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Torrent Solargen Limited (TSL), a leading generating company, recently secured a significant victory in its petition for compensation under the Electricity Act, 2003. The petition, centered around the long-term Power Purchase Agreement (PPA) dated 03.05.2019 between TSL and Solar Energy Corporation of India Limited (SECI), sought approval for Change in Law events and subsequent compensation.
TSL, a subsidiary of Torrent Power Limited, emerged successfully in response to SECI’s Request for Selection (RfS) issued in June 2018 for wind power developers. The Letter of Award (LoA) was granted on 24.10.2018 for the development of a 1,200 MW cumulative wind power project in Gujarat. The bone of contention arose due to a change in Goods & Services Tax (GST) rates from 5% to 12%, triggered by a Ministry of Finance Notification dated 30.09.2021.
The petition, filed on 18.08.2022, underwent a thorough hearing process. TSL argued that the GST rate hike led to a substantial increase in project expenditure, impacting the total contract value with contractors. The company estimated an additional financial burden of approximately Rs. 37 crores in setting up the project.
After multiple hearings, the Commission acknowledged TSL’s stance, stating that the GST Amendment of 2021 qualified as a ‘Change in Law’ event under Article 12 of the PPA. The regulatory body noted that the revised GST rates, effective from 01.10.2021, directly influenced the project’s cost elements, thereby meeting the criteria for compensation.
Crucially, the Commission highlighted that the project’s Commercial Operation Date (COD) was 15.07.2023, post the GST rate amendment. Consequently, TSL was deemed eligible for compensation, calculated at a discount rate of 9.12% over a 15-year annuity period.
The Commission also addressed concerns about the interest rate for compensation, emphasizing that it should align with prevailing norms and not exceed the normative cost of debt. The ruling established that the discount rate of 9.12% and the annuity period of 15 years would be appropriate for calculating compensation.
Furthermore, the Commission directed SECI and Discoms to initiate ‘Monthly Annuity Payments’ within 60 days from the order date or the Petitioner’s claims submission, whichever was later. Late payment surcharge provisions were outlined for any delays in these payments.
A noteworthy aspect was the Commission’s decision on carrying costs. TSL was granted eligibility for carrying costs, aiming to restore the company to its previous economic position. The Commission maintained that the Petitioner could claim carrying costs from the date of actual payments made to authorities until the issuance of the order, subject to the lowest applicable interest rate.
However, an interesting caveat emerged, linking the enforcement of compensation and carrying cost provisions to the outcome of Civil Appeal No. 8880/2022 in the Supreme Court, specifically related to Telangana Northern Power Distribution Company Ltd. & Anr. V. Parampujya Solar Energy Pvt. Ltd. & Ors. The Commission’s ruling favored TSL, acknowledging the GST rate hike as a legitimate reason for compensation. The detailed directives provided a framework for calculating compensation and addressing interest rates, annuity periods, monthly payments, and carrying costs. The conditionality tied to the Supreme Court’s decision added a layer of complexity to the enforcement of these provisions.
Please view the document below for more details.
