Setback for Tatas, Adanis as SC rules out compensatory tariff

The Supreme Court on Tuesday rejected the plea for compensatory tariff by Tata Power and Adani Power Ltd for the additional costs that they were incurring on raised prices of the coal they were importing from Indonesia for their power plants in Gujarat.

The bench of Justice Pinaki Chandra Ghose and Justice Rohinton Fali Nariman said: "The doctrine of frustration cannot apply to these cases as the fundamental basis of the PPAs remains unaltered. Nowhere do the PPAs state that coal is to be procured only from Indonesia at a particular price."

Speaking for the bench, Justice Nariman ruled: "In fact, it is clear on a reading of the PPA as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear. ... an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took."

The power generating companies had sought compensatory tariff after coal imported from Indonesia witnessed a steep hike follow change in their laws in 2010 and 2011 by which the export price of coal was aligned with international market price. This changed prices that were prevalent for last 40 years.

Tata Power is supplying power under the Power Purchase Agreement to Gujarat, Rajasthan, Maharashtra, Punjab and Haryana and Adani Power under PPA is supplying power to Gujarat and Haryana from its plant is in Mundra.

The top court verdict set aside the Appellate Tribunal for Electricity's (Aptel) April 7 ruling of by which it had said that an unforeseen increase in the cost of coal would be a 'force majeure' event under the PPA between power generating companies and distribution companies.

The top court verdict came on a batch of petitions by NGOs and state discoms, contending that the aligning the export price of Indonesian coal with the international market price does not create unforeseeable circumstances that prevent the power generating companies from fulfilling a contract under the PPAs.

--IANS

pk/vd