Bengaluru/Gurugram: On August 31, a Supreme Court bench headed by Justice Arun Kumar Mishra, that included Justices Vineet Saran and M R Shah, ruled in favour of a company in the Adani group in a dispute with public sector power distribution companies in Rajasthan. The verdict, issued three days before Justice Mishra retired from the court on September 2, has granted Adani Power Rajasthan Limited (APRL) – which owns a 1,320 megawatt capacity thermal power station in Kawai, Baran district – “compensatory tariffs” worth over Rs 5,000 crore and penalties and interest payments of nearly Rs 3,000 crore.
This “price” of Rs 8,000 crore will be borne by electricity consumers in the cities of Jaipur, Jodhpur and Ajmer. This is the seventh verdict in favour of Adani group companies issued by benches headed by Justice Mishra since the beginning of 2019.
The verdict was on petitions by power distribution companies (discoms) of the three cities, and a separate petition by the All India Power Engineers Federation (AIPEF), a representative body of employees of public sector power companies, against a September 2019 verdict of the Appellate Tribunal for Electricity (APTEL). Agreeing with the APTEL’s contention that APRL had suffered on account of a “change in law” for which it was owed compensation, the Supreme Court bench rejected the arguments made in appeal by the discoms and AIPEF.
The court held that a memorandum of understanding (MoU) signed by the government of Rajasthan providing an “assurance” that it would “facilitate” allocation of coal mined domestically as fuel supply for Adani’s power plant in Kawai, constituted the basis for power purchase agreements (PPAs) signed by the Adani group company with the Rajasthan discoms in 2010. This was despite those PPAs having been signed on the basis of APRL bidding successfully in a competitive auction, which it qualified to participate in on the basis of a coal supply agreement (CSA) it signed with its sister company, Adani Enterprises Limited (AEL), for coal imported from Indonesia.
Subsequently, the failure of the power plant to secure a coal allocation from the government constituted a “change in law,” the court held. This, coupled with the fact that in 2011 the price of coal imported from Indonesia had risen significantly above the levels agreed upon in the CSA that qualified APRL to participate in the auction, entitled the company to “compensatory tariffs,” the Supreme Court ruled.
Domestic or Imported Coal?
The case before the apex court depended on answers to two important questions.
In 2009, the Rajasthan discoms conducted an auction in which private power producers were invited to participate and present bids to win the right to sell electricity to the state. In order to qualify to participate in the auction, the private power generation companies needed to have in place CSAs – either a domestic coal linkage that would supply enough coal for the entire lifetime of the PPAs or a CSA for imported coal that would supply at least half of the fuel requirement for the first five years of the PPAs.
At the time the auction was announced, with requests for proposals being circulated, in February 2009, the Adani group company was in the process of setting up its power plant at Kawai, but did not have any CSA. While in a MoU signed by the government of Rajasthan with AEL in March 2008, the government had assured its support to the project in facilitating it to obtain a domestic coal linkage, this did not constitute a concrete agreement that would qualify it to participate in the auction.
While preparing its bid, in June 2009, APRL wrote to the Rajasthan government seeking its support under the terms of the MoU for securing a coal linkage, requesting either the allocation of excess coal from existing coal mines owned by the state government, including the Parsa East Kente Basan mine in Chhattisgarh, which another Adani group company was contracted to mine, or to support its application for allotment of a captive coal block to the Union government.
However, without a CSA guaranteeing its coal supply, APRL would not qualify to bid in the auction. Hence, in June 2009, it executed a CSA with group company, AEL, for supply of coal imported from Indonesia for the Kawai project. In addition, APRL also applied for a long-term coal linkage contract to the Union Ministry of Coal in July 2009. With this CSA for imported coal in place, APRL submitted its bid in the auction, attaching the agreement to its bid.
It was because of this agreement that APRL’s bid was considered in the first place during the auction. Having qualified, the Rajasthan government sought a clarification from APRL regarding the evaluation of its bid. APRL clarified that it…