The Appellate Tribunal for Electricity (Aptel) compensatory tariff order is out. Aptel has ruled that Indonesian regulations on increase in prices due to domestic coal policy do not constitute a change in law. However, in a big relief for Tata Power and Adani Power, Aptel has ruled that the Indonesian regulations adversely affected Adani and Tata’s power purchase agreements (PPAs) and qualify as a force majeure.
Speaking to Bloomberg TV India, Tata Power Managing Director Anil Sardana said he expects power tariff at ₹2.55 per unit including the under-recovery part of 25-26 paise per unit, which will still be the most competitive tariff anyone can assume.
I would say that it vindicates our stand that there was a force majeure condition that emerged after the Indonesian government changed the law and changed the coal prices. We could not uphold the contracts that we had signed in Indonesia for long-term offtake of coal. And as you know that caused the under-recovery at the ultra-mega project, which otherwise is one of the most competitive projects in India.
What this order does is provide a very strong legal base to the fact that there was a change of conditions and under force majeure has granted us the relief. Now they have given three months time to the Central Electricity Regulatory Commission (CERC) to do its calculations.
Fortunately, since CERC has done the compensatory tariff calculation, they have all the details. So I am very hopeful that within three months we should be able to see the CERC formulation of calculation.
The highlight of the verdict is that CERC has to come out with a compensated tariff based on a force majeure clause. Can you tell us what sort of tariff revision you would be expecting given the coal prices are at a lower level now?
Well, our under-recovery levels are almost half of what we had approached the CERC for the first time. At that time, we were at about 52 paise per unit. Now they are almost half of that at the present juncture.
So the fall in coal prices have helped in reducing the pain. So it is not a matter of how much is the amount — what’s more important is the principle because coal prices are volatile and they can go up and down.
What is most important is that we had done a long-term tie-up. Because the Indonesian government changed rates and the company which has a contract with us applied force majeure on to us, we have no way to go but to bid coal at the competitive prices we bid. That exactly was our principle prayer and that has been upheld by Aptel.
Now that the tariff revision is proposed, it should sound good to the investors. Will this mean you will be able to actually sign long-term coal offtake agreements and it will be a more predictable tariff measurement for you?
Well, you cannot do that because as per the law enacted in Indonesia, where the coal is still the cheapest among all the international geographies that supply thermal coal, you have to go by the price of coal that the Indonesian government announces every month. So even if you sign a long-term contract just to securitise your supply, the prices in any case will not be long-term but they will be based on the monthly announcements.
Can you now pass any increase in the fuel price to the consumer? Can you elaborate on how much receivable you are now expecting, which is still due on the balance sheet?
We have to go through the fine-print of the order and see whether the past period under-recovery has also been permitted to be recovered, which was one of the key prayers of the procurers. The second part is that this entire calculation and methodology — which has been perhaps reverted back to the Commission — we have to see whether it stays similar to what the commission has already done or will there be any change in that. That will be known once we have the printed order in our hand.
What is the minimum tariff hike you are expecting?
Our prayer was very simple. The under-recovery on the fuel side should be taken care of. And that’s what compensatory tariff is all about. Assuming that’s being taken care of, we will on present day times have a tariff of something like ₹2.55 per unit or so, which is the most competitive tariff anyone can assume including the under-recovery part of 25-26 paise per unit.