The Central Electricity Regulatory Commission (CERC) order last week allowing 'compensatory tariff' for 4620 MW power plant of Adani Power and 4000 MW of ultra mega power project (UMPP) run by Tata Power would take more time to be implemented, said Credit Suisse India Research.
"We continue to believe that resolution of this issue would take time. State Electricity Boards would now seek approvals from their State Cabinets, which are unlikely to accept it in a hurry. This is because first it is lopsided towards developers, second it has wider ramifications as most independent power producers would be eligible for similar hike requiring 7 per cent all-India power tariff hike or over Rs 24,000 crore subsidies and third imminent elections," Amish Shah and Abhishek Bansal of Credit Suisse India Research said in their report on Monday.
The research firm added that the CERC order on compensatory tariff is very positive but its 'translation into cash flow unlikely in the near term'.
CERC's order for award of compensatory tariff to Tata Power's Mundra UMPP broadly permits pass-through of entire fuel cost for the project. Such compensation would be payable by State Electricity Boards of five States on a retrospective basis since the start of the project (nearly Rs 1,730 crore for 2013-2014).
According to the order, compensatory tariff would be adjusted for profits earned by Tata Power from Indonesian mines (however, there is no clarity on impact from Tata Power's recent decision to sell one of these mines), 1 per cent return on equity (RoE) on invested equity, and 60 per cent of profits earned from sale of power beyond 80 per cent of plant availability factor (PAF) to third parties. And also any potential benefit from cut in duties, interest or loan restructuring have to be passed on to the customers.
In case of Adani Power, compensation would be payable by SEBs on a retrospective basis since the start of the project of nearly Rs 830 crore for 2012-13.
Similar are the conditions for Adani Power's plant too. Compensatory tariff would be adjusted for 1 per cent RoE on invested equity for Mundra III and 0.25 per cent RoE for Mundra IV projects.
"Assuming Adani Power gets similar hike for Tiroda and Kawai projects, it could report a profit of Rs 930 crore in 2015-16 (against Rs 1,130 crore loss)," said Credit Suisse.
Adani Power is trading at Rs 36.75 on the BSE, while Tata Power scrip is hovering around Rs 82.25, up 3.40 per cent at about 10.00 am.