The Central Electricity Regulatory Commission's directive for compensatory tariff hike is a ray of hope for Adani Power's investors. Though the outcome of the meeting with the buyers remains uncertain, even a minor increment in tariff can significantly improve the company's earnings, which have been hit by changes in Indonesian tax laws on coal exports.
Almost two-thirds of Adani Power's fuel requirement is met through imported coal. The price of landed coal has increased from $44 per metric tonne to $100 per metric tonne after the change in Indonesian regulations.
Consequently, the company's per-unit fuel cost has risen to Rs 2.1 from Rs 1. In addition to the variable fuel cost, the company also has huge fixed costs such as depreciation, staff and interest costs.
Compare this with the selling price according to contract price of Rs 2.34 per unit for 1,000 MW with Gujarat electricity board andRs2.94 per unit for 1,424 MW with Haryana electricity board. Because of this, the company's Mundra project has become unviable. The company has seen five continuous quarters of huge losses, aggregating to Rs2,331 crore.