Adani Power Faces Rising Imported Coal Costs and Tariff Recovery Delays

Adani Power has reported a significant surge in its imported-coal bill during the second quarter of FY27, with landed coal costs rising approximately 50 per cent compared to the same period last year. However, the company will face a delay of more than six months to recover these higher costs through tariffs under its existing indexation mechanism.

Chief Executive Officer S B Khyalia stated during an earnings call that the company's total fuel cost increased by 41.8 per cent to ₹10,229 crore in Q2 FY27, up from ₹7,216 crore in the year-ago quarter. This increase was driven by a combination of higher generation volumes and rising imported coal costs. For the first half of FY27, fuel expenses rose 36 per cent to ₹19,768 crore, compared to ₹14,535 crore in the corresponding period of the previous year.

The concentration of the imported coal cost increase is primarily in the company's imported coal-based projects. While most of Adani Power's capacity includes provisions for fuel-cost pass-through, the tariff for its Gujarat project is linked to an index. This indexing structure delays the recovery of changes in fuel prices, meaning the higher fuel costs will take over six months to reflect in tariffs and will not show up in the immediately following quarter.

Khyalia noted that this timing lag between fuel-cost increases and tariff adjustments has slightly reduced margins that the company could otherwise have secured. Nevertheless, he confirmed that per-unit realisation at the Gujarat project has not fallen below the actual cost of fuel.

In contrast, the company's power supply contract with Bangladesh operates under a different mechanism. Tariffs for the 1,600-MW Godda power plant in Jharkhand, which supplies electricity to Bangladesh, are directly linked to international prices. This allows higher fuel costs to be reflected immediately in billing without delay, providing a positive impact during periods of rising international prices.

Adani Power also experienced a seasonal increase in the effective cost of domestic coal during the September quarter. Despite no change in Coal India's notified prices, monsoon-related deterioration in coal quality raised consumption per unit of electricity generated, driving up effective fuel costs. Unlike imported coal cost increases that benefit from contractual pass-through arrangements, the higher costs resulting from poorer domestic coal quality do not automatically translate into higher tariffs.

"Cash flow management and working capital cycles are critical for capital-intensive sectors like energy and power generation. When companies face a significant time lag between rising input costs, such as imported coal, and the actual recovery through regulated tariffs, it creates temporary margin pressures. Businesses operating under indexation mechanisms must maintain strong financial buffers to navigate these recovery delays effectively without impacting overall operational stability." — Dr. Shishir Gupta, Founder & CEO, StartupLanes