Tata Power, which owns the 4,000 MW mega power project through its subsidiary, Coastal Gujarat Power Ltd, is staring at a loss of Rs 47,500 crore over the 25-year power purchase agreement period of the project, on account of today’s Supreme Court order.

In its submissions earlier to first the Central Electricity Regulatory Commission, and later to the Appellate Tribunal for Electricity, Tata Power had said that if a compensatory tariff was not allowed, the project would lose Rs 1,873 crore a year, or Rs 47,500 crore over the 25-year period.

Tata Power had won the 4,000 MW project through a bidding process co-ordinated by the public sector Power Finance Corporation in February, 2006, quoting a price of Rs 2.26 a kWhr. It intended to feed the power plant with coal procured from mines owned by the Tata group in Indonesia.

But in 2010, the Indonesian government said that any export of Indonesian coal could be done only at prices linked to international prices. (Any higher realisation of price than local, would have to be retained in the country.) As a consequence, the Mundra project became, according to Tata Power, unviable.

Incidentally, it was not just Indonesia. Australia and South Africa too similarly changed rules. The three countries controlled 98 per cent of seaborne coal, Anil Sardana, CEO & Managing Director, Tata Power, told BusinessLine recently.

Adani in same boat

Similarly, the Adani group also set out building a 3,960 MW coal-based power project at Mundra, and entered into agreements with Gujarat and Haryana utilities at Rs 2.34 and Rs 2.94 a kWhr, respectively. The coal was to come from Indian mines, but the Government of India in November 2008 changed the rules so that only 70 per cent of the needs of coast-based thermal power plants could be met from domestic mines. The rest could be imported. As Adani group was trying to import coal, countries that were exporting the mineral made it mandatory to link export prices to international prices.

Tata Power and Adani appealed to the Central Electricity Regulatory Commission, seeking a compensatory tariff under the force majure (Act of God) and ‘change of law’ provisions of the power purchase agreements. “Unforeseen, uncontrollable and unprecedented escalation in imported coal prices,” said Tata Power.

The Commission said neither force majure nor change of law was applicable in this case, but invoked Section 79 of the Electricity Act under which empowered it to fix tariffs, and called for a committee to be constituted to find out what tariff to fix for the two mega power projects.

But even as the committee was formed, the utilities (buyers of the power) appealed to the Appellate Tribunal for Electricity against the Commission’s orders. The APTEL said in its judgment in April 2016 that the Commission had no powers to fix tariffs when competitive bidding took place and had erred in invoking section 79 for that purpose. However, inverting the Commission’s stand, APTEL said that both force majure and change in law were applicable in this case, and sent the case back to the Commission to provide relief to Tata and Adani under those clauses.

The utilities went to the Supreme Court against this. Today, the apex court set aside the Tribunal’s order.

In an interaction with BusinessLine in March, Tata Power’s Anil Sardana had said that the company was willing to settle for a compensatory tariff that would just let the project break-even, and allow no profits. He said while sanctity of bidding ought to be upheld, this was an unusual case.

He said that even if the 60-odd paise raise that Tata Power was seeking was given, the tariff would come to only around Rs 2.90 a kWhr – cheaper that any other purchase option before the utilities.