'Still building compensatory tariffs for Tata Power, Adani'

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Tata Power and Adani Power may have reason to cheer after all. As per Kotak Institutional Equities Research current estimates, it continues to build compensatory tariffs for both Tata Power and Adani Power despite a Supreme Court order staying electricity appellate tribunal Aptel’s interim order on compensatory tariff.

"The same is economically affordable, though see increased risks of the apex court taking a high principled stance on compensatory tariffs," the report says.

Kotak Institutional Equities Research has a 'sell' rating on Adani Power with a target price of Rs 40/ share. It continues to have a positive stance on Tata Power with an ADD rating at a target price of Rs 102/share, though sees risks to its stance if outcome of the compensatory tariff issue is not on expected lines.

The Kotak Research states: "Despite accruing compensation of Rs 260 crore for the first quarter this fiscal year, Tata Power made losses of Rs 320 crore at Mundra in the first quarter of FY15, while Adani Power lost Rs 150 crore. Adani Power reported a pre-tax loss of Rs 400 crore for FY14 even after including a compensatory tariff of Rs 1800 crore for the year."

The report further states that Tata Power's subsidiary Coastal Gujarat Power Limited (CGPL), which is implementing the 4,000 MW Mundra UMPP, did not recognize the corresponding compensatory tariff of Rs 224 crore for Q1FY15, while total revenue of Rs 1019 crore was recoverable for the period from April 1, 2012 to March 31, 2014.

On Monday, the Supreme Court stayed electricity appellate tribunal Aptel’s interim order on compensatory tariff. The apex court also asked Aptel to hear the matter expeditiously. Post the Supreme Court order, Tata Power fell 6 percent till Tuesday. It, however, recovered in trade today, while Adani Power fell 10 percent over Monday and Tuesday.

In July, Aptel had allowed Tata Power and Adani Power to recover dues from procurers arising from rise in import costs of fuel from March 2014. This became a cause of great discomfort for electricity distribution companies, or Discoms. On August 20, Haryana Discom moved the apex court for a stay on the electricity tribunal’s order.

According to Aptel's interim order, power producers were not allowed to recover arrears before March 2013. It had allowed power producers to charge increased tariff only from March 2014. As per an estimate, pre-March 2013 dues for Tata Power's 4,000 MW Mundra plant in Gujarat stood at Rs 330 crore, while the same for Adani's 1,980-MW is at Rs 830 crore.

The Aptel Order: The Story So Far

Aptel in its interim order had awarded compensatory tariffs of 54 paise/unit for Tata Power's Mundra UMPP and 41 paise/unit for Adani Power's Mundra power station for March 2013-March 2014. It had, however, disallowed bulk amounts of Rs 330 crore and Rs 830 crore, respectively, for the two power producers for the cost increase between September 2011 and March 2013. For the period beyond March 2014, compensatory tariffs, it said, would be calculated by taking into account the differential between the prevailing coal price in the international market and the prices quoted by Tata Power and Adani Power in bidding for these projects.

Prior to the Aptel order, CERC in April last year, had allowed Tata and Adani Power to recover compensatory tariffs from five state discoms that have power purchase agreements (PPA) with power producers. According to The Economic Times, Tata Power had approached CERC post a change in Indonesia's coal price regime in 2011, which was resulting in the company facing an annual loss of Rs 1,873 crore over its 25-year supply agreement. Adani estimated annual losses for power supplied at Rs 1,730 crore.

CERC allowed both the companies to charge higher tariffs from state utilities. The state utilities thereafter challenged this order before APTEL, which too directed them to pay compensatory tariff. The utilities then challenged this in the Supreme Court.