Indian ruling means Adani will be unable to manipulate price of coal overseas then seek escalations in cost of power back home
In a potential blow to Adani Group’s Australian mining ambitions, India’s Supreme Court has ruled that its power plants cannot pass on to consumers escalations in the price of imported coal.
The Tuesday ruling deprives the company of a Rs 3,000 crore (roughly $464m) nest egg as the Adanis seek to open the Carmichael pit in Queensland – prospectively Australia’s largest coal mine. If the Adanis succeed in their bid at Carmichael, where they will be both buyer and seller of the coal produced, the ruling means they will be unable to manipulate price of coal overseas then seek escalations in cost of power back home.
Imported coal is strategic to Adani’s coal security. Indian companies are known to cite access to imported coal to establish their credentials as reliable producers with a secure coal supply while they bid for power projects offered by state distribution companies. Coal must be imported as India is desperately short of it.
In 2007, Adani Power had banked on Indonesian coal in a competitive bid for securing power purchase agreements with state-owned distribution companies in the Indian provinces of Gujarat and Haryana. The Adani Enterprises Consortium – to which Adani Power belongs and a subsidiary of which owns the Carmichael coal mine project – agreed that electricity produced at their Mundra power plant would be sold at a non-escalable (fixed) price to distribution companies.
Three years later, with the contract still in force, the Indonesian government increased its coal price and Adani sought and obtained an award for compensatory prices from India’s electricity regulatory authority, the Central Electricity Regulatory Commission (CERC), this was concurred with by the Appellate Tribunal for Electricity (ATE).
Adani Power had pleaded that that “cost of production of electricity from Mundra Power Plant had increased tremendously, which has rendered it commercially unviable to supply power to Haryana Utilities and [Gujarat grid company] GUVNL at the price quoted in the PPAs”.
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