Mahindra Renewables Private Limited (MRPL), a subsidiary of Mahindra Susten Private Limited, has secured compensation for the imposition of safeguard duties on the import of solar cells, both assembled and unassembled. The compensation was granted by the regulatory authority, highlighting the implications of these safeguard duties on solar power projects.
The Ministry of Power had previously issued guidelines for the tariff-based competitive bidding process for procuring power from grid-connected solar power projects in 2017. Under these guidelines, the Solar Energy Corporation of India Limited (SECI) issued a Request for Selection (RfS) in January 2018, aimed at selecting solar power developers (SPDs) to collectively develop a 2 GW capacity. Mahindra Susten Private Limited emerged as the successful bidder, leading to the creation of MRPL for the specific purpose of developing a solar power project in compliance with these guidelines.
Following the issuance of the Letter of Award (LOA) in July 2018, MRPL was tasked with setting up a 250 MW capacity solar power project in Rajasthan. The project took shape, and a Power Purchase Agreement (PPA) was executed on December 28, 2018. This agreement stipulated that any statutory changes in the tax structure, including changes in tax rates, duties, and cess, would be treated as per the terms of the agreement.
The compensation claim arises from the imposition of safeguard duties on imported solar cells, as indicated by Notification No. 1/2018-Customs (SG) dated July 30, 2018, and Notification No. 2/2020-Customs (SG) dated July 29, 2020, issued by the Department of Revenue, Ministry of Finance, Government of India. These notifications set different ad valorem rates for safeguard duties depending on the period, thereby impacting the cost of inputs for solar power generation.
The regulatory authority recognized the validity of MRPL’s claim, deeming the 2018 and 2020 safeguard duty notifications as events of “Change in Law” in line with Article 12.1.1 of the PPA. This acknowledgment paved the way for MRPL to seek compensation under the terms of the agreement.
The regulatory body considered the unpredictable nature of capital structuring, debt, equity, interest rates, and expected returns in competitive bidding projects. To ensure fairness, a uniform rate of compensation was established, which should not be a source of profit but rather a means to cover increased costs due to changes in the law. The compensation rate would align with the normative cost of debt, consistent with the Commission’s RE Tariff Order for the financial year in which the project achieved the Commercial Operation Date (COD).
MRPL’s project attained commercial operation on August 17, 2021, during the fiscal year 2021-22. The Commission’s RE Tariff Order for that year set the interest rate at 9% and the loan repayment term at 15 years, thus serving as the basis for the compensation calculation.
The Commission determined that SECI and Discoms were liable to make monthly annuity payments, commencing from the 60th day after the issuance of the order or from the date of claim submission, whichever was later. Any delays in these payments would incur late payment surcharges, consistent with the terms of the relevant PPAs/PSAs.
The Commission upheld MRPL’s right to compensation for additional expenditures incurred due to changes in safeguard duty notifications, both before and after COD. This compensation would encompass carrying costs incurred from the date of actual payments to the authorities until the issuance of the order, at the lowest of the actual interest rate paid by MRPL, the interest rate specified in the applicable RE Tariff Regulations, or the late payment surcharge rate per the PPA terms.
Furthermore, the Commission ruled that CSPDCL (Chhattisgarh State Power Distribution Company Limited) was responsible for reimbursing SECI for the reconciled claims SECI owed to MRPL, emphasizing that MRPL’s compensation from SECI was not contingent on CSPDCL’s payment to SECI. This decision represents a significant step towards ensuring fairness and transparency in the solar power sector, providing a framework for addressing changes in law and their financial implications for developers.
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