By Hrishikesh Dubey
In the digital era, information flows quickly. Participants of the stock market are always active on digital media, and consume information from a host of different sources. Speculation about the financial health of companies can be particularly damaging. For instance, recently, the auditors of the Edelweiss Group had stepped down, citing a lack of bandwidth to continue servicing the client. Despite completing the audit for the financial year without any additional comments, Twitter was rife with speculation about possible wrongdoing at the firm.
Similarly, the Adani Group found itself at the receiving end of criticism by MK Venu, the influential founding editor at The Wire. Mr. Venu stated that Adani Power had defaulted on a loan of Rs 20,000 crore. This statement is not true. Given that Adani Power is a publicly listed company, statements such as these hold great power to sway markets. Therefore, Adani Power chose to file a defamation suit against MK Venu. The civil suit as well as a criminal complaint has been filed.
The crux of the suit are 2 Tweets by MK Venu posted on his Twitter profile. The Tweets are now deleted, but the screenshots are reproduced below. To understand the Tweets, it is essential to understand the context in detail.
It is important to understand the process by which power reaches your doorstep to really get to the heart of the issue. As a starting point, state owned discoms [distribution companies] host a competitive bidding process in which power companies bid to generate power at a fixed price per unit. Typically, the lowest bid, being the most competitive, is chosen. A major component of the pricing is the price at which power companies procure coal. Major Indian power companies including Adani Power, Reliance Power, Tata Power, JSW Energy and Lanco Infratech procure coal from Indonesia. On the basis of the prevailing coal price at the time, bids were provided by power companies. Once bids are won, massive power plants are commissioned by winning companies. The investments into these power plants typically run into the thousands of crores.
Inexplicably, the Indonesia government upset the fragile unit economics of these power plants by bringing in a massive regulatory change in September of 2011. Indonesia decided to link its coal price to an international benchmark. This led to a multi-fold increase in the coal price. Among others, three coal power plants in Gujarat were rendered uneconomical. These were Mundra-Adani Power Plant, CGPL-Tata Power and Essar Salaya Power Plant. According to an analysis by Edelweiss, the plants continued to supply power in the range of INR 1.3-2.0/kwh range against indicative fuel prices upwards of 2.0/kwh on account of the increase in Indonesia fuel prices.
As per the Power Purchase Agreement, renegotiation of the contract is possible under ‘force majeure’ conditions. Using this condition, Central Electricity Regulatory Commission granted the relief under the regulatory powers whereas the Appellate Tribunal for Electricity upheld compensatory tariff to these companies on account of the under-recovery. However, this ruling was overturned by the Supreme Court in 2017, which stated that a change in Indonesian regulations did not constitute a ‘force majeure’ condition. This was a major blow to the financial solvency of the three power plants, which have cumulatively lost over Rs 21,400 till FY’2018.
The Gujarat government recognised that maintaining the financial health of the power plants was critical from a consumer perspective. Therefore, it stepped in by constituting a High Powered Committee to create a road map to salvage the projects. The committee comprised of R K Agrawal (former Justice Supreme Court), S S Mundra (former Dy. Governor–RBI) and Pramod Kumar Deo (former Chairman-CERC).
Basis the recommendations of the committee, the Gujarat government and the state-owned Gujarat Urja Vikas Nigam Ltd (GUVNL) approached the Supreme Court, advocating for a change in the Power Purchase Agreements. The plea was backed by a consortium of lenders that have an exposure of Rs 42,000 crore on the project. The Supreme Court gave a nod to the three projects to approach the Central Electricity Regulatory Commission to renegotiate the contracts. This is seen as a win for all stakeholders. Here is an examination of how each stakeholder is impacted:
- Power companies: After suffering massive losses for years, there is an expectation that these projects can become viable again, enabling companies to recoup some of their losses
- Lenders: Given their exposure of Rs 42,000 crores, lenders are happy that the projects are viable once again
- Consumers: The Gujarat government and Gujarat Urja Vikas Nigam Ltd (GUVNL) have gone on record to state that purchasing power from these projects would be cheaper than other sources even after a revision in tariffs.
Now that the context is clear, let us examine Mr. Venu’s Tweets. The first Tweet states that SBI has filed an affidavit in the Supreme Court revealing Rs 20,000 crore in payment default by Adani Power. The fact do not bear this out. The actual affidavit states that Adani Power in Mundra owes them Rs 19,127 crore, Essar Power Gujarat Ltd owes Rs 4,214 crore and Tata Group’s Coastal Gujarat Power Ltd owes Rs 10,159 crore to SBI. Moreover, it states that while the Essar plant has defaulted on its loan, both the Adani Group and the Tata Group have continued servicing their debts.
The affidavit does state that the loans are at risk if the power rates are not revised. However, despite the losses suffered over the years, neither the Adani Group nor the Tata Group have actually defaulted on their debt. Given that a price revision is likely with the recent Supreme Court ruling, these projects are now likely to become financially viable, and thus no debt default by the Adani Group is imminent.
In this context, the Adani Group took exception to Mr. Venu’s Tweets, which appear to have misinterpreted the representation by SBI to the Supreme Court. The Adani Group has therefore filed a civil defamation case as well as a criminal complaint against MK Venu.
When we reached out to the Adani Group spokesperson seeking clarification on the Chairman’s visit to Japan as alleged in one of the tweets, it turned out that Mr. Gautam Adani was never part of the any such delegation. Such statements which insinuate fictitious political affiliations are perhaps driven by some vested agendas themselves.
Digital journalism certainly has its merits – fearless reporting and faster flow of information has helped more people than ever remain updated on matters of national importance. At the same time, it is essential that fact checking is not sacrificed in an era where information is released faster than ever.
Hrishikesh Dubey is a writing analyst at Qrius.
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