The Central Electricity Regulatory Authority (CERC) has granted Adani Power full compensation for the rise in the cost of electricity generation at its 4,620-MW thermal power plant at Mundra, Gujarat due to increased domestic levies on imported coal. Although the potential gains to the firm from the regulatory decision could not be immediately ascertained, it said in the petition that the assorted levies had cost it over Rs 29 crore in just one month, that is, September, 2015.
The regulator’s decision comes after the Supreme Court ruling on April 11 that said power firms can’t get relief for any adverse fallout from policy changes effected by a foreign government, but expanded the scope of reliefs under the “change in law” provision in the domestic context. The apex court ruling was on a plea by Adani Power and Tata Power seeking compensatory tariff increases for the electricity supplied from their Mundra plants to discoms in many states, on account of the unforeseen hike in the prices of Indonesian coal used in these units.
In April, 2015, the Centre withdrew the customs/countervailing duty waiver on (coal) imports by the Adani Power plant and revoked the service tax exemption also. The move was part of a policy decision to treat the power project as part of the non-processing area in the Mundra Special Economic Zone. Additionally, the imported coal used by Adani Power was brought under the clean energy cess in the same month (the cess was doubled in 2016).
According to analysts, the CERC ruling amplified the scope of “change in law,” the provision in power purchase agreements that could be invoked by firms to get full immunity from post facto government policy changes.
Even after the government’s decision to remove the tax waivers in April, 2015, coal imports from Indonesia continues to be exempt from Customs duty (but not CVD and cess), for it being an Asean Free Trade Area (AFTA) country.
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The apex court had stated that rise in cost of imported coal due to change in foreign law (at this instance, that of Indonesia) could not come under the provisions of ‘change in law’ or ‘force majeure.’ However, as FE had earlier reported, the SC ruling had clarified that a change in (Indian) government policy would constitute a change in law that allows the regulator to fully correct the tariff disadvantage arising from it to power generators. Relief emanating from change in law amounts to full restoration, via monthly tariff payments, of the affected power companies to the economic position before the change occurred. Invocation of force majeure, on the other hand, would yield only limited benefit to the firms and involve haircuts as the regulator would in such cases attempt to find a balance, keeping in view the interests of lenders and consumers also.
Adani had signed PPAs with distribution companies in Gujarat and Haryana in 2007 and 2008, respectively. Prices of power in the two PPAs (of 1,000 MW each) with Gujarat were set at Rs 2.89/unit and Rs 2.35/unit. It had agreed to sell 1,424 MW to Haryana at Rs 2.94/unit. However, at present, Adani is supplying only 750 MW to Gujarat. It told Gujarat power authorities that operating the Mundra plant at the tariff specified in PPA using imported coal is increasingly becoming non-viable.