The court asked the central power regulator to issue the relevant tariff order within three months after the power major approached it with a plea.
The Supreme Court on Tuesday validated Adani Power’s claim for compensatory tariff from state-owned discom Gujarat Urja Vikas Nigam (GUVNL) for additional costs incurred in supplying power from its imported coal-based Mundra plant, after the Gujarat Mineral Development Corporation (GMDC) reneged on its promise to supply local coal from Mogra-II coal block in Chhattisgarh.
The court asked the central power regulator to issue the relevant tariff order within three months after the power major approached it with a plea. Analysts estimate the compensation could be in the range of Rs 4,500-6,000 crore (including carrying costs) for the supplies in the 2012-2018 period.
This will be the second time Adani Power’s once-troubled 4,620-MW Mundra unit is benefiting from the provision of compensatory tariff. It was the first company to benefit from the Supreme Court’s October 29, 2018, ruling that extended the lifeline to the three troubled imported-coal-based power plants in Gujarat (Tata Power’s Mundra unit and Essar’s Salaya plant are the other two) by allowing the CERC to amend their PPAs to facilitate pass-through of future fuel price escalation, subject to a ceiling.
These power plants had got into trouble due to unforeseen hike in Indonesian coal prices.
A Bench comprising Arun Mishra, BR Gavai and Surya Kant held as “legal and valid” the termination of the December 2009 power purchase agreement that Adani had signed with GUVNL in 2007. “We find that it will be appropriate to relegate the parties to CERC for determination of the compensatory tariff payable to Adani from the date of termination of the PPA,” it said.
The court said Adani must have incurred huge expenditure on supply of power to GUVNL. “In order to do economic justice, on the principle of business efficacy, the appellant would be entitled for adjustment of cost of the project and would also be entitled to the interest on the expenditure incurred by it for completion of the project. The expenditure towards running of the project after obtaining the coal from the open market would also be required to be taken into consideration. The appellant would also be entitled to the interest on the delay of payment after it receives payment upon determination of the rate which would be determined by the CERC,” the SC said.
Adani in 2006 had emerged as a successful bidder for supply of 1000 MW power at the rate of Rs 2.35 per Kwh from its power project at Korba, Chhattisgarh, to GUVNL. Another agreement was entered in April 2007 for supply of 1000 MW against bid from Mundra Power Project in Gujarat. The bid was submitted on the basis of the assurance given by GMDC to supply 4 million tonnes of coal. Since the Fuel Supply Agreement could not be executed, Adani had written to GUVNL in Januray 2009 reiterating its inability to supply the power to the procurer in the absence supply of coal by from GMDC. It also informed that it had no other option except to terminate the PPA.
Finally, Adani on December 28, 2009, terminated the PPA. GUVNL challenged the termination before the Commission, which directed Adani to supply the power at the rate determined in the PPA. On Appeal, Aptel also upheld the CERC’s order. GUVNL had argued that the procurer was not concerned with the issue as to from where Adani would arrange for its supply of coal. It submitted that it was the responsibility of Adani to make arrangement for an alternative sources.
Adani’s Mundra unit had accumulated losses of about Rs 10,789 crore as on March 31, 2019. Further, its current liabilities (including Rs 2,643.9 crore for related parties) exceed current assets by Rs 3,347.6 crore. Based on the latest financial statements, the net worth of the unit has been completely eroded. Buoyed by regulatory approvals for substantial compensatory payments against previous domestic coal shortfalls and fuel-cost under-recoveries at a number of its power plants, the company reported a profit of Rs 634.6 crore for Q4, FY19, against a loss of Rs 634.3 crore in the corresponding period last fiscal.