Hindustan Zinc, Ambuja Ordered to Pay Clean-Energy Fines

An Indian court ordered companies including units of billionaire Anil Agarwal’s Vedanta Resources Plc (VED) and Switzerland’s Holcim Ltd. (HOLN) to pay penalties for failing to meet clean-energy obligations at power plants they operate.

Two judges of Rajasthan High Court’s Jaipur bench dismissed an appeal by Hindustan Zinc Ltd. (HZ), Ambuja Cements Ltd., Grasim Industries Ltd. (GRASIM) and 14 other companies that challenged a government order to purchase a minimum amount of renewable energy at their plants, according to the Aug. 31 judgment on the court website.

Holcim’s Ambuja said in an e-mail that it’s studying the order’s implications. Vedanta’s Hindustan Zinc and Grasim didn’t respond to e-mails and phone calls seeking comment. Vedanta fell as much as 3.6 percent in London and Holcim lost as much as 1.1 percent in Zurich, its biggest decline since Sept. 4.

India requires electricity distributors and large industrial consumers of power, such as cement factories, miners and steelmakers, to buy as much as 10 percent of their energy from wind farms, biomass plants and other renewable utilities. State regulators are responsible for enforcing the targets.

“This is important because it will act as a precedent for similar court cases in other states” like Gujarat and Tamil Nadu, said Vibhav Nuwal, director of REConnect Energy Solutions Pvt., which advises companies in the industry. Such enforcement is key to ensuring the success of India’s one-year-old renewable energy trading market, which allows companies to buy and sell certificates to meet their clean-power obligations.

Potential Penalties

Hindustan Zinc and Ambuja may be liable to pay as much as 913 million rupees ($16.5 million) based on an estimate by Bloomberg New Energy Finance, whose calculations assume the companies face the same renewable purchase obligations in all states where they operate.

Hindustan Zinc’s liability could be about 839 million rupees and Ambuja’s 75 million rupees based on power generation and consumption figures from their latest annual reports and penalty amounts of 3,300 rupees and 13,400 rupees a megawatt- hour set by regulators for non-solar and solar certificates respectively.

Hindustan Zinc fell 1.1 percent to 130.95 rupees at the close in Mumbai. Ambuja lost 0.2 percent to 191.35 rupees and Grasim rose 0.8 percent to 3,035.95 rupees. The benchmark Sensitive Index gained 0.1 percent.

Chronic Blackouts

India suffers from an average 9 percent power deficit and an overburdened grid that lead to chronic blackouts and surging electricity prices at peak hours of demand. Companies like Hindustan Zinc and Ambuja build coal and diesel-fired generation units, known as captive power plants, which provide reliable electricity to their sites and extra revenue from selling excess power to the grid.

According to the judgment, the companies argued that the Rajasthan Electricity Regulatory Commission was acting beyond its powers and that its order for them to buy clean power or face fines was a violation of India’s 2003 Electricity Act and of the constitution. The companies said that as independent power plants without distribution licenses, they should be exempt from the targets.

“The submission is baseless,” judges Arun Mishra and Narendra Kumar Jain said in their ruling. The companies misconstrued legal provisions to argue their case, they said.

The renewable targets are lawful and the state regulator has the authority to enforce them, the judges said.

“The writ petitions being devoid of merits are hereby dismissed,” they said, ordering the companies to pay their fines immediately.

The case is Ambuja Cements Ltd. (ACEM) v. Raj Electricity Regulatory Commission. 2772/2012. High Court of Judicature for Rajasthan at Jaipur Bench (Jaipur.)

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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