Supreme Court Held That The Communication By Coal India Ltd. Regarding Changes To The Fsa Models That Apply To New Power Plants Constitutes A “change In Law.”

Case title:

Uttar Haryana Bijli Vitran Nigam Limited And Another Vs. Adani Power (Mundra) Limited And Another

Date of Order:

April 20, 2023

Bench:  

Hon’ble Justice B.R. Gavai

Parties:

Appellant: Uttar Haryana Bijli Vitran Nigam Limited And Another

Respondent:  Adani Power (Mundra) Limited And Another

SUBJECT:

The order dated 8th July 2019 issued by the Central Electricity Regulatory Commission (hereinafter referred to as "CERC") in Petition No. 269/MP/2018 is challenged in the current appeal, which also challenges the judgment and order issued on December 21, 2021, by the Appellate Tribunal for Electricity (hereinafter referred to as "APTEL").

The Coal India Limited ("CIL") communication of June 19, 2013, according to the APTEL, was not a "Change in Law" occurrence.

IMPORTANT PROVISIONS:

It will be relevant to refer to the definition of “Law” as defined under the PPA, which reads thus: “Law means, in relation to this Agreement, all taws including Electricity Laws in force in India and any statute, ordinance, regulation, notification or code; rule, or any interpretation of any of them by an Indian Governmental Instrumentality and having force of law and shall further include all applicable rules, regulations, orders, notifications by an Indian Governmental Instrumentality pursuant to or under any of them and shall include all rules, regulations, decisions and orders of the Appropriate Commission.”

OVERVIEW:

• The first respondent, Adani Power Ltd. built a generating station with a 4620 MW capacity at Mundra in the State of Gujarat (Phase I & II: 4 x 330 MW, Phase III: 2 x 660 MW, and Phase IV: 3 x 660 MW). 
• For the supply of 1424 MW power from Phase IV of the generating station, AP(M)L had entered into Power Project Agreements (hereinafter referred to as "PPA") dated 7th August 2008 with Uttar Haryana Bijli Vitran Nigam Ltd. and Dakshin Haryana Bijli Vidyut Nigam Ltd.
• According to Haryana Utilities, payments were already being made in accordance with the supplemental bills presented by Adani Power Ltd., as stated in CERC's order of February 6th, 2017, which approved compensation for several "Change in Law" events alleged by Adani Power. 
• After this Court's ruling in the Energy Watchdog case, Adani Power filed a second petition seeking compensation for changes to the New Coal Distribution Policy of 2007. The CERC subsequently issued a few temporary directives. 
• Following that, Haryana Utilities filed a case, claiming that Adani Power's compensation claim was false since they failed to account for the advantages they would have received from a previous Inter Plant Transfer that had been approved.
• Adani Power, on the other hand, asserted that Haryana Utilities arbitrarily reduced a sizable sum from the monthly bills on the basis of IPT. 
• Adani Power said that the CERC had already rejected the Haryana Utilities' argument on the IPT in its order from May 31.
• CERC ruled that the dispute was maintainable.
• CERC held that, in light of its order dated 6th February 2017 in Petition No. 156/MP/2014, the coal supply, under Fuel Supply Agreement (for short, "FSA") dated 9th June 2012, must be accounted for the generation and supply of power to Haryana Utilities from Mundra TPP Units 7, 8, and 9 for all commercial purposes. As a result, it dismissed Haryana Utilities' claim that it was only obligated to pay taxes and duties on coal that it actually consumed, rather than IPT coal.
• CERC determined that the transfer of coal by AP(M)L under the IPT Policy impacts other generating stations that consume IPT coal as well as other distribution firms that are also given power by the generating stations that have used IPT coal. 
• It did not consider it suitable to deal with the issue because other distribution businesses were not participants to the proceedings before CERC.
• CERC held that, in light of this Court's decision in the case of Energy Watchdog (supra), the quantum of shortfall must be calculated taking into account the Assured Coal Quantity (for short, "ACQ") and the quantity actually supplied by the coal companies.
• Haryana Utilities, being dissatisfied, filed an appeal with APTEL.
• APTEL held in its judgment and order dated 21st December 2021, relying on this Court's decision regarding Energy Watchdog (supra), that 'Change in Law' compensation must be computed as ACQ - actual supply.
• In terms of the message dated June 19, 2013, being a 'Change in Law,' APTEL determined that it was not. As a result, the present appeal was filed.

ISSUES RAISED:

• Whether ‘Change in Law’ relief on account of NCDP 2013 should be on ‘actuals’ viz. as against 100% of normative coal requirement assured in terms of NCDP 2007 OR restricted to trigger levels in NCDP ie. 65%, 65%, 67% and 75% of Assured Coal Quantity (ACQ)? 
• Whether for computing ‘Change in Law’ relief, the operating parameters be considered on ‘actuals’ OR as per technical information submitted in bid? 
• Whether ‘Change in Law’ relief compensation is to be granted from 1st April 2013 (start of Financial Year) or 31st July 2013 (date of NCDP 2013)?
• ARGUMENTS ADVANCED BY THE APPELLANT:
• According to learned counsel for the appellant, based on the definition of "Law" in the PPA, the message dated June 19, 2013 falls firmly inside the word "Law." 
• In any case, he claimed, CERC had declined to respond to the aforementioned issue without alternative distributors. 
• It is argued that APTEL made a grave error in not classifying the occurrence as a 'Change in Law'.
• ARGUMENTS ADVANCED BY THE RESPONDENT:
• Dr. Singhvi, on the other hand, contended that the letter dated June 19, 2013, is an interdepartmental communication and cannot be considered a "Change in Law."

JUDGEMENT ANALYSIS:

• The Court suggested that it should first decide Maharashtra State Electricity Distribution Company Limited v. Adani Power Maharashtra Limited & Others and Maharashtra State Electricity Distribution Company Limited v. GMR Warora Energy Ltd. and Others because three of the issues in all of the appeals in the batch were the same.
• This Court responded to the first question by ruling that the "Change in Law" relief for domestic coal deficit should be based on "actuals," as opposed to 100% of the normative coal requirement guaranteed under NCDP, 2007. 
• Regarding the second issue, it was decided that the Station Heat Rate (abbreviated "SHR") and Auxiliary usage should be taken into account in accordance with the Regulations or actuals, whichever is lower. 
• The third question was resolved by stating that the "Change in Law" event for the NCDP, 2013 will begin on April 1, 2013.
• Referring to the communication from June 19th, 2013 will be pertinent: "Sub: Modification in Model FSA applicable for New Power Plants in respect of "Interplant Transfer of Coal"
• The 298th CIL Board met on 27.5.13 and discussed a proposal to allow coal to be transferred between power plants under the modified FSA applicable to new power plants (for both PSU/Govt PUs and Private PUs).
• When approving the proposal, the CIL Board agreed to the following conditions, which are already in place following legal review.
• Only power plants held entirely by the Purchaser or its wholly owned subsidiary are eligible for coal transfers. For a joint venture firm of the purchaser, no coal transfer shall be permitted.
• For all commercial purposes covered by the FSA, the coal supply must remain the same and be accounted for by the original Power Plant.
• In order to comply with the updated FSA Model for new power plants and avoid having any supply related to coal blocks, both power plants should have completed their FSAs. For IPPs, both plants need to have active, long-term PPAs with DISCOMS.
• The ACQ of the Transferee Plant for a given year, which is inversely proportional to the long-term PPA with DISCOMS, shall never be exceeded by the quantity transferred to a plant and the quantity delivered under the applicable FSA.
• Coal transfers won't be permitted to the facilities that received coal blocks as part of this agreement.
• If there is a change in ownership and the plant has not received environmental clearance, this facility shall be discontinued; and
• Any penalties or incentives under this arrangement would be evaluated in accordance with above.
• An explanation of the changes to the FSA models that apply to new power plants (both PSU/Government PUs and Private PUs) is included.
• Court held that it is clear that the message in question corresponds to the CIL's decision from its meeting on May 27, 2013. A review of it would show that the transfer of coal, which had not previously been permitted, has only been permitted between the power plants held by the buyer or its wholly owned subsidiary. Furthermore, it states that a joint venture company of the buyer is not permitted to transfer coal.
• Additionally, it states that the original Power Plant will continue to be the source of coal for all commercial purposes covered by the FSA. It further stipulates that none of the power plants should have any supplies connected to coal blocks and should have completed their FSAs using the updated FSA Model appropriate for new power plants. 
• Additionally, it states that for IPPs, both plants must have active, long-term PPAs with DISCOMS.
• Furthermore, it states that the ACQ of the Transferee Plant for a given year, which is based on the long-term PPA with DISCOMS, may never be exceeded by the amount transferred to a plant and the quantity delivered under the applicable FSA. 
• Furthermore, it states that plants assigned coal blocks under this scheme will not be permitted to transfer coal to those plants.
• Additionally, it states that this facility shall be withdrawn in the event of a change in ownership and a lack of environmental approval for the plant.
• In light of this, the Supreme Court believes that APTEL's conclusion that the communication dated June 19, 2013, allowing IPT, does not constitute a "Change in Law," cannot be upheld.
• SC further examined that AP(M)L had to account for the cost of transporting linkage coal from MCL Coal Mine, Talcher to its plant in Mundra while submitting the offer. As According to the PPA's information, railroad travel is the means of transportation, the SC noted. 
• Because of this, Adani Power was required to use the linkage coal from MCL Coal Mine, Talcher, only for the purpose of its original power plant, i.e. Adani Power, before the IPT being approved. It would only be able to use the coal from the MCL Coal Mine in Talcher for its plant in Rajasthan or Maharashtra thanks to the IPT.
• The company will also be allowed to use the coal links for its plants in Rajasthan or Maharashtra to produce energy in its other power facilities. 
• As a result, there will always be a difference in the price of railroad transportation. For instance, the cost of railroad transportation would be higher if the coal was to be moved from MCL Coal Mine, Talcher to AP(M)L rather than from MCL Coal Mine, Talcher to Tiroda TPS.
• SC claims that this is just an example. According to the Supreme Court, the transportation savings—that is, the difference between the cost that would have been incurred to transport the coal from MCL Coal Mine, Talcher to 'X' plant and the actual transportation cost—must be passed on to the DISCOMS, who must then pass it on to the final consumers.
• The advantage of Rs. 50 per ton will need to be distributed, for instance, if the cost of transportation per ton from MCL Coal Mine, Talcher to Adani power is Rs. 100 and from MCL Coal Mine, Talcher to Tiroda TPS is Rs.50 per ton.

CONCLUSION:

• Thus, it can be seen that the aforementioned communication reflects the CIL's choice. The CIL is a tool used by the Indian government. 
• As a result, Supreme Court believes that APTEL erred in saying that the message dated June 19, 2013, did not constitute a "Change in Law."
• According to APTEL, the aforementioned notification is an administrative directive sent to each subsidiary.
• Since the ruling on the aforementioned matter would have affected the other two DISCOMS, namely MSEDCL and Rajasthan DISCOMS, Supreme Court find that APTEL has neglected to take into account that CERC had not decided the said issue. 
• Also noteworthy is the fact that the same tribunal adopted a completely different stance in the case of Rattan India Power Limited v. Maharashtra Electricity Regulatory Commission and Others just three months later. 
• In the aforementioned case, MSEDCL attempted to argue that the Evacuation Facility Charge (also known as "EFC") imposed by CIL via its circular dated December 19, 2017, did not represent a "Change in Law."
• According to the SC, Adani Power, and two other DISCOMS, namely MSEDCL and Rajasthan DISCOMS, would all be impacted by the changes brought about by the approval of IPT. 
• This was earlier noted by the CERC as well. SC lacks the competence to determine what advantage each party would be entitled to as a result of the aforementioned "Change in Law."
• However, in light of our observation in the preceding paragraph, the cost of savings in railway transportation due to "Change in Law" needs to be calculated and transferred to the appropriate DISCOMS, which can then be transferred to consumers.
• The organization of professionals CERC is the most qualified to handle this.