Safeguard Duty to be Considered as Change in Law for ACME’s Solar Projects in Karnataka

The commission, however, has denied ACME a mechanism to compensate it for the increase in project costs

September 19, 2019


In a recent order, the Karnataka Electricity Regulatory Commission (KERC) has stated that the imposition of safeguard duty will be treated as ‘Change in Law’ for ACME Solar’s projects in Karnataka.

The commission has also granted ACME the extension for commercial, operational timelines for these projects. However, the commission rejected ACME’s request to allow a compensation mechanism for additional cost liabilities incurred due to the imposition of safeguard duty. The respondent in the case was Bangalore Electricity Supply Company (BESCOM).

Independent power producer ACME Solar had filed petitions with the KERC with respect to six of its solar projects located in Karnataka totaling 105 MW, which according to the company are suffering since the imposition of safeguard duty.

According to ACME, its special purpose vehicle (SPV) companies entered into power purchase agreements with BESCOM in March 2018 and the government declared the imposition of safeguard duties on July 2018. This caused an unprecedented increase in project costs and commissioning timelines for the company.

ACME has made the following points in its petition:

  • Declare the imposition of safeguard duty on the import of solar modules as Change in Law event in terms of the power purchase agreement which has led to an increase in the non-recurring expenditure for the project
  • Evolve a suitable mechanism to compensate the petitioner for the increase in non-recurring expenditure incurred by the petitioner on account of Change in Law
  • Grant interest or carrying cost from the date of impact until its reimbursement by the respondent
  • Grant extension of the scheduled commercial operation date (SCOD) of the projects equivalent to the time taken in the approval of Change in Law

Of the above requests of ACME, only (a) and (d) were accepted by the KERC. The commission has agreed that the government’s imposition of safeguard duty qualifies as a Change in Law event. It has also allowed an extension on SCOD for the projects equivalent to the time taken to prove that the imposition of duty was covered under Change in Law clause. However, the KERC has rejected the other petitions. It has denied the compensation on the grounds of lack of documentary evidence provided by ACME to prove the increase in project costs.

Earlier this year, the Central Electricity Regulatory Commission (CERC) had observed that any tax levied through an Act of Parliament after the cut-off date which results in the additional expenditure by the petitioner is covered as ‘Change in Law.’

In July 2019, MERC reiterated that solar safeguard duties were to be treated as Change in Law.

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.