Simplified: How Adani, Tata tariff case played out

The ruling pertains to projects run by Tata Power and Adani Power, who operate a 4,000 megawatt and 4,620 megawatt plants, respectively, in Mundra, Gujarat.

Why did fuel costs spike?

Both projects source a significant amount of coal from mines in Indonesia (both companies have in fact bought coal mines in the resource-rich country to feed their local projects here).

In 2011, the Indonesian government passed a law disallowing export of coal at less than the international price. This resulted in a sudden spike in fuel-supply costs for both projects.

Which states do the two plants supply power to?

The Tata project supplies power to five states, namely, Gujarat, Maharashtra, Haryana, Rajasthan and Punjab while the Adani plant caters to Gujarat and Haryana.

What was the financial implication of coal cost spike?

Since both projects had inked power purchase agreements (PPAs) with procurers such as state distribution companies at a fixed price, they were making losses of hundreds of crores every quarter. Consequently, they approached the electricity regulator to be allowed to increase the tariff to recover their costs.

What did the regulator do?

In 2012, the regulator appointed a panel led by HDFC chief Deepak Parekh and which had members from purchasers of power. In 2013, the panel made several recommendations to the CERC to make up for losses for the power producers.

However, several members (belonging to the power procurers) of the panel were internally opposed to the final recommendation and had, in one instance, refused to sign on the suggestions.

What does the CERC ruling say?

The CERC ruling said past losses of about Rs 330 crore for the Tata project and Rs 830 crore for the Adani plant should be recovered from procurers. Henceforth, power tariff has been hiked by Rs 0.59 per kWh for the Tata plant and Rs 0.85/Rs 0.39 (Gujarat/Haryana) for the Adani plants.

These recommendations were mostly in line with the Parekh panel recommendations.

What do the companies’ financials look like?

Over FY12 and FY13, Adani made losses of Rs 295 crore and Rs 2295 crore while Tata Power lost 968 crore in FY12 and made a profit of Rs 99 crore in FY13.

Both companies have been saddled with debt with consolidated debt for Tata Power standing at Rs 36,655 crore as of FY13 (thrice the equity of Rs 12,326 crore) while Adani’s total debt stands at Rs 37,603 crore (versus equity of Rs 4,293 crore).

What are brokerages saying?

Brokerages have nearly unanimously hailed the ruling and have upped their target prices for both stocks. Most upgrades have been in the range of 10-20 percent.

Are there risks to the ruling?

State discoms could approach the high court or the electricity regulator contesting the CERC ruling. While there has not been an official word from either power distributors or governments, a challenge would not be surprising.