CERC Denies Solar Developer’s Claim for Carrying Costs and O&M Expenses After GST Law

The Central Electricity Regulatory Commission (CERC) has approved Parampujya Solar’s plea that the introduction of GST laws with effect from July 1, 2017, should be covered under the ‘Change in Law’ clause. But for the compensation amount, the company has to prove the correlation between the projects and the supply of goods and services backed by invoices raised by the supplier with auditors certificate.

The amount determined by the petitioner will be on a “back to back” basis and should be paid by the DISCOMs under the respective power sale agreements (PSAs). The claim must be paid within sixty days from the date of this order or the date of submission of claims, failing which it will attract late payment surcharge.

However, the commission noted that the claim of the petitioners on account of additional tax burden on operation and maintenance (O&M) cost is not permitted. The commission also noted that the claim regarding separate carrying cost in the instant petitions is not allowed.

Background


The project developer, Parampujya Solar, a wholly-owned subsidiary of Adani Green Energy Limited had entered into power purchase agreements with Solar Energy Corporation of India (SECI) for the development of solar projects in the state of Karnataka on a long-term basis.

In April last year, the developer had filed a petition requesting the Commission to declare the imposition of GST as an event under ‘Change in Law’, and direct the National Thermal Power Corporation (NTPC) and SECI, which were the respondents in the case, to pay the petitioners the amount claimed under ‘Change in Law.’

The developers argued that after the initiation of GST, a tax slab of 5% to 28% had been introduced concerning goods and services required for the execution, construction, and operation of solar power projects. Previously, these were either exempted or fell under lower tax slabs, and the new tax rates have impacted the overall project cost negatively.

The developers further claimed that the announcement of the GST laws after the effective date of the PPAs resulted in additional capital expenditure and additional recurring expenditure squarely attracting Article 12 of the PPAs entitling the developers for “Change in Law” relief mentioned in the PPA.

SECI, in its response, had denied the developers any compensatory tariff. According to SECI, the petitioners participated and made a bid for the projects and the generation and sale of the electricity as per bidding documents and are bound by an all-inclusive tariff bid as incorporated in the PPAs.

After reviewing the petitions, the Commission brought three main issues to the fore.

The Commission observed that the GST in the context of the present petitions is applicable in all cases except in the case where the scheduled or the actual date of commissioning as per the PPA is before July 01, 2017.

The Commission observed that SECI had made part payment of invoices raised by the developer on account of the escalation of construction cost. However, some payments were withheld citing reasons that the cost incurred for installation of solar PV modules and other associated equipment and allied services, were after commissioning of the projects and that the invoices had been raised after the date of commissioning

The commission noted that since developers decided on the project development, including the mode of procurement of goods and services before the implementation of GST, it would not be appropriate to question such commercial decisions based on the differential rates of GST on certain goods and services. The commission observed that since the compensation on account of the introduction of GST is not large, it should be released by SECI as a one-time payment in a time-bound manner.

For the incremental impact on O&M operation on account of the enactment of GST, the Commission observed that the O&M services come in the ‘post-construction stage,’ which is covered under services under GST laws.

But the outsourcing of the O&M services is not the requirement of the PPAs. The concept of outsourcing is not clearly mentioned in the PPAs. The decision of the developers to employ the services of other agencies should not increase the liability for the respondents (SECI). Therefore, the Commission ruled that the claim of the petitioners on account of the additional tax burden on operation and maintenance expenses are not allowed.

The developers had also claimed that they were entitled to ‘carrying costs’ for the costs incurred due to the ‘Change in Law’ events.

The commission observed that “if there is a provision in the PPAs for the restoration of the petitioners to the same economic position as if no ‘Change in Law’ event has occurred, the petitioners are eligible for ‘carrying cost’ for such allowed ‘Change in Law’ events.” The commission, however, observed that the PPAs do not have a provision dealing with restoration to the same economic position. Therefore, the commission noted that the claim regarding separate carrying costs is not admissible.

A similar petition was filed by Azure Power against the NTPC and SECI requesting reimbursement of the incremental cost of project construction and O&M due to the introduction of GST Laws and the claim of carrying cost for the delay in reimbursement. The Commission had dismissed this claim.

In September 2018, CERC had issued an order stating that the enactment of GST laws is covered as Change in Law under Article 12 of the PPAs. In this order, the CERC had added that for claims made during the construction period, the petitioners have to exhibit clear and one to one correlation between the projects, the supply of goods or services, and the invoices raised by the supplier of goods and services backed by auditor certificate.