The headlines would have you believe that huge swathes of India are about to go dark because of a crippling coal shortage. Stocks are running dangerously low, the news stories all insist, claiming power plants will soon have to shut down leaving five states without electricity.
There’s just one problem: it’s not exactly true.
The looming power crisis has as much to do with demands from power companies run by Tata and Adani to raise tariffs as it does with a lack of coal stocks. The two companies are locked in a legal battle with the governments of Maharashtra, Punjab, Gujarat, Haryana and Rajasthan that has gone all the way to the Supreme Court.
The companies have long-term power-purchase agreements with the states to supply power to them from their plants in Mundra, Gujarat. Earlier this year, both the companies petitioned the Central Electricity Regulatory Commission asking for the tariffs on the power generated by them to be increased.
Indonesian Pressure
The rationale behind this demand was based on a decision by the government of Indonesia to change its pricing formula for coal. Both Tata’s and Adani’s Mundra power plants are built to use imported coal, rather than Indian, meaning a shortage of Indian coal stock would have little impact on them.
The companies claimed that Indonesia’s decision to increase prices was not built into their Coal Supply Agreements and was now causing their losses to mount. Tata, for example, claimed that it was losing Rs 1,873 crore per annum because of the new prices in Indonesia and an escalation of international prices.
The states, however, argued that it wasn’t as simple as that. For one, they argued that the contracts had been signed and should not be changed, especially if they were being altered in a way that would put an extra burden on the customers. Punjab’s power company also argued that making changes would open the door to other companies to attempt similar rejigging of tariffs, especially since the Tatas and Adanis were asking for retrospective rate hikes.
“If the recommendations made in the report are accepted, then it would become a means for reopening of all power purchase agreements signed with other procurers which is against the principle of sanctity of the bidding guidelines,” the Punjab State Power Corporation told the regulator.
New appeals
The regulator didn’t accept the arguments, however, and passed an order that not only increased the tariffs but made the hike retrospective. The states then decided to take the matter to the appellate tribunal, which struck off the retrospective portion of the Central Electricity Regulatory Commission’s order but upheld the rate hike. Once again, the states appealed, this time in the Supreme Court.
Last week, a bench headed by Justice JS Khehar stayed the rate hike, saying companies that have managed to get contracts on the basis of a competitive bidding process including a set tariff cannot then seek a higher one because of an unforeseen escalation in imported fuel prices.
“You [Tata and Adani] would have kept everything in mind and even cost for a period of 25 years." the court said. "Once you agree to it how can you ask for increase in prices now. It’s a contract which you had agreed to. Now you can’t claim that its a loss.”
Units shut down
Since the Supreme Court’s stay order, according to a Times of India report, Adani Power has shut down six generating units of its 4,620 MW plant claiming both a default in payment by Haryana as well as a coal shortage. Tata Power, meanwhile, has claimed that technical problems have forced it to shut down two different units from a plant that generates 4,000 MW.
The combined impact of the shutdown of these units is massive, and has caused problems across the Northern and Western grids, forcing state governments to turn to other sources and overdraw from the grid.
It’s set to have a particularly substantial impact on the states of Maharashtra and Haryana, which will be holding assembly polls later in the year, where issues like electricity supply tend to have an inordinate impact. Both those states also happen to be run by Congress-led governments, in opposition to the BJP-led coalition at the Centre.
Unfair trade practices
The Consumer Education Research Society, a consumer body, has even filed a petition before Gujarat’s electricity regulator claiming that Adani Power has used “unfair trade practices” to force the state government into buying expensive, gas-powered electricity because of the Supreme Court’s stay order.
Union power minister Piyush Goyal has been holding meetings with the power ministers of each of the five states as well as representatives of the distribution companies in an effort to break the deadlock over the Mundra issue. After meeting them on Wednesday, Goyal complained that Opposition-ruled states were refusing to cooperate with the Centre on resolving the power situation that the country was facing.
“Every state, irrespective of its political dispensation, which comes out with reforms will be welcome," he said. "The Centre will not be found wanting.”
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There’s just one problem: it’s not exactly true.
The looming power crisis has as much to do with demands from power companies run by Tata and Adani to raise tariffs as it does with a lack of coal stocks. The two companies are locked in a legal battle with the governments of Maharashtra, Punjab, Gujarat, Haryana and Rajasthan that has gone all the way to the Supreme Court.
The companies have long-term power-purchase agreements with the states to supply power to them from their plants in Mundra, Gujarat. Earlier this year, both the companies petitioned the Central Electricity Regulatory Commission asking for the tariffs on the power generated by them to be increased.
Indonesian Pressure
The rationale behind this demand was based on a decision by the government of Indonesia to change its pricing formula for coal. Both Tata’s and Adani’s Mundra power plants are built to use imported coal, rather than Indian, meaning a shortage of Indian coal stock would have little impact on them.
The companies claimed that Indonesia’s decision to increase prices was not built into their Coal Supply Agreements and was now causing their losses to mount. Tata, for example, claimed that it was losing Rs 1,873 crore per annum because of the new prices in Indonesia and an escalation of international prices.
The states, however, argued that it wasn’t as simple as that. For one, they argued that the contracts had been signed and should not be changed, especially if they were being altered in a way that would put an extra burden on the customers. Punjab’s power company also argued that making changes would open the door to other companies to attempt similar rejigging of tariffs, especially since the Tatas and Adanis were asking for retrospective rate hikes.
“If the recommendations made in the report are accepted, then it would become a means for reopening of all power purchase agreements signed with other procurers which is against the principle of sanctity of the bidding guidelines,” the Punjab State Power Corporation told the regulator.
New appeals
The regulator didn’t accept the arguments, however, and passed an order that not only increased the tariffs but made the hike retrospective. The states then decided to take the matter to the appellate tribunal, which struck off the retrospective portion of the Central Electricity Regulatory Commission’s order but upheld the rate hike. Once again, the states appealed, this time in the Supreme Court.
Last week, a bench headed by Justice JS Khehar stayed the rate hike, saying companies that have managed to get contracts on the basis of a competitive bidding process including a set tariff cannot then seek a higher one because of an unforeseen escalation in imported fuel prices.
“You [Tata and Adani] would have kept everything in mind and even cost for a period of 25 years." the court said. "Once you agree to it how can you ask for increase in prices now. It’s a contract which you had agreed to. Now you can’t claim that its a loss.”
Units shut down
Since the Supreme Court’s stay order, according to a Times of India report, Adani Power has shut down six generating units of its 4,620 MW plant claiming both a default in payment by Haryana as well as a coal shortage. Tata Power, meanwhile, has claimed that technical problems have forced it to shut down two different units from a plant that generates 4,000 MW.
The combined impact of the shutdown of these units is massive, and has caused problems across the Northern and Western grids, forcing state governments to turn to other sources and overdraw from the grid.
It’s set to have a particularly substantial impact on the states of Maharashtra and Haryana, which will be holding assembly polls later in the year, where issues like electricity supply tend to have an inordinate impact. Both those states also happen to be run by Congress-led governments, in opposition to the BJP-led coalition at the Centre.
Unfair trade practices
The Consumer Education Research Society, a consumer body, has even filed a petition before Gujarat’s electricity regulator claiming that Adani Power has used “unfair trade practices” to force the state government into buying expensive, gas-powered electricity because of the Supreme Court’s stay order.
Union power minister Piyush Goyal has been holding meetings with the power ministers of each of the five states as well as representatives of the distribution companies in an effort to break the deadlock over the Mundra issue. After meeting them on Wednesday, Goyal complained that Opposition-ruled states were refusing to cooperate with the Centre on resolving the power situation that the country was facing.
“Every state, irrespective of its political dispensation, which comes out with reforms will be welcome," he said. "The Centre will not be found wanting.”
