Karnataka DISCOM Asked to Compensate Solar Project Developer for GST Claims

The Karnataka Electricity Regulatory Commission (KERC) recently ruled in favor of Adani Green Energy (UP) and directed the Bangalore Electricity Supply Company (BESCOM) to compensate the solar project developer for the additional cost incurred due to the imposition of goods and services tax (GST).

The Commission termed the imposition of GST laws as a ‘Change in Law’ event while supporting  Adani Green Energy’s claim in their petition filed in December 2018.

The state regulator directed BESCOM to make the payments in three equal installments within 90 days. If the DISCOM failed to do so, it would have to pay a late payment surcharge at the rate of 1.25% per month as per the terms of the power purchase agreement (PPA).

However, the Commission rejected the developer’s plea for carrying cost.


Background

Adani Green Energy (UP), a wholly-owned subsidiary of Adani Green Energy, owns a 20 MW solar project in the Mandya district of Karnataka.

The Karnataka Renewable Energy Development Limited (KREDL) had invited proposals to set up 290 MW of solar projects in 17 taluks of Karnataka in 2016. Adani Green Energy (UP) was one of the successful bidders.

The developer signed the PPA with BESCOM for the 20 MW project at a tariff of ₹4.84 (~$0.065)/kWh on June 29, 2016.

After the signing of the PPA, the government of India introduced GST. The petitioner, in its submission, said that the imposition of GST led to an incremental impact on the cost of the project.

The developer said that it was entitled to compensation of ₹60.03 million (~$807,061) towards the additional cost incurred due to the GST imposition and the refund of ₹6.44 million (~$86,581) towards additional operations and maintenance (O&M) charges after the imposition of GST.

The petitioner said it was also entitled to ‘carrying cost’ due to the ‘Change in Law’ event.

BESCOM argued that the developer had executed the PPA and started implementing the project much before the GST laws came into force, and hence, it was not entitled to any relief.

Further, the DISCOM added that if the O&M services were outsourced to a third party, no claims for such additional tax payable on such outsourced services could be considered a ’Change in Law’ event.

Commission’s analysis

The Commission observed that the imposition of GST laws was a ‘Change in Law’ event as it was enacted after the signing of the PPA on June 29, 2016. Hence, the increase in cost needed to be reimbursed by the DISCOM.

It ruled that the invoices of ₹48.85 million (~$656,754) raised by the developer should be considered for GST compensation.

Regarding the increase in O&M expenses, the Commission noted that outsourcing O&M services to a third party was a commercial decision. Any increase in cost cannot increase the liability of the DISCOM. It added that there was no PPA provision to provide relief towards O&M expenses.

On the topic of carrying cost, the state regulator said that there was no specific provision in the PPA for restoring the petitioner to the same economic position as before the imposition of the GST laws.

Since the amount of compensation was not huge, it would not be appropriate to determine the incremental tariff for the remaining period of the PPA. It directed BSECOM to make the payment in three equal installments within 90 days.

In August last year, KERC had dismissed Adani Green Energy’s (UP) plea for relief under the ‘force majeure’ clause in its PPA with the Gulbarga Electricity Supply Company Limited.

Earlier, KERC had issued an order denying Adani Green Energy’s (UP) requests for relief under the ‘force majeure’ clause of its PPA with the Chamundeswari Electricity Supply Company.

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