CERC Sticks to the Script in Judgement on Hero Solar Petition

The Central Electricity Regulatory Commission, (CERC), in an order dated March 26 has maintained a line that has now become the de facto rule for all issues related to the introduction of GST and its impact on projects awarded beforehand.

In this case, the petitioner was Hero Solar Energy Private Limited, which had won bids for a total of 200 MW  in the JNNSM scheme for solar energy, managed by SECI. (Solar Energy Corporation of India). These bids were won under the Phase-II, Batch-III with viability gap funding support from National Clean Energy Fund, under which SECI was designated as the nodal agency for implementation of the scheme. The RFS for this had been issued by SECI on  15.02.2016

Hero Solar won with its bid for 200 MW across 5 sites in Karnataka, for which it was issued a letter of intent (LOI) on  02.07.2016.

The Power purchase agreement (PPA)was duly signed with SECI on  02.08.2016. The scheduled completion date for the project was 17.02.2018. Till the Goods and Service Tax (GST) law from July 1, 2017, queered the pitch. Since most equipment procurement happened post GST, leading to cost escalations, as per Hero Solar.

As with multiple projects caught in the same issue, Hero Solar, through its firm Clean Solar Power Private Limited asked for relief on the following broad issues. One, that GST be confirmed as a change in law, hence bringing the CERC into play to declare that. Second, to decide on the claim made by Hero Solar, for just over Rs 50 crores for its projects, including the carrying cost of the expenses, thanks to the delay by SECI in releasing the same.  Third, that the PPA and the PSA between SECI and the state discoms were interconnected (SECI’s plea).  Finally, for SECI to bear the legal and other costs of litigation.

Sticking to what has now become a well established norm, CERC held that that the liability of payment on account of impact of GST on procurement of Solar PV panels and associated equipment by the Petitioner shall lie with the SECI till the Commercial Operation Date (COD) only. The Commission is also of the view that there has to be a 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.

The extra GST bills shall be paid within 60 days from the date of issue of this Order or from the date of submission of claims by the Petitioner, whichever is later, failing which it shall attract late payment surcharge in terms of the PPA. Alternatively, the Petitioner and the Respondents may mutually agree to a mechanism for the payment of such compensation on annuity basis spread over such period not exceeding the duration of the PPAs as a percentage of the tariff agreed in the PPAs.

The CERC felt that based on precedence established at APTEL , the PPAs and PSAs are interconnected and inextricably linked to each other. This back to back nature of the PPAs and PSAs implies that the Respondent Discoms are liable to pay to the Respondent SECI all
that the said Respondent SECI has to pay to the Petitioner. However, that will not prevent SECI from paying the petitioner on time, even as it follows up with the discoms for its own payment.

The commission refused to get into the issue of carrying cost for the delay in payment, as there was no such provision in the PPA.

The judgement once again highlighted what has now become an established rule in all these matters.

That the GST law is clear change in law where cost implications on projects commissioned subsequently need to be evaluated and compensated for.

That the PPA and PSA agreements, despite being linked back to back agreements, still donot mean that the trading entity in the middle, be it SECI or NTPC   or any other, can delay payments citing a delay from the discom side.

Any ‘carrying’ or interest cost fr delay in settling the GST amounts will be considered only when specifically mentioned in the PPA.