Supreme Court overturns CERT tariff award to Tata Power, Adani

The Supreme Court on Tuesday overturned a decision be the Central Electricity Regulatory Authority (CERT) that allowed private power producers Adani Power Ltd and Tata Power to raise tariffs and ordered that they cannot charge their customers more to cover rising costs of imported coal.

For Tata Power, which owns a 4,000 MW mega power project through its subsidiary, Coastal Gujarat Power Ltd, the ruling means a loss of Rs47,500 crore over the 25-year power purchase agreement period of the project

Both Adani Power and Tata Power have entered into long-term deals in the middle of the last decade with distribution companies to supply power from plants they each operate in Prime Minister Narendra Modi's home state of Gujarat.

The companies also struck deals with domestic and foreign miners in the latter part of the last decade to fuel their plants in Gujarat, which each have over 4,000 megawatt (MW) of capacity.

The court did, however, allow the utility to claim relief for the higher costs, which resulted from a shortage in domestic supplies at state-run Coal India Ltd.

Adani and Tata appealed for relief after Indonesia adopted new benchmark coal prices in 2010, leading to an increase in the price of coal imported from the country.

The companies argued that they had to be compensated for an unforeseen change in economic conditions, which made the terms of the deal with distribution companies unviable.

After years of legal battle, the Central Electricity Regulatory Commission (CERC) in December last year ruled that the companies could charge their customers more to compensate for higher costs.

Distribution companies then moved the apex court citing contract violation. The SC ruled in favour of the distribution companies, saying the agreements did not state that "coal is to be procured only from Indonesia at a particular price".
 
"The price payable for the supply of coal is entirely for the person who sets up the power plant to bear," the judges observed.

CERC will now look at the matter afresh and determine what relief should be granted to the companies to make up for the shortage in domestic coal supplies.

The ruling sent Adani Power's shares down as much as 20 per cent on Tuesday, its biggest intra-day loss since it went public in 2009.