Maharashtra Electricity Regulatory Case: Supreme Court Upholds ‘Change in Law’ for Adani Power

The case of Maharashtra State Electricity Distribution Company Limited vs. Adani Power Maharashtra Limited & Others revolved around a major dispute in the energy sector concerning long-term Power Purchase Agreements (PPAs) and the application of the ‘Change in Law’ principle. The Supreme Court upheld the decision of the Appellate Tribunal for Electricity (APTEL), affirming that the cancellation of the Lohara Coal Blocks constituted a ‘Change in Law’ event, thereby entitling Adani Power to compensation.

Background of the Case

Maharashtra State Electricity Distribution Company Limited (MSEDCL) had entered into four long-term PPAs with Adani Power Maharashtra Limited (APML) between 2008 and 2013 for power supply from the Tiroda Thermal Power Station. Adani Power had initially planned to use coal from the Lohara Coal Blocks, which were allocated by the Ministry of Coal.

However, after the bid cut-off date, the Government of Maharashtra notified a Buffer Zone for the Tadoba Andheri Tiger Reserve, which included the Lohara Coal Blocks. Consequently, the Ministry of Environment, Forests, and Climate Change (MoEF) withdrew the Terms of Reference for mining in the area, leading to the cancellation of the coal blocks.

Adani Power issued a termination notice to MSEDCL in 2011, citing force majeure. The Maharashtra Electricity Regulatory Commission (MERC) rejected the force majeure claim but allowed compensation under ‘Change in Law.’ Both parties challenged this decision before APTEL.

Legal Issues Before the Court

Whether the cancellation of the Lohara Coal Blocks qualified as a ‘Change in Law’ event under the PPAs.
Whether Adani Power was entitled to compensation for increased coal procurement costs.
What methodology should be applied in computing the compensation?

Arguments by the Petitioner (MSEDCL)

MSEDCL challenged the APTEL ruling, arguing that:

“Deallocation of coal blocks is a matter between Adani Power and Coal India Limited, and MSEDCL should not bear the consequences.”
“Fuel procurement is the responsibility of Adani Power under the Case-1 bidding process.”
“Cancellation of clearances or government permissions does not constitute ‘Change in Law.’”
“MERC and APTEL erred in awarding compensation based on an incorrect methodology.”

Arguments by the Respondent (Adani Power Maharashtra Limited)

Adani Power defended its claim, stating that:

“The bid was submitted based on the availability of coal from Lohara Coal Blocks, which was later revoked due to government intervention.”
“The Supreme Court in the Energy Watchdog case held that changes in government policies affecting coal supply qualify as ‘Change in Law.’”
“Both MERC and APTEL correctly ruled that Adani Power is entitled to be restored to its original financial position.”
“MSEDCL was part of the expert committee that agreed on compensation for the coal deallocation.”

Supreme Court’s Analysis and Judgment

The Supreme Court upheld the findings of MERC and APTEL, affirming that:

“The notification declaring a Buffer Zone, which led to the deallocation of Lohara Coal Blocks, was a government action beyond the control of Adani Power.”
“The ‘Change in Law’ provision in the PPAs includes government notifications that affect fuel availability.”
“Adani Power should be compensated to restore it to the same economic position as if the ‘Change in Law’ event had not occurred.”
“MSEDCL participated in the expert committee and agreed on the methodology, making its opposition to compensation unjustified.”

The Supreme Court ruled:

“It is clear from the record that prior to 14th August 2008, the area where Lohara Coal Block is situated was not even proposed to be notified as a Buffer Zone. Had the notification dated 5th May 2010 not been issued, Adani Power could have utilized the coal from Lohara Coal Blocks.”

Key Takeaways from the Judgment

Government actions affecting coal availability qualify as ‘Change in Law.’
Power producers must be compensated if external factors disrupt their fuel supply plans.
Disputes over fuel procurement responsibilities must be examined in the context of contractual obligations and legal precedents.
Judicial review of regulatory decisions ensures fairness and adherence to economic principles.

Impact of the Judgment

This ruling has far-reaching implications for India’s power sector, affirming that power producers are entitled to financial relief when unforeseen regulatory changes impact their fuel supply. It also reinforces the role of regulatory commissions in ensuring that energy contracts remain viable under changing economic conditions.

By ruling in favor of Adani Power, the Supreme Court emphasized the importance of stability in long-term PPAs and the necessity of honoring contractual commitments despite changes in government policies.

Petitioner Name: Maharashtra State Electricity Distribution Company Limited.
Respondent Name: Adani Power Maharashtra Limited and Others.
Judgment By: Justice B.R. Gavai, Justice Vikram Nath.
Place Of Incident: Maharashtra.
Judgment Date: 20-04-2023.

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