Adani, Tata Power shares plunge on Supreme Court's decision over compensatory tariff

Adani, Tata Power shares plunge on Supreme Court's decision over compensatory tariff

Troy Powers
April 12, 2017

The tribunal, in a judgment on April 7 last year, permitted the companies to hike the tariff after Indonesia - where they source coal from to power their plants - decided in 2010 to align its coal export prices to worldwide market prices instead of what they have been charging for the past 40 years.

Several power distribution companies in Rajasthan, Punjab and Maharashtra had moved the apex court challenging the electricity tribunal's decision which had held that power producers were entitled to compensatory tariff and referred the case to the CERC for calculating the compensatory tariff.

In a huge blow to the Adani group, the Supreme Court on Tuesday (April 11) set aside an order by the Central Electricity Regulatory Commission awarding compensatory power tariff, because of a rise in price of coal imported from Indonesia.

The tribunal, in April past year, had said that the two companies needed to be compensated as the change in Indonesian laws on coal export prices were outside the control of these companies. The courts have no general power to absolve a party from performing its part of the contract, merely because its performance has become onerous on account of an unforeseen turn of events.

The Central Electricity Regulatory Authority (CERC) had allowed the companies to charge more in December, agreeing that the change in Indonesian laws was outside their control. Following the apex court's order, the ratings of Adani Power and Tata Power stocks are likely to see significant downgrades.

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At the time of seeking compensatory tariff, Tata Power had said without that its Mundra project would incur an annual loss of Rs 1,873 crore, resulting in a cumulative loss ofRs 47,500 crore over the 25-year supply period. In any event, the fundamental basis of the PPAs between the parties was not premised on the price of coal imported from Indonesia.

"In fact, it is clear on a reading of the PPAs as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear", it noted.

However, today the Supreme Court sat aside the order stating that the regulations could only mend if there would be any change in domestic laws.

8620 MW of power is being produced by the two companies in the 5 states.