In a major win for Adani Power Maharashtra Ltd., the Supreme Court on Thursday upheld the decision of the Appellate Electricity Tribunal. It had helped the power company claim compensatory relief from Maharashtra State Electricity Distribution Co. for costs incurred by it in supplying power from its Tiroda plant after the de-allocation of Lohara Coal Block, citing environmental reasons.
The court determined that the Maharashtra Electricity Commission's methodology, as validated by the appellate tribunal, would govern the payment of the compensation.
Similar judgements have been passed by the court against Haryana and Rajasthan Discoms. The court has upheld the views of the appellate tribunal in five orders, all of which are in favour of Adani Power.
The decision is expected to set a precedent for other power companies that have been affected by the cancellation of coal blocks.
Adani Power Vs Maharashtra Distribution Company
In 2008, according to four long-term agreements, Adani Power was required to supply electricity to MSEDCL.
Prior to the agreements, Adani Power had acquired allocation rights for the Lohara Coal Block to ensure a steady supply of fuel for its Tiroda plant. However, the block was de-allocated in 2009 following the notification of the area constituting Lohara as a buffer zone for a tiger reserve.
This led to Adani Power having to procure coal from other sources at higher costs, resulting in an increase in the cost of electricity supplied to MSEDCL. In its agreement with the state Discom, the company clearly specified that its source of electricity was Lohara.
This resulted in MSEDCL terminating various agreements with Adani Power on account of an ‘unforeseeable event.' Taking note of the issue, the Maharashtra Electricity Regulatory Commission, or MERC, devised a mechanism to grant compensation to Adani Power.
The appellate court also found merit in Adani's argument that the change in policy amounted to a change in law and ordered compensation.
The Appellate Tribunal for Electricity ordered compensation not just on the basis of the price of coal but also on any cost incurred for transportation, deviating from the mechanism adopted by the commission. This led to MSEDCL approaching the apex court in appeal.
Change In Policy Equals Change In Law, Says Apex Court
In the Supreme Court, MSEDCL took the stand that mere de-allocation of a coal mine cannot be viewed as a change in law. It questioned the methodology adopted by the tribunal for the allocation of compensation and said that transportation is solely the responsibility of the company and cannot be factored in with the cost of coal.
While acknowledging that a change in environmental policy was unforeseeable, the court upheld the tribunal's award of compensation. The agreement, according to the court, was based on the assurance that coal would be provided to Adani Power from the Lohara coal block, making the event a change in law.
The court found no justification for interfering with the tribunal's compensation policy. Compensation shall be paid as the difference between the cost of coal from an alternative source (inclusive of transportation costs) and the cost of coal acquired from Lohara, the court said.
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