Stocks of power companies, especially Adani Power and Tata Power, surged in morning trades as the Central Electricity Regulatory Commission (CERC) came out with its order that grants temporary relief to Adani Power for its power project.
The petition sought to revise terms of the power purchase agreement as coal prices have moved up from the levels seen at the time the project was conceived and power purchase agreements signed. Though the order is for Adani Power, analysts expect a similar ruling for Tata Power as well.
While this order gives temporary relief to Adani in terms of pricing of power supplied to Gujarat and Haryana, analysts are not very optimistic from a long-term point of view on the companies that are affected by coal shortage and higher coal prices due to regulatory changes in Indonesia. The order concludes that there is no case for “force majeure” and “change in law”, the PPAs are not frustrated and therefore, the prayers cannot be granted.
The compensation will be decided by a committee that has to be constituted within one week. CERC has directed Adani Power and the state governments to set it up within a week, which will comprise of principal secretaries of power from Haryana and Gujarat, the managing director of Urja Vikas Nigam and chiefs of distribution companies in Haryana, chairman of Adani Power or nominee, an independent financial analyst and an eminent banker. The order says: “The Committee shall go into the impact of the price escalation of the Indonesian coal on the project viability and obtain all the actual data required with due authentication from independent auditors to ascertain the cost of import of coal from Indonesia and suggest a package for compensatory tariff which can be allowed to the Petitioner over and above the tariff in the PPAs.”
There are two factors that analysts are worried about. First, there is a dissenting order from one of the judges. S Jayaraman has concluded that “the petition is a misuse of the process of the law and is liable to be dismissed.”
Some of the points that the committee will need to keep in mind are:
1. The net profit less Govt. taxes and cess etc. earned by the petitioner's company from the coal mines in Indonesia on account of the benchmark price due to Indonesian Regulation corresponding to the quantity of the coal being supplied to the Mundra UMPP should be factored to pass on the same in full to the beneficiaries in the compensatory tariff.
2. The possibility of sharing the revenue due to sale of power beyond the target availability of Mundra UMPP to the third parties may be explored.
3. The possibility of using coal with a low GCV for generation of electricity for supply to the respondents without affecting the operational efficiency of the generating stations.
