Supreme Court Orders Rajasthan Discoms To Pay Compensatory Tariff To Adani Power

The tariff dispute has its origins in the power purchase agreement that Adani Power Rajasthan and the state discoms signed in 2010

A coal fired power station. (Photographer: Carla Gottgens/Bloomberg)
A coal fired power station. (Photographer: Carla Gottgens/Bloomberg)

The Supreme Court has ordered three Rajasthan power distribution companies to pay compensatory tariff to Adani Power Rajasthan Ltd. since 2013 to recover the higher cost of imported coal. The apex court upheld the Appellate Tribunal for Electricity’s verdict which had directed the payment of compensatory tariff and carrying costs since 2013.

The dispute between Adani Power Rajasthan and the discoms pertains to a power purchase agreement they signed in 2010 for electricity supply from Kawai thermal power plant in Rajasthan.

Adani Power Rajasthan said the PPA recognised domestic coal as primary fuel while imported coal was to be used as back-up. The New Coal Distribution Policy of 2007 assured 100% domestic coal supply and the PPA said any change in law will allow them to seek compensation for the added cost.

But the 2007 policy was replaced in 2013 and didn’t include Adani Power in the list of firms identified for coal supply. This, the company argued, entitled them for compensatory tariff as they had to depend on imported coal until Januaruy 2018 when Adani Power was given full supply of coal under the SHAKTI policy—a methodology with which coal allocation to power plants is centralised.

The discoms argued that the tariff quoted by Adani Power had duly stipulated and agreed for the imported coal also as a fuel source and quoted the tariff based on that. And that any compensation paid to Adani will have to be recovered from the consumers, affecting public interest.

The case reached the state commission which held that the company was entitled to relief under the change in law provision of the PPA. The discoms appealed the order at the electricity tribunal which also ruled in favour of the company. It held Adani Power’s bid was based on domestic coal supply and the New Coal Distribution Policy will be covered under the change in law provision of the PPA.

The case thereafter landed in the Supreme Court.

A top court bench headed by Justice Arun Mishra found the PPA was based on the domestic law, which underwent a change. And so, Adani must be compensated for it.

The purpose of change in law is to restore through monthly tariff payment to the extent contemplated that the affected party is placed in the same economic position as if such a change in law has not occurred.
Supreme Court Judgment

However, in public interest the apex court lowered the late payment surcharge payable by discoms. “The late payment surcharge would be at SBAR (State Bank Advance Rate), not exceeding 9% annum and to be compounded annually,” the court said. As a result, the discoms won’t have to pay the additional 2% above the SBAR as provided by the PPA.