A technician repairs power supply lines at a power plant of Adani Power at Mundra Port in Gujarat.
This impacted financial viability of the power plants operated by them because the electricity procurers - state electricity boards - were not willing to pay higher prices when the power producers increased the tariffs to offset high Indonesian coal prices.
The Supreme Court on Tuesday overturned a decision be the Central Electricity Regulatory Authority (CERT) that allowed private power producers Adani Power Ltd and Tata Power to raise tariffs and ordered that they can not charge their customers more to cover rising costs of imported coal. It meant to run the power plant with coal procured from mines owned by the Tata group in Indonesia.
"We downgrade Tata Power to Reduce (from Add) and maintain Sell rating on Adani Power, noting the ownership in coal mines and earnings from regulated assets for the former that allow it to better withstand the losses, and the already stretched balance sheet of the latter that may force incremental equity dilution", said Kotak Institutional Equities, in a note issued on Wednesday.
Tata Power too lost 1.75 per cent to Rs 83.90.
The Central Electricity Regulatory Authority (CERC) had allowed the companies to charge more in December, agreeing that the change in Indonesian laws was outside their control. However, it said that Force Majure and Change of Law were applicable in this case.
The shares of Adani Power and Tata Power continue to tumble as the SC blocks the higher prices charged by these power companies.
"The final order got uploaded in the evening and the company is studying the same". The power procurers then went to the Supreme Court against this and disallowed Tata Power from charging compensatory tariff.
Adani Power, on the other hand, faces a huge earning write-off as its revenues already include the likely inflows of compensatory tariff, estimated at about Rs 9,000 crore.
Both Adani Power and Tata Power have entered into long-term deals in the middle of the last decade with distribution companies to supply power from plants they each operate in Prime Minister Narendra Modi's home state of Gujarat.
However, the details of the court's order are yet to come but the compensatory order being set aside shows no sign of relief for Tata Power and Adani Power. As a outcome, the project became unviable.