Editorial- October 2018

The Supreme Court judgment of April 11, 2017 had ruled against force majeure claims of gencos on the change in law in Indonesia on imported coal. But, it allowed compensations in case of change in the Indian laws. That means the demand of tariff hike on imported coal was dismissed. The gencos involved are: Adani, Tatas and Essar. They, through different bidding processes, had signed agreements with discoms of five states – Gujarat, Haryana, Rajasthan, Maharashtra and Punjab – for supplying power at the prices they had quoted in their bids.

Adani Power Limited (APL) reneged on its contractual obligations, shuttering its power units. GUVNL made up for the shortfall in power supply by buying 6,749 MUs for four months (Mar-Jun 2018) from high cost sources like power exchange, bilateral and spot LNG. The average cost for this procurement was Rs 4.30 per unit, about Rs 2 more than the tariff agreed by APL. GUVNL shelled out Rs 1,300 crore more than what it would have paid APL had it insisted on contractual sanctity. The Gujarat government took the committee route to skirt the apex court order. Thus, a high powered committee was set up which suggested an increase in tariff through a change in policy route. It used the references of migration package allowed under National Telecom Policy 1999 and the levy of User Development Fee (UDF) at Delhi & Mumbai airports to build its rationale. It also referred to a power ministry advice of April 13, 2018, on a SBI reference to the central government for resolution of coal based projects in Gujarat. This power ministry communication had stated that Gujarat government could take steps to resolve issues. What it conveniently forgot to mention was the Supreme Court judgement had categorically ruled that force majeure was admissible only in case of changes in Indian law, for changes in foreign law, it was inapplicable.

It is undeniable that there are stressed assets in the power sector. Therefore, the central government has instituted a scheme called Pariwartan also known as Samadhan. The power ministry in consultation with the lenders recently constituted an ARC under the state-owned Rural Electrification Corporation (REC). This ARC, once registered, will house stressed operational power assets. The ARC will warehouse 10,000 MW of stressed power projects and salvage those from insolvency where lenders might have to take a minimum 50 per cent haircut. Lenders’ debt will be converted into equity in the plant. They will hold it for five years to realise better value, while the existing promoter will lose the equity in the plant completely. The former RBI governor Raghuram Rajan, in his recent submissions before a Parliamentary panel, has detailed the enormous mismatch between lender profile and promoter equity, how banks have even got sucked in by some promoters by inflated, over-invoiced imports etc.

Pariwartan is a process driven scheme with fair parameters, it is not individualised to favour this or that company. But what the Gujarat government is doing flies in the face of the central resolution scheme. Read our cover story for details.

Top