MERC Allows Compensation To Tata Power Over Hiked GST Rates

MERC Allows Compensation To Tata Power Over Hiked GST Rates

The Maharashtra Electricity Regulatory Commission (MERC) in its latest judgement allowed compensation to Tata Power Green Energy Limited (TPGEL) on account of ‘change of law’ events. The order came to the fore when TPGEL moved the State Commission seeking compensation on account of additional expenses due to increased GST rates.

TPGEL, the petitioner in the case, claimed that it incurred around Rs 42 crore extra expenditure on its hybrid solar-wind project in Rajasthan due to the hike in GST rates from 8.9% to 13.8%. Tata Power told the Commission that on July 3, 2020, TPC-D issued a Request for Selection (RfS) inviting bids for procurement of 225 MW grid-connected wind-solar hybrid project. TPGL was declared a winner of the tender with a tariff of Rs 2.59 per unit. However, on September 30, 2021, the Ministry of Finance increased the GST rate on supply of civil work/service contract from 8.9% to 13.8%. 

“On the basis of above GST Notification, Petitioner vide its letter dated 6 October, 2021 informed TPC-D that increase in the GST rates on the supply and Civil Works/ service Contracts from (8.9%) to (13.8%) will directly affect the cost of Project and the same amounts to Change in Law as per provisions of PPA…The Commission notes that as required under the PPA, TPGEL had served the Change in Law notice within 7 days from above said Notification. In view of the above, the Commission rules that the TPGEL is eligible to claim Change in Law compensation on this account,” the MERC order said.

The Commission also allowed a levy of carrying cost at the rate of 1.25% plus SBI MCLR per annum on the above compensation amount from the date of actual payment till date of this order. 

The Commission also noted that in similar matters of Change in Law compensation settlement including Order dated 17 May 2022 (Case No 5 of 2022) relied upon by TPGEL, it had opined that lumpsum payment would avoid further carrying cost on account of deferred payment. 

“Further, Generator may willingly offer some discount on lumpsum payment. Considering all these aspects, the Commission has provided liberty to TPGEL/ TPC-D to decide whether it intends to opt payment of the compensation on lumpsum basis or per unit basis over the PPA period. Accordingly, TPC-D shall communicate its option of compensation payment to TPGEL within two weeks of the date of this Order,” the order said. 

Earlier, in several other cases, the State Commissions or the Central Electricity Regulatory Commissions (CERC) have ruled in favour of renewable energy companies when the rates of taxes and duties increased after grant of award of projects or signing the Power Purchase Agreements (PPAs). In the past, several companies have received order of compensation from the commissions due to changes in GST rates or change in safeguard duties on solar cells and solar modules. Moreover, the PPAs signed between the renewable energy generators and the power distributors have special provisions for compensation for change of law events.