The Appellate Tribunal for Electricity (Aptel) verdict against Adani Power, as FE reported on Monday, was quite similar to the one delivered against Tata Power in September and was, really, a technical knockout. Both power firms had approached the Central Electricity Regulatory Commission (CERC) for a ‘force majeure’ declaration once the Indonesian government raised prices of exported coal—this raised their costs and declaring a ‘force majeure’ would allow the two firms to not meet their obligations to various state electricity boards at tariffs which would result in them losing thousands of crore of rupees each year. CERC said the ‘force majeure’ wasn’t possible since a foreign government’s action couldn’t be classified that way, but agreed a compensatory tariff was required, and set up a committee to fix this. The states appealed this, and since it looked as if the compensatory tariff could eventually get struck down, the two power firms decided to appeal the ‘force majeure’ ruling—this is what Aptel struck down while, at the same time, it continues to hear the appeal against the compensatory tariff.
Votaries of the free market would argue, and this is also what the state electricity boards are saying, no tariff resetting is required since Tata/Adani bid with their eyes open. If Tata/Adani are forced to exit their plants because they are unviable now, these will be bought by someone else at a deep discount, after which it will be viable for the new buyer to supply power at the original contracted rates. While that sounds good, there are several problems with it. For one, when Tata/Adani stop servicing their contracts, along with the equity they will lose, banks will stand to lose several thousands of crore of debt; and since there is no guarantee the plants will get resold and restarted soon, valuable resources will get blocked up. Two, it is also true that a large part of the blame originates from the government bidding system that, after it was changed, forced companies to take a 25-year call on fuel rates—in the earlier system, fuel prices were always passed on to buyers. Three, and this is why sensible state electricity boards would have renegotiated, even after the compensatory tariffs are given—CERC ensured Tata/Adani also took a haircut—they are still cheaper than those being paid for new plants.
Yet it has been more than two years since Tata/Adani approached CERC for relief, and the case is still far from being settled—chances are it could take another year or more for the final appeals to be made and disposed off. Given the huge losses the two firms are incurring, it would not be surprising if, at some point, they simply stop supplying power. Which is why, apart from the present case, the central and state governments need to agree on a framework that will allow for renegotiation of contracts that are no longer viable. If this is not done, and private sector interest wanes, most major infrastructure investments in the near future will have to be undertaken by the government and/or its PSUs.