Monday, 11 April 2016 00:51
Aptel fixes Tata/Adani cases but restricts CERC power
The Appellate Tribunal for Electricity (Aptel) ruling that the sharp rise in the price of Indonesian coal for both Tata Power and Adani Power ‘constitute a force majeure event in terms of the PPA’—though not a ‘change in law’ event—is a shot in the arm for both power producers since the Central Electricity Regulatory Commission (CERC) has now been asked to award them relief based on what is allowed under the PPA for a force majeure event. How much this relief will be is not clear, and it is certain that the electricity boards that bought power from Tata and Adani will fight the CERC’s final award in the Supreme Court—the electricity boards have been arguing for the past four years that, never mind the sharp hike in coal prices after the Indonesian government’s action, the Tatas and the Adanis had signed a power purchase agreement (PPA) and had to honour it by supplying power at the agreed rates.
What is worrying about the Aptel judgment, however, is that it curtails CERC’s powers, and the same may well get applied to other regulators as well. After having said CERC was wrong in holding that a force majeure event was not triggered, it said CERC is not authorised to either modify the tariff or grant compensatory tariffs to generating companies where the tariffs have been determined via a competitive bidding process. Such a stance is problematic since it is the power regulator’s responsibility to ensure that power plants run profitably and that the sector as a whole remains robust. Should it, therefore, need to use its discretion to ensure that valuable assets, built at huge costs are not wasted, it should be empowered to deal with special situations like the sudden spike in coal prices in Indonesia in a manner it thinks best—and that is precisely what it did in the current case. CERC must be empowered to give players—across the supply chain—any kind of support it believes is necessary for the operations to remain viable.
Undermining the authority of the electricity regulator cannot be in the interests of the sector’s performance. Indeed, this is true for all regulators across sectors; they must have the flexibility to alter or modify the rules—even if the projects were won through a competitive bidding process—without the actions being perceived to be in any way biased or arbitrary. So, for instance, the airports regulator must be allowed to hike airport charges if that is required for the health of the sector. To be sure, there is the risk of creating a moral hazard, but in a difficult and unpredictable operating environment in which assumptions and estimates can go awry, promoters will be unwilling to take on long-duration projects. Without some room to re-visit the terms and conditions of the contract, businessmen would hesitate to take on any risks. This could de-rail the build-out of infrastructure where the gestation periods can be 10 to 20 years or even longer.