Introduction
Every time the Rithala case comes up in the news, I read the headlines and feel a strange mix of frustration and resignation.
The coverage always frames it the same way: “big power company tries to bill consumers for a plant that stopped working.”
This story has been so simplistically framed that it is easy to be outraged about.
But I was on the inside of projects like this (not this one) for many years. And I want to tell you how a Project Engineer sees this whole episode.
I’ll not present any legal arguments. I’ll present to you just the numbers. Why?
Because I think the numbers tell the real story better than any courtroom does.
Let me present how I’m seeing this story from the perspective of a Project Engineer. A deeper understanding of this story (in my way) will also help investors to get a practical understanding of the utility of depreciation.
The Number That Started Everything: Rs. 320.17 Crore
This was the project cost – Rs. 320.17 crore roughly.
Now, before you react to that number, let me give you the context.
It is 2007. Delhi is facing serious power shortages. The Commonwealth Games are coming. The government has told distribution companies that you are now responsible for arranging your own power.
Not just distributing it. Arranging it.
So Tata Power (TPDDL) looked at options.
- Building a brand new gas-based plant takes too long and costs even more.
- Someone identifies a second-hand combined cycle power plant available out of China through a company called UNIONIX (Far East).
The project team did the math.
Second-hand procurement would cost roughly 30% less than a new plant. The government of Delhi wants this done fast.
There is also a Supreme Court order in the background directing distribution companies to ensure adequate supply.
So TPDDL move ahead.
The purchase order goes to UNIONIX in November 2007. The land at Rithala, about 6 acres, is being arranged through DDA. Clearances are being chased in parallel.
- Environmental approvals,
- NOCs,
- Chimney height permissions,
- Factory licenses, etc.
This is the way the entire machinery of a large infrastructure project usually runs.
By the time all of this lands on paper, the total project cost is Rs. 320.17 crore.
I think, by this time, this is not an estimated cost on a spreadsheet. This value is after the following steps:
- Contracts signed,
- Equipment shipped,
- Customs duty paid,
- Civil work done,
- Gas connections negotiated.
And here is the thing about infrastructure projects. The money once spent does not come back if the project fails.
It is not like buying inventory that you can return.
Once you pour concrete and commission turbines, that capital is committed.
The Number That Quietly Changed Everything: Rs. 197.70 Crore
This is the number DERC (Delhi Electricity Regulatory Commission) approved.
Not Rs. 320 crore. Rs. 197.70 crore.
Immediately, a gap of more than Rs. 122 crore opened up between what TPDDL believed would be spent and what the regulator said consumers should bear.
Now, I want to be honest here. Regulators do this. It is their job.
They independently verify capital costs. They question whether procurement was done through proper tender processes.
In TPDDL’s case, there was a specific issue: the second-hand plant was procured through negotiation with UNIONIX, not through an open competitive tender as required under the licence conditions.
DERC might have held that against TPDDL while computing the approved capital cost.
Were they wrong to question it? Technically, no. Did it sting TPDDL? Absolutely.
From inside the project, I think TPDDL would not have been acting irresponsibly. They were just moving fast under explicit government direction to solve an emergency.
The Delhi government had itself recommended this project temporarily in July 2007.
The Ministry of Power had written to the gas ministry to allocate gas for the plant, specifically for the Commonwealth Games requirements.
But regulators operate on process. And TPDDL probably skipped a process step. So, Rs. 320 crore became Rs. 197.70 crore for billing purposes.
I do not know what was the reason why TPDDL still went ahead with the project. Maybe it was a boardroom decision that very few might know. At least it is not in public.
The Number That Defined Our Business Case: 15 Years
Almost every power plant project is modelled around a depreciation period.
For gas-based plants of this type, the standard technical useful life under Indian regulatory frameworks is 15 years.
This is not an arbitrary number. It reflects an engineering reality of Infrastructure orojects in India.
A properly maintained combined cycle gas plant genuinely lasts 15 to 20 years under normal operating conditions.
The equipment is built for it. The maintenance schedules assume it.
So when you are building the financial model of a project like this, you structure your cost recovery over 15 years. The project lead would tell the finance team that the approved capital cost will be depreciated at roughly 6% per annum.
The annual recovery from tariffs will cover a slice of the capital each year.
By year 15, you have recovered the full approved cost.
With Rs. 197.70 crore as the capital base and 15 years as the recovery horizon, the rough annual depreciation comes out to somewhere in the range of Rs. 13 to 15 crore per year.
[I am stating this as a project-level assumption. I have never personally worked in TPDDL. I do not know their financial model meeting. But this is standard infrastructure project modelling logic, and I am confident this is how the project economics were structured.]
Now here is the critical thing.
DERC itself, in its final order of August 2017, acknowledged that the useful life of the plant is 15 years.
I think this confirmed TPDDL’s engineering assessment.
But what TPDDL could not have fully anticipated in 2007 is what the next number would do to all of this.
The Number That Broke the Model: 6 Years
Six years of actual commercial supply to Delhi consumers.
That is all TPDDL got.
- The plant was commissioned in combined cycle mode in September 2011.
- The Power Purchase Agreement was approved for a period ending March 2018.
- So, effective commercial billing was roughly from late 2011 to March 2018.
Six years. Against a 15-year depreciation assumption.
Now sit with that for a moment.
You have a capital asset built to last 15 years. Your entire cost recovery model is structured over 15 years. But you are told that consumer billing will only be permitted for 6 years.
That is not a minor accounting adjustment. That is a structural rupture in the entire project economics.
And this is where I want to say something honestly, because it is important.
The land was always temporary. TPDDL knew that. The government had stated from the beginning that the land would revert to DDA after five to six years. So the operational tenure was always meant to be limited.
But here is my assumption:
I do not believe any serious infrastructure team accepts a 15-year depreciation framework and simultaneously assumes that only 6 years of billing will actually happen.
That combination simply does not work financially.
Someone, and I am assuming this was the internal planning logic, must have either expected the arrangement to be extended beyond 2018. Or, expected that the regulatory framework would protect the remaining unrecovered capital through some form of continued depreciation billing even after the supply period ended.
Because if you know from day one that the billing window is only 6 years, you do not model depreciation over 15, right?
You either compress the recovery, or you do not do the project at all at that capital level.
This is basic project finance logic.
The Number That Confirmed the Mismatch: Rs. 83.34 Crore
By the time March 2018 arrived, TPDDL recovered only Rs. 83.34 crore in cumulative depreciation from consumers.
At 6% per annum (=1/15 × 100) on Rs. 197.70 crore, the annual recovery was approximately Rs. 11.86 crore per year. Over roughly 7 years of depreciation billing, that accumulates to around Rs. 83 crore. The math is consistent.
But here is what that number also tells you:
Against an approved capital base of Rs. 197.70 crore, TPDDL had recovered less than half.
- Rs. 83.34 crore in.
- Rs. 197.70 crore was the baseline.
TPDDL was barely past the midpoint of capital recovery when the billing window closed.
For any engineer or project professional reading this, you know exactly what that feels like.
It is like building a highway, collecting tolls for six years, and then being told the toll plaza is being shut down, even though more than half the construction cost is still outstanding on the balance sheet.
The Number That Went to the Supreme Court: Rs. 94.59 Crore
This is the number. This is what the entire case was ultimately about.
- Rs. 197.70 crore approved.
- Minus Rs. 83.34 crore recovered.
- Equals Rs. 94.59 crore still sitting on the books. Unrecovered.
DERC said in November 2019 that consumers will not pay this. The plant stopped supplying. The billing relationship ended. End of story.
TPDDL said: “We built infrastructure under an approved regulatory framework. A large part of the approved cost is still unrecovered. This cannot simply be written off.“
And both sides, honestly, had a point.
Why TPDDL Fought This All the Way to the Supreme Court
I want to address this directly, because this is the question most people (I think) on the outside will not understand.
Why would a company spend years fighting a regulatory case over Rs. 94.59 crore when they knew that the plant was not supplying power to Delhi consumers anymore?
The easy answer is: because Rs. 94.59 crore is a lot of money.
But that is not the full answer.
[What I am about to say is partly my interpretation. These are not direct statements from TPDDL management. But having worked in projects for many years, this is what I believe the internal reasoning looked like.]
The real answer is about precedent, not just money.
Infrastructure businesses in India operate on a fundamental assumption: if you invest capital under a regulated framework, you will recover that capital. The entire model of private participation in power infrastructure rests on this. Investors commit long-term capital because they trust that the regulatory framework will honour cost recovery over the asset’s approved useful life.
If a court or regulator can say, your billing window ended, your unrecovered capital is your problem, then every future infrastructure project in India becomes harder to finance.
Because the next set of investors and lenders will ask: what if this happens to us? What if the commercial arrangement ends early and the regulator refuses further recovery?
And that uncertainty gets priced into the cost of capital. This eventually makes infrastructure more expensive for everyone.
I think TPDDL was fighting for this principle as much as for the Rs. 94.59 crore itself.
And APTEL (Appellate Tribunal for Electricity) actually agreed with TPDDL in February 2025. APTEL said: DERC itself acknowledged 15 years as the useful life. You cannot restrict depreciation to 6 years when you have approved 15 years as the asset life. That is inconsistent.
Though I have not read the full order of APTEL, I know that the order went in favour of TPDDL
Why the Plant Could Not Continue Beyond 2018
I should address this, too, because it is a fair question.
If the unrecovered capital was this significant, why not simply extend the plant’s operation?
The short answer is that several things had changed by 2018 that made this practically very difficult.
- The land was always meant to be temporary. The DDA had originally conveyed that land for a limited period. Continuing operation would have required the land arrangement to be renegotiated at a level above TPDDL’s control.
- The gas supply arrangement was also not permanent. The gas allocation that supported the plant had been specifically tied to the Delhi emergency context. By 2018, that specific arrangement had expired.
- And perhaps most significantly, the economics of Delhi’s power sector had shifted. Cheaper power was available from other sources by 2018. The regulator had no strong reason to approve continued expensive gas-based generation when lower-cost alternatives existed.
[I am assuming here: I do not have confirmed documents stating exactly why the extension did not happen. But based on what is publicly available, these are the most plausible reasons. If there was a stronger commercial case for extension in 2018, TPDDL would certainly have pursued it, because extending operation was always the easier path to recovery compared to litigation.]
What This Case Taught Me About Depreciation
I had been in projects for a long time.
And I want to tell you something that no finance textbook ever told me clearly.
Depreciation is not just an accounting entry. It is a promise.
When a regulator approves a capital cost and a useful life, what they are really approving is: this company will recover this amount, over this many years, through consumer tariffs. That is the promise embedded in every depreciation schedule.
The Rithala case was about what happens when that promise gets interrupted before it is fulfilled.
And the Supreme Court, in May 2026, essentially said: when the supply stops, the promise to consumers also stops. You cannot collect for something you are not providing.
I understand that ruling. I do not fully agree with every implication of it for future infrastructure projects. But I understand it.
What I hope policymakers and regulators take from this case is the other side of the lesson:
“If you want private capital to flow into infrastructure, the regulatory framework needs to deal with this mismatch more explicitly from the beginning. The gap between technical life, regulatory life, and commercial life is not a theoretical problem. It is a real financial risk that showed up as Rs. 94.59 crore on someone’s balance sheet.”
I know, for a company as big as Tata Power, arranging for a Rs. 94.59 crore provision in the balance sheet is not a big thing. But I really feel sorry for the Project Inchange under whom this loss has been booked.
Conclusion
Six numbers. That is all this case was.
- Rs. 320.17 crore.
- Rs. 197.70 crore.
- 15 years.
- 6 years.
- Rs. 83.34 crore.
- Rs. 94.59 crore.
Every legal argument, every regulatory petition, every appeal, they all orbit these six numbers.
The engineering was not the problem. The plant worked. It supplied power for six years. That part of the story is actually a success.
But I think the problem was that the financial model assumed something the commercial reality could not deliver. And when those two things stopped matching, a gap of Rs. 94.59 crore ended up in a courtroom.
That is the real lesson from Rithala.
I know it is not just about depreciation, but all the pain originated from this angle only.
When I first read this story, it made me see depreciation from a different angle than just as a “non-cash expense.” This is why I thought to include my understanding in a blog.
Thanks for reading it through.
Have a happy investing.
