MERC Grants ACME Solar To Claim Safeguard Duty Under Change in Law

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Maharashtra Electricity Regulatory Commission (MERC) issued an order regarding Case of M/s. ACME Chittorgarh Solar Energy Pvt. Ltd. seeking compensation towards increase in capital cost due to introduction and imposition of SafeGuard Duty.

ACME Solar filed this petition against Maharashtra State Electricity Distribution Co. Ltd.(MSEDCL)  seeking issuance of appropriate Order/Directions as per Power Purchase Agreement (PPA) dated 27 July, 2018 for a mechanism for recovery of the compensation towards increase in capital cost due to introduction and imposition of SafeGuard Duty by way of Notification dated 30 July, 2018 issued by the Department of Revenue, Ministry of Finance (Government of India) .

The Main Prayers of ACSEPL were as follows:  (a) Direct the Respondent to reimburse the Petitioner for the corresponding increase in the Project cost due to imposition of Safeguard Duty aggregating to INR 105,44,49,166.(b) Allow carrying costs amounting to INR 5,81,95,009 on reimbursement of Safeguard Duty calculated as on 08.01.2020 plus the carrying costs up to the date of the Order to be issued by this Hon’ble Commission; (c) Direct the Respondent to pay the above-mentioned amount by way of compensatory tariff of INR 0.4406 per kWh for the period of the PPA; (d) Direct the Respondent to pay the additional carrying costs on any deferred recovery of the compensatory tariff/payments.

On 9 April 2018, MSEDCL issued Request for Selection (RfS) to procure 1000 MW of Solar Power on Long Term basis from new or existing Solar Projects through Competitive Bidding process under Section 63 of EA to meet its Renewable Purchase Obligation. Subsequent to financial and technical qualification, ACME was shortlisted as one of the successful bidders. MSEDCL issued LoA dated 5 June 2018, for 250 MW in favour of ACME Solar Holdings Limited, declaring ACME as a successful bidder for the development of Solar Power Project of 250 MW capacity located at Badisid (Village), Bap (Tehsil), Jodhpur (Dist), State – Rajasthan. On 27 July 2018, in accordance with the terms of the RfS, ACME Solar Holdings Limited promoted and incorporated ACSEPL as a special purpose vehicle for the purposes of development of the project and entered into PPA with MSEDCL.The Government of India on 30 July 2018 issued SGD Notification which impacted the capital cost of the Project.The Commission has already held that the imposition of Safeguard Duty is an event of Change in Law. 

The Government of India has imposed safeguard duty on the following rates upon the import of solar cells and modules, (whether or not assembled in modules or panels) from certain countries, including China:

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Consequently, ACSEPL on 13 September 2018 issued a Notice of Change in Law to MSEDCL. ACSEPL by way of the said letter detailed the imposition of safeguard duty by the Government of India and its consequent impact on the project cost. However, MSEDCL failed and neglected to provide any response to such intimation and notice of ACSEPL.

For the purpose of calculating per unit impact on tariff due to additional cost incurred towards Safeguard duty, ACSEPL has relied on MERC (Terms and Conditions for Determination of Renewable Energy Tariff) Regulations, 2015 and arrived at per unit impact. The annuity payment based on the model comes out to be Rs. 17.70 Crores for a period of 25 years. 

As per PPA, affected parties have to be restored to the same financial position by way of compensation as if the event of Change in Law had not occurred. The quantum of compensation and mechanism of compensating affected parties is to be decided by the Commission. Also, the affected party has to provide all supporting documents to other parties for ascertaining / substantiating the impact of the Change in Law.

The commission order ACSEPL to submit  details of RFID tags as per provisions of PPA, to  MSEDCL immediately and while verification of such RFID tags would take substantial time ACSEPLP shall provide undertaking that all modules installed at project site for supplying power to MSEDCL have been imported from the Country/ies which are subjected to Safeguard Duty.

Commission order MSEDCL that Without waiting for verification of documents and sample checking of modules shall act upon such undertaking given by ACSEPL will be done under Change in Law. It also ordered MSEDCL to complete this process within 15 days from the date of this Order. In Parallel, additional documents, if required, shall be sought and scrutiny should be completed within 45 days. Further, physical verification of RFID tags shall be completed within 6 months using sampling techniques as per ISO sampling standards. 

Commission states that ACSEPL’s request to allow interest cost on Custom Bond cannot be included in Change in Law compensation and hence is not accepted. 

The order states that the carrying cost shall be applicable from date of payment of SafeGuard Duty to Government Authorities either through executing Custom Bonds or other means till date of this Order.Commission clarified that the additional interest cost for repaying Custom bonds separately claimed by ACSEPL will not be allowed. 

The commission finally concluded by allowing ACME Chittorgarh Solar Energy Private Ltd for claiming compensation on account of imposition of Safeguard Duty (including additional GST) under Change in Law provisions of PPA for capacity of 319.16 MW of Solar module/panel and also guided to provide undertaking that all modules installed at project site for supplying power to MSEDCL have been imported from the Country/ies which are subjected to Safeguard Duty.

Maharashtra State Electricity Distribution Co. Ltd. will act upon undertaking given by ACME Chittorgarh Solar Energy Private Ltd and ascertain the compensation amount under Change in Law .The commission stated that such ascertainment of compensation amount will be at risk and cost of the ACME Chittorgarh Solar Energy Private Ltd.It ordered MSEDCL to complete this process within 15 days from the date of this Order. 

Compensation for Change in Law event shall be computed and paid by MSEDCL TO ACME as per methodology prescribed in  this order,The order concluded.

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