No compensatory tariff to Tata Power & Adani Power

Apr 12, 2017, 03:24
No compensatory tariff to Tata Power & Adani Power

On Tuesday, the court said companies can not claim any benefit under the force majeure or sudden unforeseen event clause as "changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as force majeure events under the PPA (power purchase agreement) itself".

The power generating companies had sought compensatory tariff after coal imported from Indonesia witnessed a steep hike following change in their laws in 2010 and 2011 by which the export price of coal was aligned with global market price.

The shares of both the power companies slumped to the red zone after the Supreme Court on Tuesday overruled the Appellate Tribunal for Electricity (APTEL) order of compensatory tariff to Adani Power and Tata Power.

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State power companies has challenged the decision in the Supreme Court.

The Supreme Court ruled today that the Tata Power and Power can not charge consumers more in the five states they supply power, setting aside an order for compensatory tariff to the companies.

"The fact that fuel supply agreement has to be appended to the PPA (power purchase argeement) is only to indicate that the raw material for the working of the plant is there and is in order", the court said in its 65-page verdict. There is no question of compensatory tariff. It was argued that a rise in the price of Indonesian coal was unforeseen, inasmuch as the rise took place only in 2010 and 2011, while the PPAs were entered into, sometime in 2006 to 2008.

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However, the details of the court's order are yet to come but the compensatory order being set aside shows no sign of relief for Tata Power and Adani Power.

As a result in both the cases, Adani Power filed a petition before the Central Electricity Regulatory Commission seeking relief on the score of the impact of the Indonesian Regulation to either discharge them from the performance of the PPA on account of frustration, or to evolve a mechanism to restore the petitioners to the same economic condition prior to occurrence of the change in law. In a report last month, brokerage JPMorgan said Tata Power shares would take a hit of Rs 15 from a price target of Rs 90 if the compensatory tariff was disallowed.

It, however, said preliminary analysis reveals that the company will get benefit in respect of its PPA (1424 MW) to Haryana power distribution firms and PPA (3,300 MW) with such Maharashtra companies as also with PPA (1200 MW) with Rajasthan firms.

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