In a major relief for Adani Power, the Central Electricity Regulatory Commission (CERC) on 02-04-2013 offered a 'compensation package' to cover the rise in cost of electricity production for its 4,620-MW Mundra plant. However, this compensation is not permanent, says the commission. "As and when the hardship is removed or lessened, the compensatory tariff should be revised or withdrawn," the order said.
The Gautam S. Adani-promoted power company had petitioned the CERC that because of the rise in price of Indonesian coal, which the company imports to run its power plant, it had become economically unviable to sell electricity to Gujarat and Haryana State utilities at rates decided in 2007-08. The rates were derived through a competitive bidding process.
The order passed by three members of CERC — Pramod Deo, M. Deena Dayalan and V.S. Verma — said the 'compensatory tariff' could be variable in nature. However, CERC member S. Jayaraman disagreed with the other members.
According to him, Adani Power's petition does not satisfy the force majeure conditions, therefore "no relief can be granted to the petitioner under these provisions". Jayaraman also said the power producer was using notifications of the Indonesian Government as an opportunity to cover some of its commercial risks or to improve its margins further.
In its order, the CERC called for setting up a committee within a week that would suggest various measures that can be taken up. The panel would submit its report to the regulatory commission by April 30. The committee would comprise the Principal Secretary (Power) of Gujarat and heads of Adani Power and discoms and an independent financial analyst or a banker.
The petitioner needs to be compensated over and above the tariff discovered through competitive bidding, said the order. "The compensation package, to be called compensatory tariff, could be variable in nature commensurate with the hardship the petitioner is suffering on account of unforeseen events leading to increased coal price which has affected its performance under the Power Purchase Agreement (PPA)," CERC said in its 94-page order.
CERC member S Jayaraman, however, dissented with the order passed by a three-member panel headed by CERC Chairman Pramod Deo. "The exercise of regulatory power in such cases will have a cascading effect. In case there is again some development of similar nature, will the Commission interfere again at the instance of the project developer? Will such an exercise of power not jeopardize the consumers' interest?", Jayaraman wrote in his separate order.
Chairman of Haryana power distribution utilities Devinder Singh said CERC is a statutory body and its verdict can either be accepted or challenged. He added he was yet to see the detailed verdict. He refused to share a future course of action arguing Haryana had entered into such a PPA for the first time. In a related development, Haryana Electricity Regulatory Commission raised power tariffs by upto 15% for the current fiscal.
Other companies likely to be impacted praised the order. Tata Power Chairman Anil Sardana called it progressive. "It provides an opening for mitigating the problem of fuel pricing faced in the sector. It establishes a compensatory tariff regime that can de-risk assets," he said.
Adani Power had signed two PPAs of 1,000 megawatts (MW) each with the Gujarat government at Rs.2.35 per unit and Rs.2.89 per unit for its project in 2007. The bid was based on a commitment by Gujarat government for allocation of Morga II coal block. The company also entered into a PPA with the Haryana government for sale of power at Rs.2.94 per unit in 2008.
This bid was premised on use of 70% indigenous coal and 30% imported coal.
However, Adani Power's initial agreement with Japan's Kowa Company Ltd and Germany's Coal Orbis Trading GMBH were terminated in 2008. This led the company to signing an agreement with Adani Enterprises Ltd for supply of coal from its Indonesian subsidiary.
Adani Power was sourcing coal from Indonesia at $92 a tonne (this price has come down to less than $72 per tonne now) as compared to $36 per tonne before the notification of Indonesian regulation. The company says it has incurred annual losses of Rs 790 crore in supplying power to Gujarat and Rs 580 crore in supplying to Haryana. Adani Group Chairman Gautam Adani said the CERC order is welcome.