Central Electricity Regulatory Commission (‘CERC’) allows Time Over Run and Cost Over Run on account of Changes in Law and Force Majeure Events encountered by POWERGRID NM Transmission.
CERC and POWERGRID NM Transmission
POWERGRID NM Transmission (hereinafter ‘POWERGRID NM Transmission’) was to establish a transmission system on Build, Own, Operate and Maintain (BOOM) for constructing a Nagapattinam Pooling Station [Element 1] and a Salem-Madhugiri 765 Kv line [Element 2]. POWERGRID NM Transmission filed Petition before the Central Commission seeking extension of time (1133 days) of the Commercial Operation Date (‘CoD’) and increase in Levelised tariff of the Transmission Service Agreement (‘TSA’) on account of Change in Law and Force Majeure Events, namely, (a) Increase in Excise Duty; (b) Enactment of GST Laws, 2017; (c) Unprecedented increase in cost of compensatory afforestation of lines and NPV due to Notification of Tali reserve forest as Wild Life Sanctuary; (d) Notifications dated 14.01.2015 and dated 02.02.2017 issued towards enhancement of tree compensation as per orders passed by Deputy Commissioner/ District Collector; (e) Notification dated 18.8.2017 by the Government of Karnataka for payment of land compensation in the State of Karnataka (f) Land compensation in Tamil Nadu as per the judgment of Hon’ble High Court of Madras dated 12.04.2019 in WP No. 16460 of 2018; (g) Increase in the deposit amount paid to various Railway Divisions as per the deposit notes for crossing of Railway crossing of lines; (h) Increase in the cost of Interest During Construction (‘IDC’) and Incidental Expenditure During Construction (‘IEDC’) due to delay in completion of the Transmission System.
- Whether POWERGRID NM Transmission is entitled to cost overrun due to delay in grant of transmission licence/adoption of tariff and clearance to commence the Project?
- Whether POWERGRID NM Transmission has complied with the provisions of the TSA before approaching the Commission for claiming relief under Force Majeure and Change in Law?
- Whether the various claims of POWERGRID NM Transmission are covered under Force Majeure and Change in Law in terms of the TSA?
- What reliefs should be granted to POWERGRID NM Transmission in the light of the answers to the above issues.
ANALYSIS of CERC and POWERGRID NM Transmission:
Issue No. 1
It was the case of POWERGRID NM Transmission that immediately upon the transfer and vesting of the entire equity shareholding in favour of POWERGRID NM Transmission, it took the necessary steps for implementing the project. However, the environmental clearance for the Project was suspended by National Green Tribunal (‘NGT’). The issue was then deliberated in the 29th Meeting of the Empowered Committee on Transmission, wherein, it was recommended to keep the implementation of the scheme on hold. In view of the same, POWERGRID NM Transmission could not proceed with the implementation of the Project on account of a delay which was not attributable to POWERGRID NM Transmission.
The time period stipulated for the execution of the transmission project was 36 months. There was a delay of 15 months in granting the transmission license which in turn had a cascading effect and led to further delay in obtaining the necessary authorisation Ministry of Power, Government of India (‘MoP’) in terms of Electricity Act, 2003.
The Central Commission held that the recommendation of the Empowered Committee on Transmission constituted by MoP would amount to Change in Law and Force Majeure under the TSA, inasmuch as POWERGRID NM Transmission could not have otherwise proceeded with the implementation of the Project and thus, was in effect prevented or delayed in performing its obligation under the TSA. The Central Commission further held that POWERGRID NM Transmission cannot be faulted for not proceeding with the implementation of the Project. The Transmission Licence finally was granted to POWERGRID NM Transmission after a delay of almost 9 months. Accordingly, POWERGRID NM Transmission was granted the liberty to approach the Central Commission for quantification of its cost overrun and incidental increase in tariff along with requisite details for the aforesaid period of 9 months.
Issue No. 2
The Central Commission observed that in terms of the TSA, an affected party shall give notice to the other party of any event of Force Majeure/Change in Law within a reasonable period of time. The Central Commission, after examining the notices held that POWERGRID NM Transmission has complied with the pre-requisite of service notice under the TSA for claiming Force Majeure and Change in Law events. Thereby, affirming that POWERGRID NM Transmission had complied with provisions of the TSA before approaching the Central Commission for claiming relief under Force Majeure and Change in Law.
Issue No. 3
The Central Commission noted that in terms of the provisions of the TSA, in order to declare an event as a Change in Law, its occurrence has to be 7 (seven) days before the bid deadline and should result in any additional recurring/non-recurring expenditure by a Transmission Service Provider (‘TSP’) or any income to TSP.
Time Overrun Claims
The Central Commission with respect to the Notification of Tali reserve forest as Wild Life Sanctuary and the delay caused on account of the same, after thoroughly examining all the documents, notifications and applications for the grant of forest clearance and considering the bonafide steps taken by POWERGRID NM Transmission has held that the time spent by POWERGRID NM Transmission in obtaining wildlife clearance and the consequent delay till the receipt of the permission which was notified as the Cauvery North Wildlife Sanctuary i.e., approx. 1268 days deserve to be condoned. The entire delay was on account of a Force Majeure event beyond the control of POWERGRID NM Transmission. Further, the very requirement of obtaining the wildlife clearance and consequent, delay in grant of the diversion of the Tali Reserve forest land was not there as of the cut-off date.
The Central Commission observed that vide its order dated 18.02.2020 in Review Petition No. 19/RP/2018, it had disallowed the apportionment of transmission charges between the two elements and as a consequence has considered the time overrun for the Project of POWERGRID NM Transmission as a whole. Therefore, as the Central Commission has already condoned the delay of 1133 days in respect of Element 2 thereby, has extended the commercial operation date of the Project.
Cost Overrun Claims
The Central Commission observed that since the revision of Excise Duty is in terms of Notification No. 12/2015 – Central Excise Duty imposed by the Department of Finance, was issued after the cut-off date, and therefore, POWERGRID NM Transmission is entitled to the increase in Excise Duty from 12.36% to 12.50%.
The Central Commission observed that the Goods and Service Tax Act, 2017 (‘GST Act’) had been notified by the Ministry of Finance with effect from 01.07.2017,i.e., after the cut-off date and therefore, constitutes a Change in Law event. The Central Commission further directed POWERGRID NM Transmission to furnish relevant documents to establish a one-to-one correlation between the items and GST levied thereon, duly supported by invoices and Auditor’s certificate.
The Central Commission has observed that Cauvery North Wildlife in Tali Forest was notified as Wildlife Sanctuary by the Government of Tamil Nadu only after the cut-off date, hence, the grant of wildlife clearance constitutes a Change in Law event in terms of Article 12 of the TSA, consequently, the Central Commission has allowed POWERGRID NM Transmission to claim compensation on account of the expenditure incurred in obtaining such clearance. The Central Commission has granted liberty to POWERGRID NM Transmission to raise its claim by way of a separate Petition along with all the necessary/supporting details in regard to the same.
In relation to the issue of enhancement of tree compensation as per orders passed by Deputy Commissioner, the Central Commission has observed that the entitlement of POWERGRID NM Transmission for the tree compensation in terms of notifications/circulars/orders under the Change in Law shall be limited only to additional expenditure over and above what was incorporated in the bid as on the cut-off date. Accordingly, POWERGRID NM Transmission while claiming the additional land compensation on account of the notifications/circulars/orders of the District Collector/Deputy Commissioners (after the bid submission) shall furnish an undertaking to Long Term Transmission Customers (‘LTTC’) on affidavit disclosing the applicable tree compensation rates being considered by the concerned authorities as on cut-off date and/or the tree compensation having been factored into by POWERGRID NM Transmission at the time of placing of its bid. The Central Commission has unequivocally clarified that the entitlement of any party due to impact under a change in the law shall be upon providing documentary evidence and necessary proof.
With respect to the Notification dated 18.08.2017 issued by the Government of Karnataka for payment of Land Compensation as per the order passed by the District Commissioner/Deputy Collector, the Central Commission has held that the same to be a change in the law shall be subject to POWERGRID NM Transmission furnishing an undertaking to LTTCs on affidavit disclosing the applicable tree compensation rates being considered by the concerned authorities as on cut-off date and/or the tree compensation having been factored into by POWERGRID NM Transmission at the time of placing of its bid.
The Central Commission with respect to payment of land compensation in the State of Tamil Nadu as per the Judgment of the Hon’ble High Court of Madras dated 12.04.2019 against WP: 16460 of 2018, has held that POWERGRID NM Transmission is yet to incur such expenditure and is seeking in-principle approval of the same. The Central Commission has granted liberty to POWERGRID NM Transmission to approach the Commission once such expenditure is incurred along with complete information/ justification.
The Central Commission with respect to the increase in the deposit amount paid to various Railway Divisions as per the deposit notes for the crossing of Railway lines has granted liberty to POWERGRID NM Transmission to approach the Central Commission with all the supporting documents if the increase has been caused pursuant to the issuance of any order/ notification/ circular by Railways after the cut-off date.
Issue No. 4
The Central Commission has allowed IDC & IEDC claim of POWERGRID NM Transmission on account of Change in Law and Force Majeure events affecting the Project. The Commission while allowing the same has placed reliance on the judgment of APTEL dated 20.10.2020 in Appeal No. 208 of 2019 in Bhopal Dhule Transmission Company Limited. v. CERC & Ors.; and judgment dated 03.12.2021 in Appeal No. 129 of 2020 in NRSS XXXI (B) Transmission Limited v. CERC & Ors. and Appeal No. 276 of 2021 in Darbhanga-Motihari Transmission Co. Ltd. v. CERC and Ors., wherein the Tribunal has held “that IDC and IEDC is not a financial benefit but due to the financial liability to be borne by the Party”.
The Central Commission has allowed carrying cost from the commercial operation date of the Project till the date of passing of this order at the actual rate of interest paid by POWERGRID NM Transmission for arranging funds (supported by an Auditor’s Certificate) or the rate of interest on working capital as per applicable CERC Tariff Regulations or the late payment surcharge rate as per the TSA, whichever is the lowest. Once a supplementary bill is raised by POWERGRID NM Transmission in terms of this order, the provision of a Late Payment Surcharge in the TSA would kick in if the payment is not made by the LTTCs. However, the same will only be enforceable subject to the orders of the Supreme Court in Civil Appeal No. 880 of 2020 in the case of Telangana Northern Power Distribution Company Ltd. & Anr. V. Parampujya Solar Energy Pvt. Ltd. & Ors.
The Central Commission has accepted the reasons and justifications put forth by POWERGRID NM Transmission and has granted relief on all the above issues as raised by POWERGRID NM Transmission. However, the Central Commission, in the present case has harped on the importance of documentary evidence along with the necessary quantification of claims. Parties are to be provided with all necessary supporting documents in order to claim any relief under Force Majeure or Change in Law. This view has necessitated the parties to be more diligent and careful while raising such claims before the appropriate forum. The above is a reasonable and fair approach taken by the Central Commission while protecting the interest of the transmission licensee as well as the transmission customers.