CERC

Central Electricity Regulatory Commission: In a combined petition seeking declaration of imposition of safeguard duty on import of solar panels/modules as a ‘Change in Law’ event under the Power Purchase Agreement (‘PPA’), the Central Electricity Regulatory Commission (‘CERC’) accepted the claim. The CERC Coram consisting of I.S. Jha, Arun Goyal and P.K. Singh granted relief over imposition of safeguard duty on the import of solar panels/modules holding the same as a ‘Change in Law’ event. The Commission also relieved the petitioners with respect to carrying cost during the specified period.

The petitioners, who are developing 300 MW Solar Photo Voltaic Power Projects at various locations, executed a PPA with Solar Energy Corporation of India (‘SECI’) Ltd. for sale of 300 MW power.

The petitioner primarily seeks declaration of imposition of safeguard duty on the import of solar panels/modules through notification No. 2/2020 -CUSTOMS (SG) dated 29-07-2020, issued by the Department of Revenue, Ministry of Finance, Government of India as a ‘Change in Law’ event under Article 12 of PPA signed by the parties. As per the notification, the safeguard duty has been imposed on import of solar cells, (whether or not assembled in modules or panels) from specific countries. The petitioner also seeks reimbursement for the corresponding increase in the cost of the project on account of safeguard duty.

The Commission disposed of both the petitions on 18-02-2022 asking parties involved to settle the claims around ‘Change in Law’ among themselves. However, the Appellate Tribunal for Electricity (APTEL) set aside orders whereby the Commission has applied Change in Law (‘CIL’) Rules, 2021 on the date of coming into force. The Tribunal held that “The Central Commission is duty-bound to consider each case on their merits of the claims and adjudicate in accordance with law on the dispute(s).”

The issues decided in the present case are as follows:

Issue 1 – Whether imposition of Safeguard Duty on import can be declared as ‘Change in Law’ event under PPA?

The Commission held the imposition safeguard duty on the import of solar panels/modules to be a ‘Change in Law’ event under Article 12 of PPA. The Commission also found the petitioners entitled to relief under Article 12 of the PPAs due to submission of bids before the Notification 2020 was issued.

Issue 2 – Whether calculation of annuity methodology at a discounted rate of 9% should be considered for payment of compensation on account of Change in Law? And whether the SECI can be directed to reimburse the petitioner for corresponding increase in project cost on account of Safeguard Duty?

The Commission noted that ascertaining capital structuring (to the extent of debt and equity) of the projects, or the actual rate of interest of debt component, or the expected rate of return on equity in competitive bidding projects, is not possible. The Commission observed that “compensation for change in law cannot be a source for earning profit, and therefore, there cannot be any higher rate of return than the prevailing normative cost of debt.”

Reference was made to a matter decided by the Commission wherein it was held that “the compensation for change in law cannot be a source for earning profit, and therefore, there cannot be any higher rate of return than the prevailing normative cost of debt.”

The Commission allowed the discount rate of 9% and annuity period of 15 years andalso clarified the date from which liability of SECI/ Discoms for ‘Monthly Annuity Payment’ starts.

Issue 3 – Whether ‘Carrying Cost’ should be allowed on additional cost incurred/ to be incurred due to Safeguard Duty?

The Commission relied on the principles laid by APTEL in Parampujya Solar Energy (P) Ltd. v. CERC, 2022 SCC OnLine APTEL 80 regarding carrying cost and held the petitioners entitled to grant of relief in compensation for increased carrying costs due to ‘Change in Law’.

The Commission directed the petitioner and respondent to reconcile on account of incremental impact due to safeguard duty along with carrying cost, precisely exhibiting the correlation with the projects and invoices raised, supported with auditor certificate. The Commission also directed DISCOMS to pay SECI all the reconciled claims that SECI has to pay to the petitioners.

The Commission also pointed towards Telangana Northern Power Distribution Company Ltd. v. Parampujya Solar Energy Pvt. Ltd. (order dated 12-12-2022 in Civil Appeal No. 8880 of 2022), wherein the Supreme Court has directed CERC not to enforce orders related to carrying cost till further orders. Thus, in the present matter, petitioners have been relieved

[Azure Power Forty One Pvt. Ltd. v. Solar Energy Corporation of India Ltd., 722/MP/2020 & 723/MP/2020, decided on 20-01-2023]


Advocates who appeared in this case :

Counsels for Petitioners: Advocate Shashwat Kumar, Advocate Rahul Chouhan and Advocate A. Saxena;

Counsel for Respondents: Advocate M. G. Ramachandran, Advocate Anushree Bardhan, Advocate Tanya Sareen and Advocate Aneesh Bajaj.

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