Government initiatives apart, recent developments on the regulatory front, too, have come as big relief for some of the largest companies in the sector. The favourable APTEL (Appellate Tribunal for Electricity) order on Tata Power and Adani Power relating to the companies’ respective Mundra plants, in April has brought some clarity on their long pending plea for higher tariffs.

APTEL has held the change in Indonesian laws in 2011 that made the companies’ Mundra plants unviable to be a case of force majeure. That is, APTEL has ruled that the losses incurred by the companies due to the change in Indonesian laws which made coal imports from the country costly, was outside their control and the companies must therefore be compensated. It has asked the Central Electricity Regulatory Commission (CERC) to work out a compensation package within three months.

What makes this order significant is that unlike the earlier CERC relief (which was later challenged by the state discoms) awarded to the companies, the compensation this time will be awarded under the force majeure clause of the companies’ contracts with the discoms. This gives it a stronger legal backing. Also, the companies may not be expected to take a cut in their return on equity this time, since the event of ‘change in Indonesian laws’ has been held to be outside their control.

Background

The cost calculations of Tata Power and Adani Power went awry after the change in Indonesian regulations made coal exports from the country unviable. While the decline in international coal prices in recent times has brought some relief, the Mundra plants are still incurring losses. The plants account for a chunk of the companies’ generation capacities and have dragged their consolidated financials into the red.

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