The Supreme Court on Tuesday set aside an Appellate Electricity Tribunal decision allowing power generator giants Adani Power and Tata Power to charge compensatory tariff from their consumers spread across States including Gujarat and Haryana.
The tribunal, in a judgment on April 7 last year, permitted the companies to hike the tariff after Indonesia — where they source coal from to power their plants — decided in 2010 to align its coal export prices to international market prices instead of what they have been charging for the past 40 years.
The companies had argued that the increased coal prices was a ‘force majeure’ event (an unforeseen situation) provided for in the power purchase agreements (PPAs) entered into between them and distributors.
The tribunal had then remanded the case to the Central Electricity Regulation Commission to find out the impact of the ‘force majeure’ event to grant compensatory tariff. On December 6, 2016, the Commission had arrived at a certain determination as to compensatory tariff to be granted on account of force majeure.
Setting aside all past orders of the tribunal and the commission, a Bench of Justices P.C. Ghose and Rohinton Nariman held that a change in Indonesian coal export regulations does not measure up to be a force majeure event for which the consumers have to compensate for.
“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. 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. It is clear that 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,” Justice Nariman, who wrote the verdict, held in a 65-page judgment.
The court held that “changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as force majeure events under the PPA itself”.
The court further held that force majeure clause cannot be claimed for change in foreign laws, but only for Indian laws.
The court ordered the Central Electricity Regulatory Commission to go into the matter afresh and determine what relief should be granted to the power generators.
