Companies Supreme Court

Amendment of PPA : SC order flouted by Gujarat Government

In a direct defiance of a Supreme Court order, the BJP-led Gujarat government has asked its power distribution company to increase tariffs of the three coal-based power plants, which are owned by Tata Power, Adani Power and Essar Power, by making amendments in their power purchase agreements (PPAs) and approaching the power regulators for approval. This would in all likelihood mean higher tariffs for Gujarat residents.
 
This development will help the three plants, which has the capacity to generate about 10,000 Mw. The power plants are have been going through a loss after a jump in the price of Indonesian coal and the denial of several states to pay higher tariffs as they said that the power producers were bound by the PPAs.
 
According to a report in the Economic Times, the main power acquirer from the three plants, Gujarat Urja Vikas Nigam Ltd (GUVNL) has been instructed to immediately amend the pacts and approach regulators for tariff adoption and approval, sources said.
 
The order was issued late on Saturday night by the state government. The amended PPAs will soon be circulated among other states for cabinet approvals.
 
The Supreme Court on October 29 had asked the Central Electricity Regulatory Commission (CERC) to decide on compensation for high fuel cost to the imported coal-based plants within eight weeks
 
The order reads,“It is decided to execute amendments in PPAs of Adani Power and Essar Power Gujarat Ltd and approach appropriate regulatory commission for approval of the same immediately. In case of amendment in PPA of Coastal Gujarat Power Ltd (of Tata Power), the amendment shall be carried out and presented to CERC along with consent from the other four states.”
 
The Tata Power’s Coastal Gujarat Power Ltd which operates the 4,000-mw imported coal fired power plant in Mundra has PPAs with five states, Gujarat, Maharashtra, Rajasthan, Punjab and Haryana. Whereas, Adani Power’s 4,600-mw plant has contracts with Gujarat and Haryana. Essar Power’s 1,320-mw Salaya plant has power supply pact only with Gujarat.
 
“It is resolved to direct GUVNL to ensure adequate and efficient supply of energy at economical tariff and maintain its respective energy basket in a manner that has a mix of power sources that addresses all issues including availability of reliable base load power generation, optimum utilisation of existing resources and installed generation capacities by allowing revival and rehabilitation package to the financially stressed and economically unviable imported coal- based power projects through consequential amendments in existing PPAs in larger public interest,” the order said.
 
The direction was based on suggestions of a high-powered committee, set up by Gujarat, that suggested fuel cost pass through for the projects and an option to the companies to extend the power purchase contracts by 10 years.
 
In 2017, the three coal based power companies had offered majority stakes in their plants in Gujarat to the state government at Re 1 each after the apex court ruled that increase in coal prices due to change in overseas laws cannot be considered as change in law under the PPAs.
 
In the year 2010, Adani Power and Tata Power had asked CERC for compensation after Indonesia issued regulations implementing benchmark sale price.
 
CERC had then ruled that such change cannot be classified as change in law or force majeure under the PPAs but allowed compensatory tariff under exercise of regulatory power. The Appellate Tribunal for Electricity ruled that the case qualifies under force majeure clause and asked CERC to reconsider the quantum of compensation.
 
Against this the state distribution companies appealed in the Supreme Court. The apex court allowed CERC to calculate compensation till verdict.
 
CERC had issued the mechanism to compensate the companies. The Supreme Court finally said the increase in coal prices cannot be considered force majeure or change in law and asked CERC to look into the matter afresh in light of its verdict.

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