 "Compensatory rate issue back to starting point")
Appellate Tribunal for Electricity (Aptel) has set aside the electricity regulator's order for granting compensation for increase in fuel costs to projects won through competitive bidding.
Reacting to the decision, shares of Tata Power dropped 3.8 per cent while Adani Power lost 2.9 per cent on the BSE on Thursday.
Thus, the contentious issue of deciding compensatory rate for Tata Power's 4,000-megawatt (Mw) ultra mega power project (UMPP) and Adani Power's 4,620-Mw power plant in Mundra, Gujarat, is back to where it started in 2011.
However, it clears the air that any pass-through of escalated cost would be decided only in line with the terms of the power purchase agreement and not by the regulatory commission. This judgment would pave the way for companies looking for compensation when their cost escalates due to unforeseen circumstances or change in Indian law.
| CLEARING THE AIR |
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The case was being fought in Aptel between Tata Power and Adani Power on the one side and the state utilities of Gujarat, Rajasthan, Maharashtra, Punjab, and Haryana on the other. The five-year-old issue pertains to pass-through of cost escalation due to change in imported coal prices and regulations in the Indonesian coal market. Tata's Mundra UMPP (under Coastal Gujarat Power Limited or CGPL) and Adani's power plant run on imported coal.
Aptel, which earlier allowed pass-through of increased costs, has now sent the case back to Central Electricity Regulatory Commission (CERC). It has asked the commission to decide the rate in line with power purchase agreements and under 'force majeure', which means unforeseen events that were not accounted for while deciding the rate and led to escalation in costs.
"We hold that promulgation of Indonesian regulation has resulted in a force majeure event impacting the projects of Adani Power and CGPL adversely. The generators would, therefore, be entitled to relief only as available under the PPA," said Aptel.
The tribunal directed the Central Commission to assess the extent of impact of force majeure event on the projects of Adani Power and Tata Power "and give them such relief as may be available to them under their respective PPAs and in the light of this judgment after hearing the parties." Aptel has aksed CERC to deliver an order in three months.
Earlier, CERC had quashed force majeure and change of law and invoked special regulatory powers for itself under Section 79 (1) of the Electricity Act. The tribunal has struck down the regulatory powers of CERC and said, "the Central Commission has no regulatory powers under Section 79 (1) (b) of the said Act to vary or modify the rate or otherwise grant compensatory rate to the generating companies in case of a rate determined under a ratebased competitive bid process in line with Section 63 of the said Act."
The Street was expecting Aptel to approve the CERC order and the state electricity boards (SEBs) to follow up with an appeal to higher authorities. Analysts at ICICI Securities say that if the computation under force majeure clause comes without any caveat, the compensation will be around 35 paise per unit for Tata Power. Tata Power in a statement to the exchanges acknowledged the order. Adani Power did not respond.
In an order dated February 2014, CERC decided a compensatory tariff to be paid by the states procuring power from the two power companies with effect from the commissioning date of the units. It was over and above the tariff agreed in the power purchase agreement. The power procuring states of Tata Power's Mundra UMPP are Gujarat, Rajasthan, Maharashtra, Punjab and Haryana. Adani Power has two power purchase agreements for its project in Mundra with the state utilities of Gujarat and Haryana.
The five procuring states appealed against the order in APTEL and also moved Supreme Court to get a stay on the order. Supreme Court directed APTEL to expedite the hearing. APTEL in July ruled in favour of Tata and Adani allowing the compensatory tariff calculated by CERC.
The five states contested the tariff again in the APTEL. It's now that the APTEL has ruled that CERC cannot decide the quantum of compensation and need to look at the issue as force majeure.
Tata's Mundra UMPP was awarded compensatory tariff at 52 paise per unit and Adani's project got 41 paise per unit, over the remaining life of the project. Commenting on Tata Power, Sanjeev Zarbade of Kotak Securities says, "As the company does not include the compensation tariff approved by the CERC in its revenue computation, the verdict is unlikely to have any near-term implication on its earnings. "However, the ruling raises concerns on viability of this project", he adds. In case of Adani Power, reports suggest that, the company has been accounting for the incremental revenue from CERC's ruling in its revenue (Rs 600 crore in December'15 quarter). However, any near-term revenue impact owing to this order is ruled out until the final verdict is out. Nevertheless, loss on account of Tata Power's Mundra plant stands at Rs 275 crore for nine-months of FY16 while Adani Power's loss from Mundra plant is Rs 380 crore during this period.
