Adani Power may have to write down Rs 3,500 crore after SC order on compensatory tariff: Report

Adani Power may write off at least 80% of the compensatory tariff reported into earnings for its Mundra power project up to December 2016, according to a Nomura report. This would mean the company may have to write down Rs 3,500 crore after the Supreme Court (SC) order over the compensatory tariff charged by Tata Power and Adani Power.

The company needs to write off at least 80% of the compensatory tariff reported into earnings for Mundra power project up to December 2016, said Nomura analysts Anirudh Gangahar and Archit Singhal say in report. The compensatory tariffs reported by company of Rs 8,700 crore include Rs 4,400 crore for the Mundra project.

Adani Power had been accounting in earnings since January-March 2014 quarter for higher power tariffs for the Mundra power project to compensate for changes in the price of imported Indonesian thermal coal and a shortfall in domestic supplies.

The report said that the remaining Rs 4,300 crore compensatory tariff for the Tiroda and Kawai plants were affected by domestic coal shortages. A full recovery of this is unclear.

The shares of Adani Power and Tata Power continue to tumble as the SC blocks the higher prices charged by these power companies. Adani Power shares were down by 5.11% or Rs 1.90, at Rs 35.30 per piece at 10:45 hours on BSE on Wednesday. Tata Power shares too were down 0.76% or Rs 0.65, at Rs 84.75 per piece at the same time on BSE.

At 1140 hours just after the SC order, Adani Power's stocks tumbled over Rs 7 or 16.46% on BSE, trading at Rs 37.05 a piece. While Tata Power was trading at Rs 82.55 a piece tanking over Rs 4 or 5.22%.

Also read: Adani, Tata Power shares plunge on Supreme Court's decision over compensatory tariff

Reportedly, the court allows plea against Tata Power and Adani Power's compensatory tariff. 

The apex court's ruling have fueled a decade old issue on compensatory tariff.

On March 31, 2017, the SC reserved its judgement to determine if an electricity regulatory body can amend competitively bid tariffs to award compensation to the companies involved. 

Both Tata and Adani Power had sought the regulator’s involvement stating that they suffered losses due to high cost of imported coal.The Central Electricity Regulatory Commission (CERC) in April 2013, allowed Tata and Adani Power to hike power tariffs to compensate from a change in Indonesian law which unexpectedly increased coal cost in 2010. 

Tata Power's subsidiary Coastal Gujarat Power Ltd (CGPL) and Adani Power's Mundra project in Gujarat have power purchase agreement (PPAs) with state discoms in Maharashtra, Rajasthan, Gujarat, Haryana and Punjab.

In the month December 2016, CERC ruled in favor of the two firms stating that they were entitled to relief in the form of compensation for higher coal cost for their flagship power plants in Gujarat.

Tata Motors on Tuesday in a statement said that the company is studying the SC order. “The Company will continue to pursue all alternatives options at Coastal Gujarat Power Ltd (CGPL), including sourcing of competitive coal from other relevant geographies as also use low grade and blended coal options on contains the onslaught of under recovery at Mundra UMPP.”