Coronavirus to be Covered Under Force Majeure Clause, Says Ministry of Finance

The deadly virus has killed thousands in the world’s biggest solar market - China


Amid the increasing doubt on the supply chains due to the spread of deadly coronavirus in China, the Ministry of Finance (Department of Expenditure Procurement Policy Division) has issued a clarification that coronavirus will be covered in the force majeure clause (FMC) and should be considered as a case of natural calamity. Further, the ministry has stated that this clause can be invoked wherever appropriate.

A force majeure (FM) clause means that if there are extraordinary events like those beyond human control such as wars, riots, crimes, or natural calamities, then this clause can free both the parties from contractual liability from fulfilling their obligations under the contract.

However, the ministry has clarified that the clause does not excuse a party’s non-performance entirely but only suspends it for the duration of a period.

One of the conditions for this clause is that during any such extraordinary event, the firm must notify force majeure as soon as it occurs and cannot be claimed ex-post facto (retrospectively).

The ministry has further clarified that there may be a force majeure situation affecting the purchase organization only. In such a situation, the purchase organization needs to inform the supplier of the necessary action.

“If the performance in whole or in part or any obligation under this contract is prevented or delayed by any reason of force majeure for a period exceeding 90 days, either party may at its option terminate the contract without any financial repercussion on either side,” the ministry has notified.

Like other industries, the renewable energy sector in India has also been under the coronavirus scare.

A developer told Mercom, “it’s good that the government has recognized the coronavirus outbreak as force majeure. Since there is no dispute about this anymore, the developers do not have to approach the regulatory commissions, but it is unclear how the implementing agencies will take this forward and what kind of extensions will be given.”

Another developer commented, “we will approach the implementing agencies and write to them requesting for an extension of the commissioning deadline. Based on the project capacity, the extension given could be 3 months or more. The implementing agencies will then scrutinize the request and take the necessary decision.”

Recently, Sterling and Wilson, in their Bombay Stock Exchange (BSE) filing, mentioned the impact of the deadly virus on the execution of its projects. The company had pointed out that as most materials were expected to be dispatched in February/March 2020, the impact on revenue is expected to be significant.

“The management is continuously monitoring and evaluating the impact of revenue and profitability. In spite of all the challenges, our revenues for Q4 FY20 would be ₹15-20 billion (~$210 million-~$280 million),” stated the company.

The National Solar Energy Federation of India (NSEFI) had also written to the Ministry of New and Renewable Energy (MNRE), asking for coronavirus to be seen as force majeure. The association also pointed out that most solar projects are interstate transmission system (ISTS)-connected and delays in commissioning these projects would also result in the levy of transmission charges/point of connection charges by the Power Grid Corporation of India (PGCIL) due to the operationalization of Long Term Open Access (LTOA). Considering this, the association had also requested an extension in the date of the operationalization of LTOA.

Mercom reported previously that the solar industry is plagued with issues like delays in DISCOMs’ payments, difficulty in forecasting and scheduling power, and the looming fear of the coronavirus derailing the supply schedules.

India installed 7,346 MW of solar capacity in the calendar year 2019, a 12% decline year-over-year (YoY), compared to 8,338 MW in 2018, according to Mercom India Research’s newly released Q4 & Annual 2019 India Solar Market Update. There is about 23.7 GW of large-scale solar projects under development currently.