SC order credit negative for Tata Power rating: Moody's

The Supreme Court on Tuesday rejected the plea for compensatory tariff by Tata Power and Adani Power Ltd for the additional costs that they were incurring on raised prices of the coal they were importing from Indonesia for their power plants in Gujarat.

The Tata Power counter on the National Stock Exchange has clocked a volume of almost 3.6 million shares so far today.

Tata Power was trading 4.65 per cent down at Rs 83.05 at around the same time. "The order that ATE had given would have benefited CGPL by allowing compensation for higher coal prices the extent of which was to be determined by Central Electricity Regulatory Commission (CERC)", the agency said. It said that both the firms needed to be compensated as any change in regulations is not in its control.

The revised target price for Tata Power is ₹80 from the earlier ₹87.

The power generating companies had sought compensatory tariff after coal imported from Indonesia witnessed a steep hike following change in their laws in 2010 and 2011 by which the export price of coal was aligned with global market price.

Last December, CERC again allowed the power companies to charge the additional cost of coal from the states.

Its 4 GW Mundra ultra mega power plant (UMPP) relies mainly on imported coal, mostly sourced from Indonesia. "However, this should not have material impact for Tata Power", Moody's said.

Adani Power's shares recovered some losses on the day to close about 16 percent lower at 37.20 rupees. However, CGPL would continue to work towards alternatives, including sourcing of competitive & alternative coals to best contain the onslaught of under recovery.

The apex court today set aside tribunal order that granted compensatory tariff to subsidiaries of Tata Power and Adani Power.

"The fact that fuel supply agreement has to be appended to the PPA (power purchase agreement) is only to indicate that the raw material for the working of the plant is there and is in order", the court said in its 65-page verdict.

The latest Supreme Court order has impacted the shares of both the companies.

  • Anthony Vega