The stocks of Tata Power and Adani Power were down 3 per cent and 6 per cent respectively on Tuesday, following the Supreme Court staying Appellate Tribunal's interim order which upheld compensatory tariff to Tata Power and Adani Power earlier this year.

The interim order

Six months back, in February, Tata Power and Adani Power had received a favourable tariff order from the Central Electricity Regulatory Commission on their Mundra power plants in Gujarat. The companies were allowed to charge their customers (state distribution utilities), a compensatory tariff, in addition to their existing tariffs. This would have helped the companies recover losses incurred on account of using expensive imported coal. The order which was then challenged by the state distribution utilities at the Appellate Tribunal was partly upheld by the latter in favour of the power companies.

However, the Supreme Court has now stayed the Appellate Tribunal’s interim order and asked it to decide on the matter at the earliest.

Delay in tariff hikes

The stay order has now delayed the tariff hike and can have a negative impact on the companies' earnings.

The 4,000 MW Mundra ultra-mega power plant which accounts for close to half of Tata Power’s installed generation capacity, was commissioned between March 2012 and March 2013. The plant, which depends on imported coal, turned unviable following a change in Indonesian laws in 2011 that made coal imports from the country expensive.

Prior to the stay order, Tata Power was allowed tariff hikes (as upheld in the interim order), which would have resulted in a compensatory amount of ₹690 crore for fuel under-recoveries at the Mundra plant for 2013-14. But the company prudently decided not to account for this amount till the final order was passed. The company thus reported a consolidated net loss of ₹260 crore in 2013-14.

Adani Power too, impacted by fuel under-recoveries at its 4,620 MW Mundra plant, posted a consolidated net loss of ₹291 crore in 2013-14. This was despite the company taking into account the compensatory amount of ₹1,013 crore awarded to it for 2013-14, as also the lump sum compensation of ₹830 crore for the losses incurred until March 2013. If the final ruling turns out unfavourable, the company will have to reverse this transaction, thus taking a hit on its profits.

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