Delve into the detailed legal analysis of change in law compensation in power purchase agreements. The court’s interpretation of contractual provisions and the application of the law play a critical role in determining compensation for parties. Understanding the nuances of legal principles is essential for parties involved in power projects to protect their rights and uphold contractual obligations. Stay informed on the legal intricacies affecting the power sector.
Facts
- The Ministry of Power issued a letter on 31.7.2013 regarding a shortfall in domestic coal in the quantity indicated in the Letter of Assurance or FSA.
- Government of Rajasthan advised to consider revising the mining plan capacity of captive coal blocks upward to mitigate coal demand for power projects in Rajasthan.
- Cost of imported coal rose due to regulatory changes in Indonesia, making use of imported coal prohibitive.
- APRL requested long-term coal linkage for the Kawai Project from South Eastern Coalfields Limited on 2.7.2009.
- State Commission ordered a tariff adoption for 1000 MW procurement on 31.5.2010.
- RVUN advised to apply for coal block allocation for its projects under the Government Dispensation Scheme.
- APRL bid on 6.8.2009 based on domestic coal tie-up.
- APRL clarified bid evaluation based on domestic coal tie-up on 12.9.2009.
- Standing Linkage Committee (Long-Term) met on 31.5.2013.
- Jaipur Vidyut Vitran Nigam Limited signed a Coal Supply Agreement for coal from Indonesia.
- AEL requested coal allocation from Parsa East and Kente Basan coal blocks on 16.5.2008.
- AEL negotiated Indonesian coal supply at a discounted price on 12.9.2009.
- APRL was given coal supply under the SHAKTI Policy within 5 years of Commercial Operation Date, hence the change in law compensation did not arise.
- APRL’s bid was evaluated based on domestic coal and escalations were also based on domestic coal.
- The NCDP of 2007 was considered a change in law event for projects without LoA or FSA at the time of bid submission.
- The MoU dated 20.3.2008 between APRL and the Government of Rajasthan was deemed ineffective for firm coal arrangement.
- The APTEL held that APRL was entitled to change in law compensation under the Shakti Scheme and payment towards carrying cost.
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Arguments
- APRL cannot claim compensation for using imported coal as it was part of the bid and quoted tariff.
- Bid documents and PPA show that APRL agreed to use imported coal and quoted tariff accordingly.
- APRL admitted that two periods are separate until the change in law determination, which may lead to late payment surcharge if there is a default.
- Generator cannot raise invoices without the liability being crystallized.
- The case of APRL was recommended for including the Kawai Project under 4660 MW capacity based on the PPA being primarily on domestic coal.
- APRL submitted its financial bid based on domestic coal although the FSA was for imported coal to assess bid eligibility.
- The bid was evaluated solely on domestic coal, not dual fuel.
- Change in law claim may be limited to 35 to 40 per cent as bidding was not based on dual fuel.
- APRL had no firm coal linkage or LoA for domestic coal at the time of the bid.
- The PPA was based on imported coal, but APRL qualified under SHAKTI Policy which required a PPA based on domestic coal.
- Claiming compensation under change in law due to non-availability of domestic coal is supported by Article 10 of the PPA.
- The bid documents indicated APRL’s reliance on domestic coal despite showing an Imported Coal Supply Agreement as proof of eligibility.
- The bid was accepted and evaluated on domestic coal basis.
- Rajasthan Discoms admitted non-availability of domestic coal qualified APRL for compensation under change in law.
- APRL is entitled to carrying costs from the date of the change in law event.
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Analysis
- The application for coal linkage was filed before submitting the bid, demonstrating the reliance on domestic coal.
- The bid was premised on domestic coal and the approved tariff was based on domestic coal, as confirmed by the RERC.
- The change in law provision of the PPA in question is similar to the Energy Watchdog case.
- The applicability of the Energy Watchdog case is recognized in the present situation.
- The consequences of non-availability of coal due to a change in law could not be avoided.
- The relief for change in law to APRL was found applicable based on the date of change in law in 2013.
- APRL was entitled to compensation for any shortfall in the supply of domestic linkage coal even post-grant under the SHAKTI Policy.
- The PPA was fundamentally based on domestic coal, and the provisions of the PPA are considered final and binding.
- It was clarified that APRL would be entitled to relief under the change in law provision for any shortage in domestic linkage coal supply.
- Concurrent findings of facts by the RERC and the APTEL were seen as reasonable and proper.
- Seller must notify Procurers of any Change in Law affecting them as soon as reasonably practicable
- Seller must notify Procurers even if beneficially affected by Change in Law
- Specific actions required for project preparatory activities in Case-1 procurement bids
- Fuel arrangements needed for power generation from proposed station as per procurement guidelines
- Government commitment to assist in securing coal linkage/coal block for the Project
- Definitions of ‘Change in Law’ and its implications in the Agreement
- Requirements for fuel tie-up in case of domestic coal or imported coal
- Seller’s obligations in case of Change in Law impacting expenses or income
- Conditions for fuel arrangement in case of domestic gas and imported coal
- Clause 13 in the Power Purchase Agreement (PPA) deals with changes in Indian law affecting capital costs of the project.
- The seller must provide documentary proof of any increase or decrease in capital costs due to changes in law.
- If there is a dispute regarding the impact of the change in law, Article 17 of the PPA details the dispute resolution mechanism.
- Compensation is only payable once the total increase or decrease exceeds a certain amount specified.
- Carrying cost is paid from the date the change in law occurred, following the restitution principle.
- Article 10.2.1 of the PPA is similar to Article 13.2 discussed in the Energy Watchdog case.
- Article 13.2 in the PPA aims to restore the affected party to the economic position as if the change in law hadn’t occurred, using a restitutionary principle.
- The restitution under Article 13.2 is divided into two separate periods.
- The decisions of the regulatory bodies (RERC and APTEL) in this regard are upheld and binding, as they do not have any errors or perversity.
- Appeals regarding factual findings are limited under Section 125 of the Electricity Act, akin to Section 100 of the CPC.
- PPA governs the rights and obligations of the parties involved in the agreement.
- The maintainability of the Federation’s appeal and locus to file an appeal was not examined.
- The Federation was not a party before the RERC.
- APTEL rejected the Federation’s intervention application.
- The order was not interfered with by the Court.
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Decision
- The Rajasthan Discoms issued an LoI to APRL containing a condition regarding escalations on domestic coal rates even if imported coal is used as a backup arrangement.
- APRL unconditionally accepted the LoI from the Rajasthan Discoms.
- The appeals are partly allowed based on the discussion provided.
Case Title: JAIPUR VIDYUT VITRAN NIGAM LTD. Vs. ADANI POWER RAJASTHAN LTD. (2020 INSC 521)
Case Number: C.A. No.-008625-008626 / 2019
