Adani Power & Coastal Gujarat Power Limited win path breaking cases on Coal import prices

J. Sagar Associates (JSA) represented Adani Power & Coastal Gujarat Power Limited (CGPL- a wholly owned subsidiary of Tata Power) before Central Electricity Regulatory Commission (CERC) in a path-breaking decision on February 21, 2014, which has allowed compensatory tariff to Adani Power & CGPL to offset the hardship caused by unprecedented, unforeseen and un-absorbable price spiral of imported coal. In doing so, CERC has given effect to the principles of “commercial impracticability” as an element of frustration of contract for a regulated contract while building safeguards against the hazard of unjustifiable renegotiations to maintain sanctity of contracts.

CERC has exercised its jurisdiction under Sections 79 and 61 of the Electricity Act read with provisions of the Power Purchase Agreements and the statutory Competitive Bidding Guidelines. To recommend the appropriate level of compensatory tariff, CERC had appointed a committee chaired by Mr. Deepak Parekh along with two independent experts and representative of the two procurer states, Adani & CGPL. The Committee submitted its Report on August 16, 2013. Detailed hearings were conducted on the same before issuing the order.

While intervening in the matter, CERC has stated that in views of its statutory duties, it cannot remain oblivious to the interests of consumers and lenders. CERC has specifically noted that the power sector is facing multi-pronged challenges on various fronts primary being the fuel availability. The regulatory body needs to ensure that the sector remains operational.

To safeguard consumer interest, CERC has adopted a slew of measures including (a) clawing back all profit derived by the generator's group company from sale of Indonesian coal relatable to supply to the generator, (b) the directing the generating company to contribute a portion of its (1% for CGPL as also for Adani's PPA with Gujarat and 0.25% for Adani's PPA with Haryana.

These decisions have evolved certain tests for tackling stranded infrastructure investments in the country which are to the tune of Rs.10,00,000 crores with debt finance exposure of around Rs.7,00,000 crores. Combined with the RBI guidelines of 30 January 2014, only deserving cases of unforeseen, undeserved and unabsorbable supervening events outside control of project developers can be considered for relief including restructuring or reviving. Undeserving cases may face rebidding, foreclosure or acquisition by government.