The demand was made despite the power purchase agreement (PPA) not allowing for an increase in the prices of power on any rise of imported coal except if Coal India Ltd (CIL) raised prices
Alok Ramachandran, power sector analyst, SBICAP Securities says that regulator is cognisant of the fact that the tariff has to be renegotiated and adds that relief for Adani Power depends on the recommendations of the committee.
"Though the CERC may arrive at single pricing formula for all PPA, the details of each case will be taken into consideration," he told CNBC-TV18.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: Does the CERC order call for the formation of a committee or is it a direction to the committee to pay some sort of compensation to Adani Power?
A: The order offers no direction to the committee. It calls for a committee that will decide on variable compensation that will be paid to the generator who cannot continue to benefit from the increase in coal prices. If coal prices go down and the prices remain high, it will allow the generator the benefit of tariff higher than what has been mentioned in the bid agreement.
The regulator is cognisant of the fact that the tariff has to be renegotiated and is of the view that a generator needs to earn a particular amount of return, which has been enforced or has been very vociferously argued by the petitioner's counsels under Section 61 of the Electricity Act.
So the CERC has the power to set aside the tariff but it has to take into consideration the need to adhere to a contract.
Q: Do you expect Adani Power to get relief on variable component compensating for higher coal prices?
A: That depends on the conclusion that the committee arrives at. The CERC order mentions Adani Power's demand for a close-to 100-percent rise in the energy component an increase of Rs 1.12 paise from Gujarat Urja Vikas Nigam Limited (GUVNL) and a nearly 0.97 paise increase from Haryana. The Tatas are asking for nearly 0.70 paise hike in tariffs.
Q: What impact will it have on the petitions of Tata Power and Reliance Power with the CERC? Is the regulator likely to announce a single formula that will be applicable to all these petitions?
A: The impact of the CERC order on each of these power projects needs to be viewed separately. So, it is very difficult to comment on it.
Q: Are you already calling a 'buy' on Adani Power and Tata Power?
A: We do not cover these companies. So, I will not be able to give any recommendation.
Q: Would investors also have to take into consideration the fact that this could be further litigated?
A: Yes, that is possible.
Q: Is the CERC likely to come out with a formula that could be applied to all PPAs that have been signed from a particular date?
A: Yes, but then it will be done on a case-to-case basis.
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