India Finance Coal
2022 Redux: Adani Group will make most of Haryana’s long, hot summer
Apr 28, 2023
Adani Power gets its own way in Haryana, supplying less power at a higher price during a ferocious heatwave.

During a heat wave in the Indian state of Haryana in 2022, the Adani Group supplied less power than it was contracted to and also diverted power away from Haryana to the state of Gujarat. This summer, Adani Power can officially supply less power to Haryana and get paid more for each unit, despite a Supreme Court judgment which said there is no justification for hiking tariffs. Here, we report on how Haryana’s chief minister has overridden a long-term, binding power contract with Adani, even enabling a ‘reverse’ flow of power from the state he governs.

People in the north Indian state of Haryana are in for a double whammy this year as they brace for a grueling summer ahead. Not only do power cuts seem imminent, but consumers might also have to pay more for the amount of electricity they do manage to consume. This is the outcome of a cave-in by the BJP-led coalition government of Haryana to Adani Power Limited (‘Adani Power’).

In early March this year, it was announced that Adani Power had signed supplementary power contracts with two Haryana discoms (power distribution companies) to supply 1096 MW of power generated from domestic coal at ₹3.20 per unit. This agreement will supersede the original tariff of ₹2.94 by 9%. The amount of power to be supplied is considerably less than the 1424 MW for which the original contract was signed in 2008.

According to the Haryana Power Purchase Centre (HPPC – the body that deals with procurement of power from generating companies), the state is now expected to face a power deficit between 168 MW and 2476 MW in 2023-24.

Clearly, a power crisis is looming.

Nevertheless, Haryana’s chief minister, Manohar Lal Khattar, has been on record insisting that power tariffs would not be increased this year. This assurance came two weeks before the new contracts that increase the tariffs were announced. Elections are to be held in Haryana in November 2024. The Khattar government has two more summers to ride out until then.

The new tariff deal also turns a blind eye to a 2017 Supreme Court judgment which, when turning down Adani Power's plea for compensatory tariffs, asserted that there was no justification for a higher power tariff as a result of the increased price of coal imported from Indonesia. At the time of the court case, the Haryana government did not want to cough up a higher price. But with the election bells ringing, and with Adani Power having played hard ball last summer, Khattar has apparently decided to prioritise an uninterrupted power supply over price.

(Story continues below)

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An agreement mired in dispute

Parleys began in April 2022 when Adani Power’s Anil Sardana (managing director and CEO) and Rajesh Adani (managing director) met Khattar to discuss the company's request for a renegotiated contract. Khattar reportedly agreed that supplementary contracts were required to address the state's power crisis until the price of imported coal stabilised.

Haryana residents endured power cuts during last year's severe heatwave, with Adani Power failing to deliver the contracted amounts of electricity.

According to the revised deal, Haryana would receive 84% of the originally contracted 1424 MW at the initially agreed-upon tariff rate of ₹2.94 per unit. This power would be produced with domestic coal. The state would renounce the 16% balance, which was supposed to be produced by Adani Power using imported coal under the terms of the original contract.

On 1 March 2023, Adani Power in a disclosure to the Bombay Stock Exchange (BSE), wrote that it would transfer the quoted power of 1096 MW to the state of Haryana from domestic coal. And for ‘any power consumed beyond the domestic coal materialization and availability, energy charge will be based on imported coal price linked to CERC’s (Central Electricity Regulatory Commission) escalation index.’

The dispute appeared to have been resolved, but at a significant price to the consumers of Haryana.

Haryana residents had to resort to candle power during blackouts last year when Adani Power switched off the energy supply.

Disputes with the Adani Group over power tariffs are not unique to the Haryana situation. Neither is the context of elections. In the last week of August 2014 (after the national elections when the BJP-led coalition swept to power in New Delhi, and shortly before the ensuing state elections of October 2014), Adani Power suddenly stopped supplying power supply to the state as a result of a dispute over tariffs. In February that year, the Central Electricity Regulatory Commission (CERC) awarded a compensatory tariff over and above the normal tariff (by about 61 paise per unit) to Adani Power. Adani Power wanted its dues, which according to the state government would have amounted to ₹350 billion (approximately US $4 billion) over the lifetime of the contract – that is, 25 years.

The CERC order was challenged by the state government before the Appellate Tribunal for Electricity (APTEL). The tribunal, in an interim order, stayed the recovery of past dues but allowed current charges as per the new tariff from 14 March 2014. The state then went to the Supreme Court, which stayed the APTEL interim order. The court also asked APTEL to decide the matter expeditiously. APTEL then asked Adani Power to restore power supply to Haryana.

Adani Power has also been involved in tariff-related disputes with other Indian states, including Maharashtra, Karnataka and Andhra Pradesh as previously reported by AdaniWatch.

The significance of the Supreme Court judgment

Meanwhile, a related case made its way to the Supreme Court, where Energy Watchdog was the appellant and CERC the respondent. The case had been clubbed with other pleas, all against the CERC.

Central to Adani Power's demand for a power tariff hike was that the cost of importing coal from Indonesia had gone up drastically because of that country's new policies. However, the argument was summarily dismissed by the Supreme Court. In its 11 April 2017 judgment, the two-member bench said ‘the doctrine of frustration cannot apply to these cases as the fundamental basis of the [contracts] remains unaltered. Nowhere do the [contracts] state that coal is to be procured only from Indonesia at a particular price. In fact, it is clear on a reading of the [contracts] 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.

‘The fact that the fuel supply agreement has to be appended to the [contract] is only to indicate that the raw material for the working of the plant is there and is in order. 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.’

The court did take Adani’s plea into account: ‘The rise in the price of Indonesian coal was unforeseen as the contracts had been entered into sometime in 2006 to 2008, and the price rise took place in 2010-11. Such a rise in price is also not within their control at all… The force majeure clause in the present case went further and stated that so long as performance of their obligation was “hindered” due to a force majeure event, they can claim compensatory tariff.’

The bench concluded that a contract is not frustrated merely because the circumstances in which it was made are altered. ‘The courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events,’ the court said.

Adani Power could no longer play its Indonesia card. Yet, ironically, while Adani’s justification for increasing power tariffs for Haryana was the higher import price of Indonesia coal, two other power companies of the Adani Group were already embroiled in controversies related to the import of Indonesian coal.

In 2014, the Directorate of Revenue Intelligence (DRI) issued a show-cause notice to Adani Power Maharashtra Limited (APML) and Adani Power Rajasthan Limited (APRL) for alleged overvaluation of imported coal. Import invoices of Indonesian coal were allegedly being routed through intermediaries based in Singapore, Hong Kong, Dubai and the British Virgin Islands to artificially inflate the price. According to the DRI, APRL was passing on the artificially inflated cost of coal to power consumers in Rajasthan.

The DRI’s probe, however, has been hampered by a slew of court cases. In July 2022, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) quashed the case. The DRI appealed to the Supreme Court, challenging the CESTAT order. This appeal, however, was dismissed on 28 March 2023.

The burden of inadequate power supply

Haryana has already paid heavily, with Adani Power defaulting on contracted power to the state since December 2020, pushing HPPC to serve a default notice to Adani Power on 14 June 2021. In retaliation, Adani Power severed the power supply to Haryana. HPPC tabled a claim for ₹24.36 billion (approximately US $290 million) during the negotiations with Adani Power over the non-transfer of power and costs incurred through having to purchase energy from other sources. An adamant Adani Power then demanded withdrawal of all pending cases, appeals and claims pertaining to the earlier contract, including the above claimed amount by HPPC.

According to officials who spoke to the Hindustan Times, ‘Adani Power is still in violation of Article 14 of the [contract] throughout the period of May 2021 to April 2022, and there is a demand notice for ₹11.44 billion [US $138 million] due to the shortage in power availability. HPPC had also submitted claims of the additional cost of ₹9.82 billion (until March 2022) incurred by it for procurement of power from other sources due to non-supply by the APL.’

Although the new contract has been reported and discussed in the public domain, it is still not clear whether it was signed by Adani Power before it sent the disclosure to the BSE declaring its existence. According to a press note released on 2 March 2023 by Randeep Surjewala, a spokesperson of the Congress party and former power minister of Haryana, Adani Power shared the document with the BSE before it had even been signed. Surjewala felt that the Adani Group had done this to stabilise its sinking stock prices. Incidentally, Surjewala was the power minister in the Haryana government when the agreement with APL was signed in 2008.

In a flurry of tweets, Surjewala reminded the Khattar administration that to meet the energy shortfall, the state government had had to buy electricity at higher prices, which were as high as ₹11.55 per unit on occasions. He invoked the Supreme Court judgment and wondered how Khattar could accede to a demand for higher tariffs when the highest court of the land had categorically said there was no merit in such a demand. He also wondered how the state government could violate a binding power contract for the supply of 1424 MW of power and instead settle for 1096MW.

The artificial power crisis of 2022

Waging a lonely battle all the while has been the All India Power Engineers Federation ('the Engineers Federation'), a representative body of engineers working in power utilities under the central and state governments of India. It was the Engineers Federation which pointed out anomalies in the case between Adani Power Rajasthan Limited and three Rajasthan discoms. Its warnings were apparently ignored by the Appellate Tribunal for Electricity. What's germane to this article is the Engineers Federation's documentation of how Adani Power possibly fleeced Haryana twice over.

AdaniWatch has already reported on the crisis in Haryana during the sweltering Indian summer of 2022 and the role played by Adani Power. Many state administrations in India, including the one in Haryana, would regularly notify the public of planned power disruptions caused by generation shortages.

Haryana at this time was involved in a tariff squabble with its main power provider—the Adani Group's 4620 MW Mundra Thermal Power Limited, even as it struggled to deliver electricity to its citizens. The government-owned power distribution firms (discoms) in Haryana and Adani Power continued trading charges over the cost of imported coal and the consequent fallout.

Adani's Mundra power plant ran at less than 10% capacity, despite massive demand for power in Haryana.

While the Supreme Court had thrown out Adani Power’s plea for a compensatory tariff, the company found solace in a contradictory Gujarat government order which allowed it to charge higher tariffs for power generation. Adani Power notified the Haryana government that it would not adhere to the 2008 contract.

Meanwhile, the transmission line that was intended to transport electricity produced by the Mundra power plant to Haryana was utilised in the reverse direction—transmitting electricity instead from Haryana to Gujarat. According to the Engineers Federation, the diversion allegedly took place during the peak of the 2022 summer when Haryana was reeling under a severe heat wave and incessant blackouts. The process was repeated during the run-up to the state assembly elections at the end of the year and, according to the latest letter by the Engineers Federation, continued until 11 April 2023.

 

Screenshot of the AIPEF (Engineers Federation) letter that shows reverse flow of power on April 1-10. Source: AIPEF

Image: Screenshot of the AIPEF (Engineers Federation) letter that shows reverse flow of power on April 1-10. Source: AIPEF

According to the Engineers Federation, such transfers should occur only when a state produces more power than it consumes, and therefore exports the excess to other states, with the recipient states being obviously required to pay the exporting state's discoms.

The Engineers Federation, on 26 November 2022, pointed out the anomaly to the Indian power ministry and the state governments of Gujarat and Haryana. The federation had already written letters to the authorities in April 2022. The Engineers Federation noted that the Mundra power plant, which has a 4620 MW capacity, was producing only 423 MW at 9% of its PLF (plant load factor). [The ratio of a plant's average power output to the maximum power that might have been produced in a given period is known as the plant load factor.] Moreover, in November 2022, eight of the nine power-generating facilities at Mundra were not operating.

With only one functional unit, parts of Haryana suffered blackouts for three hours per day while Haryana’s power was being diverted to Gujarat.

The Engineers Federation has now alleged, through a letter to Indian power minister RK Singh, that the Indian government wanted to avoid adverse reactions from the public in Gujarat because of the power outages. The solution allegedly was to divert electricity from Haryana to Gujarat using the HVDC (high voltage direct current) transmission line, which had been built to transfer power from Mundra to a receiving station in Haryana. This was done at the behest of the National Load Despatch Centre (NLDC), the Engineers Federation has alleged. The NLDC is the apex body in the country mandated to ensure the integrated operation of the national power system.

The Engineers Federation said, ‘while regional load dispatch centers are prohibited from trading in energy by Section 26 of the Electricity Act, 2003, there was a proposed amendment to the Act which adds the phrase ‘unless as mandated by the Central Government for the execution of any scheme to ensure the stability of the power system,’ to allow trading in electricity.’

However, the amended bill has not yet been approved by Parliament. As a result, the relevant clauses of the 2003 Electricity Act prohibiting trade in electricity still apply to the Northern Regional Load Despatch Centre (NRLDC), the Regional Load Despatch Centre (RLDC) and the NLDC.

In short, the export of power from Haryana to Gujarat appears to have occurred in gross violation of the law.

Questionnaires emailed to Haryana Chief Minister Khattar and a spokesperson of the Adani Group were not responded to.