Understanding the Appellate Tribunal

Judgement on Compensatory Tariff case of

Adani and TATA
Apr 11, 2016

Appellate Tribunal for Electricity (APTEL) delivered a 486 page

landmark and elaborate judgement on a long protracted
compensatory tariff case of Adani and TATA. Despite the fact the
larger part of the order relates to tariff compensatory case of
Adani and TATA, the APTEL has clubbed similar appeals for GMR
and Reliance's Sasan case as well in this order. A thorough
reading of judgement is a very enriching experience as it is one of
the most lucid and cogently drafted orders on power sector in
recent times. The judgement for the case was initially reserved
on 29/4/2015, but due to retirement of one of the members, who
had presented a difference of opinion on the matter in the initial
order, rehearing was carried out for the whole case by the full
bench of APTEL and finally decision was pronounced in the open
court on 7th April, 2016.
Before sharing the understanding on this critical judgement, it
would be imperative to state that the write up on this matter is
neither claimed to be legally or professionally perfect
interpretation of the order and nor in any manner can be
considered as reporting on this order. This is an attempt to share
the understanding about this order in a simpler form without
altering the spirit of the order. It is tried that most of the language
part be picked from the original order to maintain the novelty of
the order while conveying its meaning.

While this article has tried to share understanding on the order,

the follow up article shall try to bring out the possible implications
of this far reaching order on the power sector and concerned
companies.
Adani Case
Bid No 1 - Adani Power entered into two Power Purchase
Agreements (PPAs) dated 02/02/2007 and 06/02/2007 with
GUVNL (the Gujarat Utility) for supply of 1000 MW power under
each PPA. Bid was submitted quoting a levelised tariff of
Rs.2.3495/kWh (Rs.1/kWh as the capacity charge and
Rs.1.3495/kWh as non-escalable energy charge). In the bid, the
Adani Enterprises Consortium had indicated that the lead member
Adani Enterprises Limited (AEL) had an arrangement for
indigenous coal requirement of the project with Gujarat Mineral
Development Corporation (GMDC), which had been allotted
Morga II coal block in the State of Chhattisgarh.
Bid No 2 - Adani also entered into two PPAs dated 07/08/2008 with
Haryana Utilities for supply of 1424 MW power from Phase IV of its
Mundra Power Project. Bid was submitted at a levelised tariff of
Rs.2.94/kWh from Units 7, 8 and 9 of Phase IV of Mundra plant.
Adani Power quoted non-escalable levelized/uniform capacity
charges of Rs.0.997 per kWh and quoted non-escalable levelized
energy charges of Rs.1.963 per kWh, aggregating to Rs.2.940 per
kWh. Adani Power did not opt for any escalation on the tariff for
25 years period either in the capacity charges or in the variable /
energy charges. The bid of Adani Power was based on blend of
domestic and imported coal in the ratio of 70:30. Both these bids
were case I bids, where the seller was required to assume full

responsibility to tie up the fuel linkage and to set up the

infrastructure requirement for fuel transport and its storage.
Problems for Adani Bid No 1 - The Fuel Supply Agreement (FSA) between Adani
Power, GMDC and GUVNL could not be entered into due to
persistent differences and disputes between Adani Power and
GUVNL as regards the rate of supply of power. Due to nonfulfillment of condition subsequent, based on failure of GMDC to
execute FSA, on 28/12/2009, Adani Power issued a notice for
termination of the PPA dated 02/02/2007.
On 16/02/2010, GUVNL filed a petition before the Gujarat
Commission challenging the said termination. By order dated
31/08/2010, Gujarat Commission set aside the termination on the
ground that the PPA dated02/02/2007 is not dependent on the
fuel supply by GMDC or any other particular source and also for
the reason that Adani Power had a FSA with AEL for supply of
imported coal for Phase III of the Mundra Power Plant. Adani
Power challenged the said order dated 31/08/2010 before APTEL
in Appeal No.184 of 2010. By order dated 07/09/2011, the APTEL
dismissed the appeal and upheld the order of the Gujarat
Commission. Adani Power carried the said order to the Supreme
Court by way of Civil Appeal No.11133 of 2011, which is still
pending. In compliance with the directions issued by ATPEL, Adani
Power is supplying power from its Phase-III of Mundra Power Plant
to GUVNL from the Date of Commercial Operation (COD) of the
plant i.e. 2/2/2012 by using imported coal from Indonesia
purchased through AEL.

Bid No 2 - On 12/11/2008 the Government of India (GoI)

directed that on account of shortage of coal, the supply of
domestic coal to projects set up in the coastal area such as
Mundra Power Project of Adani Power shall be restricted to 70% of
the capacity.
On top of it, on 23/09/2010 the Ministry of Energy and Mineral
Resources, Indonesia notified the regulation being Government
No.17 of 2010 dealing with Coal Benchmark Export Price
(Indonesian Regulation) to be effective from 01/09/2011. In
terms of the Indonesian Regulation, the export price of coal mined
in Indonesia was benchmarked to international market prices of
coal. The exporters were generally prohibited from selling coal
from Indonesia at a price less than the benchmark price.
In view of this, Adani Power expressed its inability to perform its
obligations under the PPAs. Adani Power claimed that such import
constituted an event ofForce Majeure under Article 12 of the PPA
and also a Change in Law under Article 13 of the PPA. Adani Power
also alleged that it was deprived of domestic coal availability to
the full extent i.e. 100 per cent and it got only about 54 percent
and, therefore, it was required to import coal for the balance
which is affected by the Indonesian Regulation. Adani Power
claimed that cost of production of electricity from Mundra Power
Plant has increased tremendously which has rendered it
commercially unviable to supply power to Haryana Utilities and
GUVNL at the price quoted in the PPAs.
CERC's Order in Adani Case under Petition No.155/
MP/2012 and Relief granted under both PPAs.

Consequently, on 05/07/2012, Adani Power filed a petition being

Petition No.155/MP/2012 before the Central Commission under
Sections 79(1)(b) and (f) of the said Act seeking
a) relief on account of the impact of the Indonesian Regulation
and asking for adjudicating the disputes between the Applicant
and the Respondent(s) in relation to regulate including changing
and/or revising the price/tariff under PPAs dated 07/08/2008 with
Haryana and Gujarat Utilities;
b) in the alternative, to declare that the Applicant is discharged
from the performance of the PPAs on account of frustration of the
PPAs due to Subsequent Events.
The Central Commission rejected the claim of Force Majeure and
Change in Law under Order dated 02/04/2013. However, by
majority of three with one member dissenting, it was held that
considering public interest, in exercise of regulatory powers
provided under Section 79 of the said Act, the Central
Commission can provide redressal to generating companies such
as Adani Power and proceeded to constitute an Expert Committee
to look into the alleged difficulties faced by Adani Power and find
an acceptable solution.
TATA case
Tata Power was declared as the successful bidder having quoted a
levelized tariff of 2.26367/kWh in a case II bid under UMPP
scheme and was issued LoI on 28/12/2006. Coastal Gujarat Power
Limited, (CGPL), a subsidiary of Tata Power Company Limited

was engaged in developing and implementing 4000 MW, Mudra

UMPP.
Mundra UMPP was envisaged to be executed based on imported
coal and has an estimated coal requirement of approximately 12
MMTPA. According to CGPL, it had made arrangement for
imported coal from Indonesia by entering into a Coal Supply
Agreement (CSA) dated 31/10/2008 with IndoCoal Resources
(Cayman) Limited, a corporation organised and existing under the
laws of Republic of Indonesia.
Problems for TATA
The promulgation of Indonesian Regulation as described above,
resulted in escalation in international coal prices. CGPL is stated
to be supplying power to the procurers by purchasing coal at a
higher price than what was agreed in the CSA without any
adjustment of tariff and is consequently stated to suffer a loss of
Rs.1873 crores per annum and Rs.47,500 crores over a period of
25 years.
CGPL, approached Ministry of Power, state beneficiaries of the
project along with Indonesian authorities, however, no relief could
be received by the company. Under these circumstances, CGPL
filed the petition No 159/MP/2012, before the Central Commission
seeking relief under Article 12 (Force Majeure) and Article 13
(Change in Law) of the PPA and Section 79 read with Sections 61
and 63 of the Electricity Act, 2003. It sought to establish an
appropriate mechanism to offset in tariff the adverse impact of: (i)
the unforeseen, uncontrollable and unprecedented escalation in

the imported coal price and (ii) the change in law by Government
of Indonesia.
The Central Commission (CERC) under an Interim Order dated
15/04/2013 rejected the claim of Force Majeure and Change in
Law and constituting an Expert Committee for suggesting the
compensatory tariff which would be payable to CGPL by invoking
Section 79(1)(b) of the said Act.
Findings of Expert Committee and CERC's order in both
Adani and TATA petitions
The Expert Committee headed by the Chairman - Mr. Deepak
Parekh along with other eminent members, having representation
from state beneficiaries and assisted by independent advisers,
legal consultants and KPMG as the financial consultant submitted
its Report before the Central Commission On 16/08/2013. The
Report was signed by its Chairman Mr. Deepak Parekh and one
Ms. Arundhati Mukherjee of SBICAP.
The Central Commission passed Final Order dated on 21/02/2014
holding that the claim of Force Majeure is not admissible, and
granted relief in exercise of its regulatory power under Section 79
of the Electricity Act, providing for a formula for granting
compensatory tariff to Adani Power as well as TATA Power.
The Appeals in APTEL
Being aggrieved by the CERC order dated 21/02/2014, Haryana
Utilities and other Non-state, non - profit consumer organizations
filed appeal to APTEL in both Cases.

Key issues before APTEL and the order The APTEL, in this elaborate order adjudicated on 15 issues
emerging out of these cases. Some of the issues and APTEL's
views thereon are summarized here for developing understanding
on some of the most critical areas of concern in present day
scenario of competitive bidding in Power sector.
1. Section 79 of Electricity Act, 2003, describes the functions of
Central Commission (CERC). Section 79 (1) (a) empowers the
CERC to regulate the tariff of generating companies owned or
controlled by Central Government and section 79(1)(b) of the said
Act confers power on the Central Commission to regulate tariff of
generating companies other than those owned or controlled by
the Central Government if such generating companies enter into
or otherwise have a Composite Scheme for generation and sale of
electricity in more than one State.
The issues identified was that whether the supply of power to
procurers in more than one State from the same generating
station of a generating company, ipso facto, qualifies as
Composite Scheme to attract the jurisdiction of the Central
Commission under Section 79 of the said Act?
This issue is relevant with regards to the jurisdiction of CERC on
cases arising out of supply of power from the same generating
station of a generating company. The APTEL held that the supply
of power to more than one State from the same generating
station of a generating company, ipso facto, qualifies as
Composite Scheme to attract the jurisdiction of the Central
Commission under Section 79 of the said Act.

2. One of the most sensitive issues was that whether the Central
Commission has the regulatory powers under Section 79(1)(b) of
the Electricity Act to vary or modify the tariff or otherwise grant
compensatory tariff to the generating companies in case of a
tariff determined under a tariff based competitive bid process as
per Section 63 of the said Act.
On this issue, the Tribunal entered into elaborate reasoning and
emphasized that the Section 63 of Electricity Act, 2003, provides
for a specific mode of determination of tariff namely
determination of tariff by bidding process in contrast to section 62
of the Act. It starts with a non-obstante clause and specifically
excludes the operation of Section 62, which under its subsection 4
provides for amendment of tariff, if necessary Since Section 63
excludes Section 62, this provision of amendment is not
applicable to determination of tariff by bidding process under
Section 63.
Section 63 contemplates determination of tariff through a
transparent process of bidding in accordance with the Guidelines
issued by the Central Government in this regard. It makes it
obligatory on the Appropriate Commission to adopt the tariff if it
is determined through the transparent process of bidding in
accordance with the said Guidelines issued by the Central
Government. Tariff determination by bidding process is guided
and controlled by the specific Guidelines issued by the Central
Government, which are accompanied by Standard Bid Documents
i.e. RfQ, RfP and PPA.

In this entire exercise, the Central Commission or the State

Commission has no role except to ensure that the procedure laid
down in the said Guidelines is duly followed and adopt the tariff
discovered through bidding under Section 63 of the said Act. This
process and the discovered tariff have a sanctity which needs to
be preserved. The tariff so determined cannot be reopened except
on the grounds provided under the PPA such as Force Majeure or
Change in Law.
Based on the premise above, the contention that the Central
Commission has overriding powers to regulate tariff under Section
79(1)(b) and to give compensatory tariff to the generator will was
rejected by APTEL.
3. Further, the APTEL went on to analyse the adjudicatory powers
of CERC under Section 79(1)(f) of the said Act.
It is concluded by the APTEL that if a case of Force Majeure or
Change in Law is made out, relief can be granted by exercising
adjudicatory powers only as provided in the PPA, which is a
controlling document. Adjudicatory powers cannot be mixed with
regulatory powers. The tribunal has further concluded that the
Central Commission in the instant case has only proceeded on the
basis that it has the regulatory powers to grant compensatory
tariff for the events relating to Indonesian Regulation and nonavailability of the committed domestic coal.
Ultimately after all analysis, the APTEL has held that the Central
Commission has no regulatory powers under Section 79(1)(b) of
the said Act to vary or modify the tariff or otherwise grant

compensatory tariff to the generating companies in case of a

tariff determined under a tariff based competitive bid process as
per Section 63 of the said Act. If a case of Force Majeure or
Change in Law is made out, relief provided under the PPA can be
granted under the adjudicatory power.
4. Another key area specifically addressed by APTEL was that
whether events after the bid were so unexpected and severe that
they completely wiped out/ altered the premise on which the bid
was submitted by the Bidders and made the agreements
'onerous' which is contemplated as a Force Majeure Event under
the PPAs.
While answering the issue, APTEL quoted Article 12 of the PPA
which specifically recognises the increase in price fuel, as a Force
Majeure Event, if it is as a result of an event which is beyond the
control of parties. Therefore, the PPA not only recognises physical
impossibility but also commercial impracticability as preventing/
hindering its performance. It is highlighted that section 56 of the
Indian Contract Act provides that the contract shall become void
when performance of an act under the contract becomes
impossible or unlawful. Article 12 of PPA is a mechanism built
within the PPA to deal with the current situation faced by the
parties, to save the PPA from being frustrated in terms of Section
56 of the Indian Contract Act and restitute the parties to the same
economic condition prevalent before the occurrence of such
event.
ATPEL took note of premises of bidding by TATA and Adani and
subsequent events which lead to impossibility of performance
under the contract. It accepted that subsequent events after the
bid were so unexpected and severe that they completely wiped

out/ altered the premise on which the bid was submitted by the
Bidders and made the agreements 'onerous' which is
contemplated as a Force Majeure Event under the PPAs.
However, in case of Adani's bid 1, APTEL did not accept the
submission that the supply from GMDC was the basic premise or
condition of PPA dated 2/2/2007 and PPA was entered into solely
on the basis of availability of coal from GMDC and the nonavailability of coal from GMDC to Adani Power has resulted in
Change in Law or Force Majeure Event and APTEL rejected the
Adani's submission of Change in Law or Force Majeure on this
account.
5. Another issue was that whether the bidders (TATA and Adani)
have taken the reasonable care to quote for escalable energy
charges in the bid. Here it is noteworthy that though it was open
to the generators to quote escalable energy charges in bid which
would have aligned the bid to market prices, TATA quoted nonescalable fuel charges for 55% of the contracted coal supply and
Adani chose to quote 100% non-escalable fuel charges.
ATPEL concluded that despite the fact that generators had partly
or fully quoted non-escalable tariff but not in all circumstances
can a generator be denied relief just because it quoted nonescalable tariff in the bid or under the PPA. As Adani Power and
TATA would have not known that Indonesian Government in
exercise of its sovereign power would issue regulation directing
that the coal prices for import of coal by the mining companies in
Indonesia should be benchmarked to the international market
price. Therefore, in the peculiar facts of this case, the fact that
they had quoted non-escalable rates cannot be taken against

them. The Indonesian Regulation is an event which was not at all

in contemplation of the parties. It is an abnormal event which did
affect the economics of the contract of Adani Power and CGPL.
Thus in summary, following are the key findings of this historic
order with respect to Adani and TATA case 1.

That tariff discovered through competitive bidding process

under Section 63 of the Electricity Act 2003, cannot be tampered
with as it is sacrosanct and that where the tariff is so discovered,
the Appropriate Commission cannot grant compensatory tariff to
the generators by using the regulatory power under Section 79(1)
(b) and thus CERC order granting compensatory tariff to Adani
and TATA is set aside.

2.

That the generators have made out a case of Force Majeure.

3.

The relief however can be provided for the Force Majeure or

Change in Law made out by the parties under the PPA. This relief
need by adjudicated by CERC under their adjudicatory powers, for
which the cases have been remanded back to CERC for
adjudicating within three months.
Note - All views expressed are personal having no bearing
to Reliance or to any of its operations in any manner.