Adani leads power shares rally on CERC ruling; stock up

Moneycontrol Bureau

Shares of Adani Power led the rally in the power sector Tuesday, after a favourable verdict from the Central Electricity Regulatory Commission (CERC) on tariff hike.

The CERC late Tuesday decided to offer a compensation package to Adani Power, while maintaining that Adani's power purchase agreements with Gujarat and Haryana will stay and there was no case for Force Majeure and change in law.

Adani Power shares were up 12 percent at Rs 49.65. Sares of Tata Power and Reliance Power were up 4.8 percent to Rs 99.95 and  2.5 percent to Rs 67.85 as the market expects the CERC ruling to strengthen the case for higher power tariffs for other imported coal-based projects as well.

Adani Power appealed to CERC after its customers in Gujarat and Haryana refused to pay higher rates for the electricity generated from the company's Gujarat coal-based plant.  Adani Power said it was forced to hike tariffs due to escalation in price of imported coal and scarcity of domestic coal. Power producers such as Adani Power, Tata Power and Reliance Power, which depend on coal imported from Indonesia, have been struggling after Indonesian government last year started levying higher royalty and income tax.

The regulator said that the compensation package will be called compensatory tariff and will be reviewed once the problems related to coal supply are resolved.

Adani Power has signed two power purchase agreements of 1,000 megawatts (MW) each with the Gujarat government at Rs.2.35 per unit and Rs.2.89 per unit for its Mundra plant. The company also has a similar agreement with Haryana government at Rs.2.94 per unit.

Following the levy of higher royalty and income tax, Adani Power had appealed to CERC for Force Majeure and change in law, which will essentially discharge the company from providing power at the prices agreed in the power purchase agreement.

CERC in its order issued last night noted, "The petitioner would have continued to supply power at this price, had the Indonesian Regulations not made it mandatory for sale of coal from Indonesia at international bench-mark prices. Therefore, the competitive advantage of hedging in coal prices that the petitioner was enjoying by acquiring mining rights in Indonesia or by entering into long term contract with the coal suppliers in Indonesia appears to have been wiped out."

CERC order however stressed that Adani's power purchase agreements with Gujarat and Haryana will stay and there was no case for Force Majeure and change in law.

However to provide a relief to the Gautam Adani promoted company, CERC has asked the Gujarat and Haryana state government to constitute a committee within a week from this order. CERC instructed that the committee should consist of independent financial analyst, imminent bankers, power secretaries of both the state and chairman of Adani Power. The committee will study the impact of price escalation of Indonesian coal and suggest a compensatory tariff which can be allowed to Adani Power over and above the tariff agreed upon in power purchase agreement. The committee is required to submit its report by April 30.

So although CERC did not accept Adani Power's appeal for cancellation of power purchase agreement with Gujarat and Haryana, it has made provision for compensation the company for losses it may make for performing the agreement.