It was after a long time that we saw power companies back in the reckoning. Tata Power and Adani Power were among the top gainers.
The reason? Yesterday, the long awaited directive came from the Supreme Court – it has put the ball back into the court of Central Electricity Regulatory Commission (CERC), asking it to amend the power purchase agreements (PPAs) w.r.t three imported coal-based power plants – Adani Power, Tata Power and Essar Power. This is the same issue on which in 2017, the SC had staunchly ruled out any tariff hike.
The SC last year had categorically ruled that under force majeure clause, Tata Power and Adani Power cannot claim any benefit as the changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as unforeseen events under the PPA.
Well,, this stance has changed since the various representations of the concerned power companies. In fact the companies made a smart move – they made their case through the Gujarat Govt. The state Govt had submitted a proposal to bail out the loss-making power plants of Adani, Tata and Essar in Mundra. It intended to pass on the increased fuel costs to power distribution companies. This was based on the recommendations of a high-level committee that was set up to suggest ways to revive the ailing power projects.
Obviously, this has not gone well with the people as this would mean increased burden of cost on common man. The stock market sulked in 2017 when the SC ruled out tariff hike but the common man heaved a sigh of relief. And today, the ball has turned – the companies are beaming and the common man does not know yet but his cost of living is about to go up further in 8 week time.
Delhi-based Energy Watchdog and Pune-based Prayas have opposed the Gujarat government’s petition in the Supreme Court. They have stated that a tariff hike has no logical standing as it has violated previously signed PPAs so far.
On the other hand, the power companies, while bidding for the plant had quoted fixed fuel costs. Things were going hunky dory until 2012 when Indonesia, moved to international indices based pricing, leading to a sharp hike in the coal price. This in turn has upset the power company’s balance sheets.
Making these power companies case even more strong is SBI. It is a part of the consortium that has funded the three power producers-Tata Mundra, Adani and Essar. SBI is pleading for a tariff hike, asking the CERC to put in the place recommendations of high-level committee quickly as it the net-worth of these companies has almost been eroded and this puts the money it has loaned at serious and imminent risk.
If these plants are not allowed to pass on additional fuel costs to consumers, their potential losses could widen to Rs 1.29 lakh crore over 30-years. And the lenders could be facing a huge haircut - the consortium of banks, as at 31st March 2017, loaned Rs.19,127 crore to Adani Power, Rs 4,214 crore to Essar Power and Rs 10,159 crore to Tata Power.
For us, this seems unfair as anything happens anywhere in the world, we pay a price. Why should we pay a price for the misjudgments of these companies? Look at this the other way, if the Indonesian coal price had come down, would we have ever got the benefit through a tariff cut? Never!
Well, this is how it is – one man’s gain is the other’s loss; nowhere will see this idiom more pronounced than in the stock market.
It’s a pity that state-run Coal India, the largest coal producing company in the world, cannot step up and take care of the needs of the Indian power companies, leading to this cascading effect all around. Wonder when this much celebrated company will ever get pulled up for its inefficiencies.
For now, as we deal with the October heat, keeping the AC on through the day, remember, even today’s bill will seem cheaper compared to what we will pay 2 months on.