Supreme Court green light to end Adani-Gujarat power purchase agreement

The Supreme Court decided Adani Power Mundra was right in terminating the power purchase agreement (PPA) it had signed with Gujarat Urja Vikas Nigam (GUVNL), as it could not get coal supply on time from the Naini block of Gujarat Mineral Development Corporation (GMDC).

This could set a precedent for power companies that become unable to commission their capacity or suffer losses due to insufficient coal supply. 

The apex court has also allowed Adani to seek a compensatory rate for the electricity it had alternatively supplied to Gujarat from its Korba power project in Chhattisgarh. Adani Power's share price jumped 7.6 per cent on Tuesday, following the three-judge Bench’s decision.

The compensatory rate for Adani Power will have to be decided by the Central Electricity Regulatory Commission (CERC) within three months from the date the company approaches it. GUVNL will then have to make the payment to Adani within three months from the date the CERC decides. The case dates back to 2010, when Gujarat Electricity Regulatory Commission (GERC) decided Adani Power Mundra had illegally terminated the PPA the latter had signed with GUVNL. This decision of GERC was later upheld by the Appellate Tribunal for Electricity.

Adani’s contention was that GMDC, again a state government entity, did not develop the Naini coal block. The block was allocated to the state agency by the ministry of coal but was de-allocated in 2014. GMDC was supposed to construct a power plant near the coal mine but decided to transport coal to Gujarat for two power units, of Adani Power and Torrent Power. Adani Power signed the PPA in 2007 with GUVNL for supply of 1,000 Mw at Rs 2.35/unit from its power project at Korba, Chhattisgarh, based on coal supply from Naini. GMDC had agreed to supply 4 million tonnes of coal a year to Adani.

Later in 2007, Adani told GUVNL it would supply power from its Mundra power project in Kutch, Gujarat, instead of from Chhattisgarh, since GMDC was lagging in coal production. However, despite repeated reminders to the Gujarat government, GUVNL and GMDC, the coal supply did not start. Due to which, the PPA Adani had signed was terminated. Adani argued the agreement for supply of power was based on the assurance given by GMDC. GUVNL held the company should have supplied power, irrespective of whether it got the coal or not.   

The Supreme Court has said: “In order to do economic justice, on the principle of business efficacy, the appellant would be entitled for adjustment of cost of the project and would also be entitled to the interest on the expenditure incurred by it for completion of the project. The expenditure towards running of the project after obtaining the coal from the open market would also be required to be taken into consideration.” Adani Power Mundra would also be entitled to interest on any delay in payment upon determination of the rate by CERC.