Editorial- January 2019

The Supreme Court has given its ruling in the case of three Power Stress projects of Tata, Adani and Essar established in the state of Gujarat. The ruling comes after hearing all parties and after a six-year long legal process.

The ruling was made on the joint application made to the Supreme Court by the Gujarat government and Gujarat Urja Vikas Nigam Ltd (GUVNL). They sought the clarification of the apex court whether its earlier order dated Apr 11, 2017 in the ‘Energy Watchdog vs CERC’ matter bars the amendment of PPAs, which were signed with the power producers in 2007 and 2008 through tariff-based bidding.

The matter came before the bench headed by Justice RF Nariman and Justice Navin Sinha. The Apr 11, 2017 judgment was also written by Justice Nariman while the bench at that time was headed by Justice PC Ghose, who has since retired.

During the court hearing several observations made. First, Justice Nariman, acknowledged that the high-powered committee (HPC) appointed by the Gujarat government and headed by a retired Supreme Court justice, RK Agarwal had gone into all the public interest issues and recommended amendment of the PPAs. Second, he stated that recommendations in the HPC report are fair and in consumer interest. Finally, in its order, the apex court directed the GoG & GUVNL to file amended PPAs before the CERC.

After this ruling, the GoG, accepted the HPC recommendations allowing pass through of costs of imported coal. It directed GUVNL to amend the PPA and approach CERC for approvals. GUVNL has entered into two supplementary PPAs with Adani Power (Mundra) Ltd which have been submitted to CERC for approval and the matter shall come up for final hearing in Jan 2019.

Set up between 2006 and 2011, the three projects could not pass on the increase in the cost of imported coal onto tariffs since they were bound by the PPAs. Costing over Rs 28,000 crore, these projects were on the verge of landing in insolvency. Discoms began to buy power from the market which was expensive. Under the circumstances, the Gujarat government set up an HPC headed by a retired SC judge to recommend the way out. It recommended a slew of restructuring measures, some to be borne by lenders and some by developers. It also recommended allowing the cost of imported coal as pass through but that required amendments to the PPAs. But there existed the SC judgment of Apr 2017. Hence GoG & GUVNL moved the SC which has resulted in the present ruling.

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