Rajasthan Electricity Regulatory Commission (RERC) has directed the Solar Energy Corporation of India (SECI) to compensate Palimarwar Solar House for the higher expenses incurred on developing two 20 MW solar projects due to an increase in customs duty on solar inverters and changes to the Customs Tariff Act.

Background

Palimarwar Solar House was one of the successful bidders in an auction conducted by SECI. The company commissioned two solar projects, each with a capacity of 20 MW, in Barmer, Rajasthan.

The petitioner explains that a change in customs duty exemption on machinery for solar projects and an increase in customs duty on solar inverters from 5% to 20% effective from February 2, 2021, led to significant financial implications for their projects.

Moreover, complexities arose with changes to the Customs Tariff Act, necessitating Special Economic Zones (SEZs) to pay Countervailing Duty (CVD) and Anti-Dumping Duty (ADD) when transferring components from SEZs to domestic tariff areas, representing a departure from prior practices.

The petitioner detailed the application of these changes to their solar module glass supplies, specifically noting the imposition of ADD and CVD on textured tempered glass, resulting in additional financial burdens.

The petitioner calculated additional expenses of ₹7.46 million (~$90,092) due to the change in customs duty on solar inverters, and the changes in the law led to an extra levy of ₹1.06 million (~$12,801) for CVD and ADD on solar module glass. The cumulative financial impact was ₹8.53 million (~$103,019).

Given the considerable financial strain caused by these shifts, the petitioner sought reimbursement for the incurred expenses and a fair resolution to mitigate the direct impact on their projects.

The petitioner requested the Commission’s involvement in reconciling documents between themselves and SECI. They emphasized that this step would facilitate a factual understanding verified by both parties, potentially saving valuable time during the final hearing of the petition.

Regarding the issue of jurisdiction, Rajasthan Urja Vikas Nigam (RUVNL) argued that Article 16 of the power purchase agreement (PPA) grants jurisdiction to the appropriate courts in Delhi rather than Rajasthan. As per Article 16 of the PPA, legal proceedings involving matters, claims, or disputes arising from the agreement fall under the jurisdiction of appropriate courts in Delhi.

In their rejoinder, the petitioner contested RUVNL’s jurisdictional claim and asserted that all disputes related to the power sector fall within the regulatory ambit of the regulatory commissions, as outlined by the Electricity Act.

In its submission, SECI raised the issue of jurisdiction. It argued that the jurisdiction for the dispute lies in Delhi, based on the governing law clause in the PPA.

SECI emphasized that the petitioner needed to provide pertinent documents and establish a clear correlation between projects and supplied goods or services, accompanied by actual payment details of custom duties and associated charges. It sought the Commission’s clarification on the cut-off date for compensation payment and proposed an annuity-based compensation methodology based on specific parameters.

Additionally, SECI contended that RUVNL should reimburse SECI for the compensation owed to the petitioner.

RUVNL countered that the petitioner should have followed the rules outlined in the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, which require prior notice and computation of the impact on the tariff in cases of change in law events. It highlighted that the petitioner failed to adhere to the dispute resolution mechanism specified in the PPA.

Commission’s analysis

The Commission observed that the petitioner’s main request for a direction to SECI to reimburse ₹8.53 million (~$103,019), along with interest, until the payment is received due to Change in Law events.

The regulator initiated a reconciliation process as requested by the petitioner, which involved SECI, the petitioner, and RUVNL. SECI oversaw the process as the nodal agency and subsequently confirmed the reconciliation with the petitioner, and the documents were sent to RUVNL for verification. RUVNL confirmed the reconciliation and emailed the reconciled amount of ₹7.46 million (~$90,092) to SECI. The petitioner then endorsed the revised claims by SECI in agreement with all parties involved.

The Commission acknowledged the completion of the reconciliation process, conducted transparently under SECI’s guidance. Importantly, all parties unanimously agreed on a reconciled amount of ₹7.46 million for the petitioner’s Change in Law claim. As a result, the issue was resolved and disposed of based on unanimous agreement.

Regarding the issue of jurisdiction, the Commission highlighted that Section 86(1)(f) of the Electricity Act 2003 mandated it to adjudicate disputes between licensees and generating companies. Therefore, the contention raised by RUVNL was unfounded.

It ruled that the petitioner would be eligible for carrying costs from when actual payments were made to the authorities until the issuance of the Commission’s Order.

The carrying cost will be computed at the actual interest rate paid by the petitioner for securing funds, as supported by an auditor’s certificate. Alternatively, the carrying cost may be calculated using the interest rate on working capital as per the applicable RERC Tariff Regulations or the late payment surcharge rate specified in the PPA, whichever rate is the lowest.

The discount rate for annuity payments related to the petitioner’s expenditure due to Change in Law events will be 9%. The tenure of the annuity payments will extend for 15 years.

Furthermore, the liability of SECI/RUVNL for monthly annuity payments will commence from the 60th (sixtieth) day from the date of the Commission’s Order. In case of any delay in the Monthly Annuity Payment beyond this 60-day period, a late payment surcharge for the corresponding delayed period will be applicable according to the respective PPAs and PSAs.

Additionally, given that the project’s Commercial Operation Date (COD) has already been achieved, the payment of the amount corresponding to the number of months elapsed since the COD up until the payment date can be made on a lumpsum basis.

The remainder of the Change in Law compensation (the total change in law claims payable minus the change in law claims paid upfront) will be disbursed to the petitioner using the monthly annuity rate.

In September last year, the Ministry of New and Renewable Energy said the imposition of basic customs duty and hike in GST should be treated under Change in Law events unless disallowed by specific provisions in the tender documents or contracts.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable industry.