Striking a Balance

APTEL grants partial relief to Tata Power and Adani Power

In a landmark order, the Appellate Tribunal for Electricity (APTEL) has struck down the compensatory tariff allowed by the Central Electricity Regulatory Commission (CERC) in February 2014 to Adani Power Limited (APL) and Coastal Gujarat Power Limited (CGPL), a wholly owned subsidiary of Tata Power Limited. However, taking a more balanced view in the matter, the tribunal has directed the central commission to reconsider the case for compensation available under the force majeure provision of the respective power purchase agreements (PPAs) signed with the project beneficiaries.

Case background

The five-year-old case relates to Tata Power’s 4,000 MW ultra mega power project (UMPP) and Adani Power’s 1,980 MW thermal power plant (TPP), both in Mundra, Gujarat, and based on coal imported from Indonesia. The PPAs for the Mundra UMPP were signed through Case II bidding with the state discoms of Maharashtra, Rajasthan and Punjab, and Haryana Power Generation Corporation Limited. The Mundra TPP supplies power to Haryana’s state discoms and Gujarat Urja Vikas Nigam Limited under PPAs signed through Case I bidding.

APL and CGPL had approached the CERC in 2012 for the grant of compensatory tariff due to a significant increase in generation costs following changes in the Indonesian Regulation in 2011 regarding the benchmark export price for coal. The CERC rejected the claims made by the companies in its 2013 order. However, in February 2014, it passed an order deciding on a compensatory tariff to be paid by the plant beneficiaries, with effect from the commissioning date of the units. Although the commission did not allow re-determination of tariffs, it effectively permitted both the companies to levy higher tariffs.

The CERC decided that APL is entitled to a provisional lumpsum compensation of Rs 8,297 million effective from the commissioning of the units till March 31, 2013, and CGPL is entitled to a lumpsum payment of Rs 3,294.50 million for the period from April 1, 2012 till March 31, 2013. The commission had also asked the petitioners to submit claims to the power procurers, with the actual cost on a month-to-month basis for the final settlement.

Aggrieved with the commission’s ruling, the state utilities of Gujarat, Haryana, Rajasthan, Maharashtra and Punjab approached APTEL.

APTEL ruling

The tribunal, in its judgment, has held that the central commission has no regulatory powers under Section 79(1)(b) of the Electricity Act, 2003 to modify power generation tariffs or grant compensatory tariff to generating companies if the tariff is determined through a competitive bidding process in accordance with the Section 63 of the act. If a case of force majeure or “change in law” is made out, the commission can provide relief under its adjudicatory power only in line with the terms of the signed PPA.

It further held that an increase in coal prices due to the National Coal Distribution Policy (linked to the reduced availability of domestic coal) and/or promulgation of the Indonesian Regulation does not constitute change in law under Clause 4.7 of the CERC’s guidelines for determination of tariff by bidding process for power procurement by distribution licensees. However, it has clearly stated that the increase in coal prices due the Indonesian regulation constitutes a force majeure event and thus the companies are eligible for compensation. APTEL has thus directed the CERC to assess the extent of impact of the force majeure event on the generation cost of APL’s and CGPL’s projects and provide the relief available under the respective PPAs.

Conclusion

The APTEL judgment takes an equitable stand. On the one hand, it strengthens the claim put forward by the generation companies for grant of relief for the unforeseen revision of the Indonesian Regulation and domestic coal shortages, on the other, it secures the sanctity of the competitive process and the interests of the project beneficiaries by only allowing for compensation under the purview of the signed PPAs. While it is too early to ascertain the quantum of compensation that will be available to the generation companies, it is expected to be lower than the relief granted by the CERC’s February 2014 order. Nevertheless, APTEL’s order sets a strong precedent for future and ongoing disputes in similar matters.

 

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