A Delay Foretold. How MSEDCL Delayed a 500 MW RE Project Involving Tata Power

In looking at the orders of regulators at the state and national level (CERC and APTEL), one is regularly surprised at how common sense is regularly abandoned in favour of abundant precaution. Among state entities like discoms, the fear of being seen as biased trumps everything when it comes to a project. Be it the urgency of the project, the limited window for the bidder to procure equipment, or the risk to the developer from long delays. Today, we look at how this approach from the Maharashtra discom, MSEDCL has led to a delay of at least one year or more in a 500 MW hybrid renewable project. Case no 241 of 2022.

Case Details

The project in question is a 500 MW Wind-Solar Hybrid project for which MSEDCL issued a tender on 07 May 2021. The last
date of bid submission was 8 June 2021 which was further extended to 23 June 2021. After opening the Bids, the e-Reverse Auction was conducted on 9 July,2021 wherein TPSL (TP Saurya , or Tata Power) , along with Azure Power India Pvt. Ltd., emerged as the successful bidders for development of the 500 MW Wind-Solar Hybrid Power Projects at a Tariff of Rs. 2.62 per unit.

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At the time of submission of bid and e-Reverse Auction, the Notification Nos. 24 and 27 of 2018 dated 31 December 2018 were in force for GST. Thereafter, on 30 September 2021, MoF GoI issued the GST Notification, thereby omitting S. No. 234 from Schedule 1 and inserted S. No. 201A in Schedule-II which attracts GST of 12% upon the RE devices and parts for their manufacture.

For Tata Power, this meant that effective GST for it would rise to 13.8% from existing 8.90% for Solar and 8% from existing 5% for Wind where Supply Contract has been awarded) for construction of the Hybrid Project.

MSEDCL’s Interpretation

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Now, as the GST notification came on September 30, 2021, you would imagine it was common sense to accept Tata Power’s claim for treating as a change in law event and allow the higher claim. But this is where logic evaporated, as it so regularly does unfortunately, from the discom offices. MSEDCL rejected Tata Power’s claims on two points. One, that it had not made the claim within the stated seven days of the signing of the PPA as mentioned in the said PPA. Two, that the regulator itself had set aside the GST claim while adopting the revised tariff of Rs 2.56/unit, further strengthening MSEDCL’s logic.  What it conveniently ignored were two inconvenient truths.

One, that the PPA signing itself, on the basis of which Tata Power could make any subsequent claims, was delayed to August 3, 2022, after prodding by the state regulator, MERC.

Two, the tariff adoption itself was done to first ensure the said PPA could be signed, so rather than rejecting the claim of change in law, the MERC had simply set it aside to be considered post the PPA signing.  The delay in PPA signing itself is a story in itself, as the MSEDCL, after accepting the bids and issuing letter of awards, went on a shopping expedition for 5 months to try and find lower bids. All because SECI, the central government entity, had managed to get bids at Rs 2.35 per unit, much lower than MSEDCL’s 2.62/unit. The state regulator itself was guilty of laying too much importance to these numbers as well, goading MSEDCL to seek purchases from SECI instead, or sign PPAs at a much lower Rs 2.49 with the successful bidders. Tata Power, in turn made a final offer of Rs 2.56/unit to close out the deal (blaming rising steel prices as a factor), a factor that was used by MSEDCL to again make the case that this offer was done well past the GST notification , so nullified subsequent claims. While again ignoring that claims could only be made post signing of the PPA.

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The good news is that the regulator finally remonstrated with MSEDCL both for going price shopping for 5 months while delaying the PPA, and allowed the change in law claims of Tata Power. But in doing so, its own role to arrive at such a commonsensical  conclusion a full two years after the case was filed also comes in the spotlight.

Two issues stand out here. The seeming blindness of the state discom to realise that there is a reason that SECI gets lower bids than it. It moves faster, and pays on time. Two, by ignoring blatantly the rules around change in law claims, it reflects very poorly on its own intent and ability perhaps to manage power procurement efficiently for India’s most industrialised state. The sheer frequency with which such wilful blindness appears in cases indicates no easy solutions have been found, even as GWs of critical projects languish. Here’s hoping this case does not go to appeal now.