CERC Rejects Change In Law Plea For BCD Demanded By Developers In SECI’s Tranche IX Solar Tender

In the tariff approval plea filed by SECI (Solar Energy Corporation of India) for its tranche IX solar tender, where it had bid out 2000 MW of capacity in 2020, the CERC (Central Electricity Regulatory Commission) found itself analysing a range of issues. Be it the change in GST on key solar components, to increase in import duty on solar inverters, the GIB (Great Indian Bustard) issue in the Supreme Court, and most importantly, the BCD (Basic Customs Duty) regime that kicked in from April 2022, the bench had to take a call on multiple issues.

The tranche IX tender and the period after it will probably go down as one of the most momentous in terms of changes in policy, challenges like GIB that came up, and more, and CERC’s order truly struggled to capture every issue to the satisfaction of all.

But what will no doubt hurt developers the most will be the CERC’s refusal to accept their plea for considering the imposition of BCD on modules(40%) and cells (25%), as a change in law event, considering the letter of the PPAs they had entered into with SECI. That might make the final tariff adoption a bittersweet pill for all concerned.

The Waiver Clause

The key point of contention here was SECI’s contention that the PPAs entered into with the Respondents/developers have been signed in April and June, 2022 which was after the 31.3.2022 when the BCD had become 40% on solar modules and 25% on solar cells. In terms of Article 12.2.6 of the PPAs, the developers with due reference to the increased BCD from 0 % to 40% on solar modules and from 0% to 25% on solar cells and without any reservation or qualification, unconditionally and in absolute manner committed that they duly waive the claims of Customs Duty on the said rates of 40% and 25%. The developers signed the PPAs in April and June, 2022 when the applicable BCD had already become 40% and 25% and even then they proceeded to accept that no Change in Law on account of BCD will be claimed as per the MNRE OM dated 9.3.2021.

The developers on their part claimed that  they did so assuming they would be able to avail of concessional (if any) equipment imports under the Project Import Regulations, 1986. Under this the Project Imports rule, goods imported for the purpose of setting up of power project is subjected to single rate of duty of 5% instead of merit assessment of imported goods. However, the Ministry of Finance, Department of Revenue, Government of India issued the Project Imports (Amendment) Regulations, 2022 dated 19.10.2022 amending the principal regulations whereby the solar power plants/projects were excluded from availing the concessional Custom Duty rate.

CERC accepted SECI’s contention that as per Article 12.2.6 of the PPAs, the waiver on Change in Law claim of BCD was not conditional upon the benefit of concessional rate of 5% of Custom Duty as per the Project Import Regulations, 1986 being available.

Other Pleas Accepted

Other pleas, with respect to the increase in import duty on solar inverters, the change in GST rate to 12%, and even the possible impact on project costs post the final Supreme Court judgement on the Great Indian Bustard issue were accepted. The extension of scheduled commercial date, linked to the signing of PPAs was also accepted as per the terms of the PPAs. That means that the 1400 MW of projects that were specifically up for approval here stare at an interesting future, with costs clearly having gone up due to the BCD issue.

Conclusion

The CERC order places many of the developers in a piquant position, as they might find their final project costs going well above the costs they had assumed when bidding at Rs 2.37/kWh. The GIB issue, where applicable is still to be resolved, which will only add to the uncertainty around this tranche, affected as it has been by multiple disruptions and delays.

To read the full order, click here