What happened on 11th April, came as a big blow to the two biggest power players in the country, Tata power and Adani Power. The SC’s decision to disallow both the companies to charge compensatory tariffs to the power supplied to the state distribution companies poses a future threat to their balance sheets.
With investor’s worries rising, the shares of both the companies dropped 2-16 per cent on Tuesday (11 April).
Both the coal-based power plants, Mundra Ultra Mega Power Project (Mundra UMPP) of TATA and Mundra Thermal Power Project owned by Adani are located in the Mundra, Kutch district, Gujarat and depend on Indonesia for coal requirement. The nightmares for both the companies begin in 2010 when Indonesia’s brought in new mining rules.
Here's a quick timeline review:In 2006, Gujarat Urja Vikas Nigam (GUVNL) invited proposals for long-term power supply. During the same year, Haryana utilities also initiated a separate competitive bidding process for the purchase of 2,000 MW on a long-term basis.
By 2017, Tata Power won the projects through a competitive tariff based bidding route by quoting 55 per cent of the fuel cost as a non-scalable component and a levelled tariff of Rs 2.26 per unit. Similarly, Adani Power entered into PPAs with utilities in Gujarat and Haryana at Rs 2.35 per unit.
2010 became a nightmare for both these companies when the Indonesian government decided to link the price of coal exported from the country with a benchmark based on international prices of coal. With this new increased coal price, the viability of these power plants became difficult with under-recoveries, as most of their feedstock came from Indonesia.
The loss led to an erosion of Tata Power's net worth by over 3800 crore in three-year. A petition was filed with CERC seeking compensatory tariff hike and compensatory relief.
As a big relief, in 2012 CERC orders compensatory tariff of 52 paisa per unit for Tata and 41 paisa for Adani. However, the decision allowing both the companies to charge higher tariffs from state utilities was contested and the Power procuring states went to Appellate Tribunal of Electricity (APTEL) contesting CERC’s decision.
The decision was upheld by APTEL, post which the matter was taken to the Supreme Court contesting APELT’s decision. The SC asked the APTEL to expedite the matter.
By May 2016, the judgement was passed by the tribunal asking CERC to compute the compensation for both the companies, according to the provisions under their respective PPAs.
Last December, CERC again allowed the power companies to charge the additional cost of coal from the states. The good news was short lived and the Supreme Court set aside CERC order on allowing Tata, Adani to charge the compensatory tariff on 10 April 2017.
BW Reporters
Naina Sood is a Economics graduate and has done her post graduation in International economics and Trade. She has deep interests in Indian economy and reforms
_20240527192124_original_image_21.webp)
