Class Exercise: Force Majeure

Adani Power and Tata Power wants to increase electricity charges of consumers, stating that they
have additional financial burden due to a force majeure event. This is in relation with the Power
Purchase Agreements entered into by Adani Power and Tata Power with power distributors. The
sudden change in the coal price, especially coal in Indonesia, from where Tata Power and Adani
Power are procuring coal is reason for the claim of the force majeure event

Analyze this event based on the following media report:

SC sets aside compensatory tariff to

Tata Power, Adani Power
Krishnadas Rajagopal
NEW DELHI: , APRIL 11, 2017 20:12 IST

A view of the Supreme Court of India. | Photo Credit: R.V. Moorthy

Court ordered the CERC to go into the matter afresh and

determine what relief should be granted to the power
generators.
The Supreme Court on Tuesday set aside an Appellate Electricity Tribunal
decision allowing power generator giants Adani Power and Tata Power to
charge compensatory tariff from their consumers spread across States
including Gujarat and Haryana.
The tribunal, in a judgment on April 7 last year, permitted the companies
to hike the tariff after Indonesia — where they source coal from to power
their plants — decided in 2010 to align its coal export prices to
international market prices instead of what they have been charging for the
past 40 years.
The companies had argued that the increased coal prices was a „force
majeure‟ event (an unforeseen situation) provided for in the power
purchase agreements (PPAs) entered into between them and distributors.
 The tribunal had then remanded the case to the Central Electricity
Regulation Commission to find out the impact of the „force majeure‟ event
to grant compensatory tariff. On December 6, 2016, the Commission had
arrived at a certain determination as to compensatory tariff to be granted
on account of force majeure.
Setting aside all past orders of the tribunal and the commission, a Bench of
Justices P.C. Ghose and Rohinton Nariman held that a change in
Indonesian coal export regulations does not measure up to be a force
majeure event for which the consumers have to compensate for.
“The fundamental basis of the PPAs remains unaltered. Nowhere do the
PPAs state that coal is to be procured only from Indonesia at a particular
price. In fact, it is clear on a reading of the PPA as a whole that the price
payable for the supply of coal is entirely for the person who sets up the
power plant to bear. It is clear that an unexpected rise in the price of coal
will not absolve the generating companies from performing their part of
the contract for the very good reason that when they submitted their bids,
this was a risk they knowingly took,” Justice Nariman, who wrote the
verdict, held in a 65-page judgment.
The court held that “changes in the cost of fuel, or the agreement
becoming onerous to perform, are not treated as force majeure events
under the PPA itself”.
The court further held that force majeure clause cannot be claimed for
change in foreign laws, but only for Indian laws.
The court ordered the Central Electricity Regulatory Commission to go
into the matter afresh and determine what relief should be granted to the
power generators.
http://www.thehindu.com/news/national/sc-sets-aside-compensatory-tariff-to-tata-power-adani-
power/article17928722.ece

Pertinent Legal Aspect of Business issues to be explored:

1) What is force majeure event in a contract? Can increase of coal price in Indonesia be
considered as a force majeure event?
2) Should „change of law/policy‟ be considered as force majeure event? Provide reason from the
angle of a business manager
3) How will you draft a suitable force majeure clause for your organisation?