CERC Allows Solar Developers’ Claim for GST Compensation on EPC Cost

In its recent order, the Central Electricity Regulatory Commission (CERC) has reiterated its opinions on the restitution principle in power purchase agreements in the face of a Change in Law event.

The central body has approved the plea of Clean Sustainable Energy Private Limited and Fermi Solar farms Private Limited to declare the introduction of GST Laws as ‘Change in Law.’  It has directed the Solar Energy Corporation of India Limited (SECI) to make the payments to the petitioners for the additional tax burden on the engineering, procurement, and construction (EPC) cost after the GST Laws. The payment should be made within 60 days, and it is not conditional on the payment made by the respondent DISCOMs.

The Commission, however, has dismissed the claims of the petitioners on account of the additional tax burden on the operation and maintenance (O&M) expenses, adding that the claim regarding separate carrying cost and interest on working capital was not valid.

The Commission noted that since the compensation on account of the introduction of GST is not large, it should be discharged by the respondent-procurers as a one-time payment on time.


Background

The petitioner, Clean sustainable Energy Private Limited and Fermi Solarfarms Private Limited, had filed petitions seeking the imposition of GST as ‘Change in Law’ and restore the petitioners to the same economic position before its imposition.

Clean Sustainable Energy Private Limited had asked the Commission to direct SECI to give a lump sum compensation of ₹192.6 million (~$2.69 million) on account of the additional tax burden on the engineering, procurement and construction cost (EPC) and the additional operation and maintenance expenses incurred due to GST.

Similarly, Fermi Solarfarms Private Limited had asked the Commission to direct SECI to pay a lump sum compensation of ₹221.7 million (~$3.11 million).

The petition related to a tender floated in 2016 by SECI for 250 MW of solar projects in Rajasthan.

Clean Sustainable Energy Private Limited, a special-purpose vehicle that is owned by Avaada Power Private Limited and Giriraj Renewables, had entered into the power purchase agreement (PPA) with SECI on September 26, 2017, for 100 MW of solar projects at Bhadla Solar Park. This project was won in the 250 MW Bhadla Phase-IV Solar Park auction.

On June 14, 2016, SECI auctioned 450 MW solar power capacity in Maharashtra. Canadian Solar Energy Holding Singapore Private Limited was declared as the successful bidder for four blocks of 20 MW each. Canadian Solar formed a project company Fermi Solarfarms Private Limited, within the provisions of the RfS for the development of solar power projects.

Fermi entered into the PPAs with SECI on February 10, 2017, for implementing 80 MW of solar projects.

The petitioners had clarified that GST came into force on July 01, 2017, and the bidding under the respective request for selection was well before the date of its imposition. The petitioners noted that the imposition of GST Laws had resulted in an additional tax burden on the EPC cost and O&M expenses. They also claimed interest/carrying cost for the delay in reimbursement of their claims

SECI, in its response, said that there is no provision in the PPAs for carrying cost for the period until the decision of the Commission acknowledging the ‘Change in Law’ and the amount to be paid for such a change.

After hearing all the facts, the Commission noted that the petitioners are eligible to be compensated for EPC cost by SECI and the implementation of GST Laws is squarely covered under the ‘Change in Law.’

The Commission, however, dismissed the petitioners’ claims that the compensation on O&M expenses should be allowed on lines of the Central Electricity Regulatory Commission Regulations, 2012. The Commission also observed that the PPAs do not have a provision dealing with restitution principle, and therefore the claim regarding separate carrying cost is not admissible.

There have been a host of similar cases lately. In a recent order, the CERC had dismissed the request of Prayatna Developers Private Limited, a subsidiary of Adani Green Energy, to grant carrying cost on Goods and Services Tax (GST) compensation covered as “Change in Law.” .

In the case of another Adani Green subsidiary also, CERC ruled that the claim of the petitioners on account of an additional tax burden on O&M cost and carrying cost is not allowed.