in the cost of imported fuel.

The procurers went to the Supreme Court contesting it and the Court asked APTEL to expedite the matter. Also, GMR, GVK and Reliance Power which were looking at similar relief of change in coal prices, joined the case bandwagon.

The judgement of APTEL issued in April 2016, running into into 486 pages directed the Central Commission to assess the extent of impact of ‘Force Majeure’ event on the projects of Adani Power and Tata Power. It asked the commission to “give them (Tata & Adani) such relief as may be available to them under their respective PPAs and in the light of this judgment after hearing the parties.”

APTEL had asked CERC to deliver an order in three months. The decision came out in December now.

Power Relief

2008: Adani Power’s 1980-Mw project in Mundra  commissioned
PPA with utilities in Gujarat and Haryana at Rs  2.35 per unit.

2012: Tata Power’s 4000-Mw UMPP commissioned. It won bid in 
2007 PPA with Gujarat, Rajasthan, Maharashtra, Punjab & Haryana to sell power at Rs 2.26 per unit.

2010: The Indonesian energy regulations changed its coal benchmark price in 2010, which led to cost escalation.

2012: Adani and Tata went to the Central Electricity Regulatory Commission (CERC) asking for relief from increased coal prices and other allied costs. “This should be pass through under ‘change of law’ and force majeure”, Tata and Adani said in their petition to CERC in 2012.

 
Feb 2014: CERC came out with compensatory tariff of 52 paisa per unit for Tata and 41 paisa for Adani.

 
Apr 2014: Procurers/states went to APTEL contesting the decision.

 
Jul 2014: APTEL upheld the decision, allowing Tata Power and Adani Power to charge higher tariffs from state utilities since March 2014 on account of a rise in the cost of imported fuel.

 
Aug 2014: The procurers went to the Supreme Court contesting it. The SC asked APTEL to expedite the matter.

 
Meanwhile, GMR, GVK and Reliance Power, which were looking at similar relief of change in coal prices, joined the case bandwagon

 
May 2016: APTEL issued a 486-page judgment asking CERC to compute the compensation for Tata & Adani, according to the provisions under their respective PPAs.

 
Dec 2016: CERC allowed the power companies to charge the additional cost of coal from the states.

 
15 Dec 2016: The Supreme Court to take final decision on the matter and pronounce judgment.


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