In its recent notification, the Central Electricity Regulatory Commission (CERC) has ordered compensatory relief to two solar developers from safeguard duty imposition last year.

ACME Jaipur Solar Power Private Limited and Arinsun Clean Energy Private Limited (ACEPL), a special purpose vehicle set up by Actis-backed Sprng Energy, had filed separate petitions before the commission citing the ‘Change in Law’ clause.

The respondents, in this case, were M.P. Power Management Company Limited (MPPMCL), Delhi Metro Rail Corporation (DMRC), and Rewa Ultra Mega Solar Limited (RUMSL).

The two petitioners had stated that if a ‘Change in Law’ occurs, then the party is required to notify the other parties on the “likely effects” of such an event.

Background

According to ACME Solar’s petition, the company requested the commission to declare the imposition of safeguard duty on the import of solar modules as ‘Change in Law’ in terms of the PPA, which has led to an increase in the additional capital expenditure for the project. It has also asked the commission to find a mechanism to compensate the petitioner for the rise in costs incurred by the company on account of ‘Change in Law,’ and grant carrying cost from the date of impact until the reimbursement by the respondents, and also grant interest on the incremental working capital.

Similarly, Arinsun Clean Energy Private Limited in its petition requested the CERC to declare and hold that the introduction of safeguard duty qualifies as ‘Change of Law’ in terms of the PPA executed,  direct the respondents to compensate and pay the company the additional cost and carrying cost incurred on account of ‘Change in Law’.

In March 2013, RUMSL had issued a Request for Selection (RfS) for the development of a 750 MW grid-connected ground-mounted solar project split into three units of 250 MW capacity each.

Then, in April 2017, the petitioners entered into two separate power purchase agreements (PPAs) with RUMSL to develop unit 1 of 250 MW of solar project in Madhya Pradesh and the consequent sale of power to the other two respondents, MPPMCL and DMRC. The scheduled date of commissioning of the projects was November 2018.

Later, in July 2018, the central government-imposed safeguard duty on the import of solar cells.

The petitioners have submitted that the imposition of safeguard duty has resulted in an increase in recurring and non-recurring expenditure and adversely impacted their business.

Arinsun has further stated that the total cost of modules after the imposition of safeguard duty was about ₹6.10 billion (~$86.5 million) compared to ₹4.87 billion (~$69 million) before the imposition of the safeguard duty.

The company also claimed that there had been an increase in tax incidence of Integrated Goods and Services Tax (IGST) totaling to about ₹1.53 billion (~$21 million) compared to ₹1.2 billion (~$17 million) before the imposition of safeguard duty. So, the estimated increase is more than ₹320.29 million (~4.5 million) on the landed cost of the solar PV modules on account of the imposition of the safeguard duty.

The Commission reiterated that it has already held that the imposition of the ‘safeguard duty’ as an event covered under ‘Change in law’ and that the actual amount of the ‘safeguard duty’ imposed by the competent authority and paid by the petitioners needs to be compensated.

So, the commission has directed the petitioners to make available all the relevant documents exhibiting clear, and one to one correlation between the projects and the supply of imported goods until the commissioning certificate is issued following the provisions of the PPA, supported by relevant invoices and auditor’s certificate.  The respondents are to reconcile the claims after receiving the relevant documents and compensate for the amount claimed.

The compensation should be paid within 60 days from the date of the order or from the date of submission of claims by the petitioners whichever is later, failing which it shall attract late payment surcharge.

Recently, the Karnataka Electricity Regulatory Commission (KERC) also passed an order in favor of ACME Solar by stating that the imposition of safeguard duty will be treated as ‘Change in Law’ for its projects in Karnataka. ACME had filed petitions with the KERC concerning six of its solar projects located in Karnataka, totaling 105 MW, which according to the company, are suffering since the imposition of safeguard duty.

Then in May 2019, the CERC ordered that ACME Solar would be compensated for the cost incurred after the introduction of safeguard duty. ACME had filed petitions after it incurred more than the planned costs in executing the Rewa solar project and the Jodhpur solar PV project.

Earlier this year, the Central Electricity Regulatory Commission (CERC) had observed that any tax levied through an Act of Parliament after the cut-off date, which results in the additional expenditure by the petitioner, is covered as ‘Change in Law.’