CERC Asks SECI to Compensate Azure Power for Cost Incurred Due to Safeguard Duty
Azure won the projects in 2017 while safeguard duty came into effect in 2018
February 10, 2020
The Central Electricity Regulatory Commission (CERC) has ruled in favor of Azure Power in its petition against the Solar Energy Corporation of India (SECI) that sought to invoke the ‘Change in Law’ clause of the power purchase agreement signed between the two parties.
Azure had also requested the Commission to declare that the imposition of safeguard duty warranted the reimbursement of additional costs incurred as a result of the Change in Law. This clause is applicable when there is a new law or a change in the tax structure or when a new tax is introduced.
In December 2017, Azure was declared a successful bidder at a levelized tariff of ₹2.48 (~$0.034)/ kWh for the development of 200 MW of solar projects at the Bhadla Phase-IV Solar Park being developed in Rajasthan. Previously, Azure has also announced a winner for another 600 MW of solar projects for SECI with a quoted tariff of ₹2.53 (~$0.035)/kWh.
The company sought the reimbursement of the additional costs for these projects as the imposition of a 25% safeguard duty on solar cell and module imports from China and Malaysia affected the project cost.
The safeguard duty on imports of solar cells and modules from China and Malaysia was announced in July 2018 to protect domestic cell and module manufacturers. The duty was set at 25% for the first year, followed by a phased down approach for the second year, with the rate reduced by 5% every six months until the duty is set to end after July 2020. Since several solar projects at the time were already under development when the safeguard duty was announced, they filed petitions under the “Change in Law” clause.
In its response, SECI argued that the solar power developer should not have continued to procure modules from countries subject to the duty when it knew that additional costs would be incurred.
SECI added that the petitioner did not provide relevant documents to support its claim and that construction nor commissioning has been completed. SECI stated that the petitions are “pre-mature and liable to be dismissed” for these reasons. The CERC dismissed this argument, explaining that it could not rely on these figures as there were too many undisclosed variables.
The Commission further added that PPA and PSA are interconnected and inextricably linked to each other. The back to back nature of the PPA and PSA implies that DISCOMs are liable to pay to the SECI all that it has to pay to the petitioners. However, in so far as the payment mechanism is considered, the issue raised was whether, given the back to back nature of PPA and PSA, SECI was liable to pay to the petitioners only when the DISCOMs made the payments to SECI.
The Commission observed that the billing and payment between the petitioner and SECI are not conditional upon the billing and payment between SECI and DISCOMs. The Commission has accepted that the safeguard duty is a change in law, and therefore, SECI is liable to pay to the petitioner and claim the same from the DISCOMs later.
The Commission also noted that since the PPAs do not have a provision dealing with restitution principles of restoration to the same economic position, so the claim for carrying cost cannot be admitted.
The CERC directed Azure to provide relevant documents showing how additional expenses were incurred and asked SECI to pay the claimed amount. Alternatively, it suggested that the parties may come to a mutual agreement for settlement, which would require the dues to be settled within the duration of the PPA.
Recently ordered compensatory relief to two solar developers from safeguard duty imposition last year.
Then in May 2019, the CERC ordered that ACME Solar would be compensated for the cost incurred after the introduction of safeguard duty. ACME had filed petitions after it incurred more than the planned costs in executing the Rewa solar project and the Jodhpur solar PV project.
Nithin Thomas is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai. More articles from Nithin.