Summary

Tarrif Renegotianation: Adani Power Limited

The Central Electricity Regulatory Commission (CERC) ruled that Adani power limited will
be allowed to temporarily increase tariffs to compensate for the additional fuel costs.
It justified this action on the ground that the increase in fuel prices had made it unviable
for Adani Power to supply electricity to consumers at the price to which it had committed
itself while winning the competitive bid in 2007 for supplying electricity to Gujarat Urja
Vikas Nigam Ltd (GUVNL) and in 2008 for supply to Haryanas Uttar Haryana Bijli Vitran
Nigam Ltd (UHBVNL) and Dakshin Haryana Bijli Vitran Nigam Ltd (DHBVNL) utilities.
According to Adani Power, the additional cost for the Haryana and Gujarat tariffs on account
of imported coal is 64 paise andRs.1.11 per unit, respectively, in the first year of supply.
According to a Gujarat Electricity Regulatory Commission official, who requested
anonymity, for the hike of about Rs.1.11 per unit sought by Adani Power in Gujarat,
consumers in the state will have to shell out around 20 paise more per unit.
Fuel availability has become a cause for concern, largely because domestic coal mining has
been unable to keep pace with the growing demand for the fuel in the country. Coal demand
in India is expected to grow from 649 million tonnes per annum (mtpa) now to 730 mtpa in
2016-17, making the country heavily dependent on imported coal, given the projected local
availability is only 550 mtpa.
Adani Power had entered into two power purchase agreements of 1,000MW each with the
Gujarat government at Rs.2.35 per unit, and Rs.2.89 per unit for its 4,620MW plant in
Mundra. It entered into a similar accord with the Haryana government at Rs.2.94 per unit for
1,424MW.
The company approached CERC to consider increases in the power tariff after customers in
Haryana and Gujarat declined to pay higher rates for the electricity generated from its
imported coal-based plant in Gujarat.
CERC called for a variable compensatory tariff to a compensation package to be offered to
Adani Power till the fuel situation stabilized. The judgement might have a favourable bearing
on other imported coal-based projects planned in the country such as those of Tata Power Co.
Ltd and Adani power limited

Companies such as Adani Power, Tata Power and Reliance Power had acquired coal mines in
Indonesia to feed their plants in India. Coal imports, however, became expensive for the firms
when the Indonesian government last year started levying higher royalty and income tax,
affecting the financial viability of the power plants operated by these companies.
The escalation in price of imported coal on account of Indonesian regulation and nonavailability of adequate fuel linkage from Coal India Ltd for the project of the petitioner is a
temporary phenomenon and is likely to be stabilized after some time.
S. Jayaraman, member, CERC, disagreed with the order that will provide significant relief to
Adani Power.
A top power ministry official, requesting anonymity, said, The utilities have the right to file
a petition with the electricity commissions wherein every case is dealt on its merits.
Tata Power has also approached CERC to consider an increase in its power tariffs after
customers declined to pay higher rates for the electricity generated from its imported coalbased Mundra plant in Gujarat. Tata Powers special purpose vehicle, Coastal Gujarat Power
Ltd, signed agreements to sell electricity generated from its Mundra plant to Gujarat,
Maharashtra, Haryana, Punjab and Rajasthan at Rs.2.26 per unit.
When level-playing field having been provided between the project developer and the
distribution licensees and opportunity having been provided to cover their respective
commercial risks, it is not the mandate of the commission to ensure that the project developer
earns profit in every situation, irrespective of business risks assumed by the developer,
Jayaraman argued in his order.
However, the utilities may approach the Appellate Tribunal for Electricity against the order.
There is no change in law as per the CERC order and Adani Power will have to continue to
supply as per the power purchase agreement. The order has suggested a practical solution for
a practical problem. The regulator wants the power developers and procurers to amicably
reach a solution, said a GUVNL official requesting anonymity.
They added that there were some grey areas in the order. In competitive bidding, the burden
of fuel supply was so far on the developer and not the procurer. As per this order, the coal
price hike burden will have to be shared by the procurer. There is an option of approaching
the Appellate Tribunal for Electricity and the government is looking into this, the GUVNL
official said.
While Deo and Jayaraman declined to comment, chairman of UHBVNL and DHBVNL, said,
After going through the order, we will take a view.
While, Gujarats energy minister, declined comment as he hadnt read the order, principal
secretary, energy and petrochemicals, said, We have gone through the report and are yet to
arrive at any decision on the future course of action. Maybe we will decide on it in a day or
so.

We direct the petitioner and the respondents and the respective state governments to
constitute a committee within one week from the date of this order, CERC said in the order
posted on its website. The Committee shall submit its report to the Commission by 30 April
2013 for consideration and for further directions.
Jayaraman said in his dissentient note: The petitioner may have resorted to aggressive and
predatory bidding to win the bids by edging out the other competitors for which the petitioner
is accountable and the consumers of Gujarat and Haryana should not be made to pay for the
miscalculation/mistake of the petitioner, if any, and to ensure profitability of the petitioner
irrespective of assumption of commercial risks. As the price of imported coal has
considerably come down, the petitioner even does not have a case on the basis of
unwarranted and unprecedented rise in Indonesian coal price.
Power stocks rallied through the day.Adani Power rose 8.79% to Rs.47.65 on BSE. Adani
Enterprises Ltd rose 2.89% to Rs.219, while Tata Power and Reliance Power rose by 0.73%
and 0.69%, respectively, to Rs.96.05 and Rs.66.10. The benchmark Sensex fell 1.26% to
18,801.64 points at the close.
Adani Power said in a statement: The order itself is a landmark order recognizing and
balancing the need for a solution for all the stakeholders. The independent committee of
stakeholders plus a banker and a financial analyst will propose a solution in a time bound and
transparent manner.
Tata Power spokesperson said in an emailed reply: We acknowledge that this order opens
up opportunity for the sector to use its imported coal-based assets effectively, competitively
and contribute to national economy. It unlocks value in several of the under-utilized or
abandoned proposals, which will now contribute to the burgeoning power demand.
Adani Power is also fighting a case in the Supreme Court where it has challenged a Gujarat
state electricity regulators decision that did not allow it to scrap the Rs.2.35 per unit
agreement with the Gujarat state utility. Adani had sent a notice to the utility seeking
termination of the agreement as it could not secure fuel from a local source and had to import
it.
Recommendations:
Government should renegotiate about the problems and should give run the power plant on
no profit no loss basis or they should run with negligible profit but only for the plants or
plants importing coal from foreign countries also government may not renegotiate with the
recommended terrif and may continue with the given terrif in this case companies might get
out of contract but if companies get out of contract they will have their non performing assets
which might create a huge loss to the company.