SECI Says UP DISCOMs Can’t Claim Force Majeure Amid COVID-19 for Insufficient Funds

The UPPCL issued a notice declaring refuge under the force majeure clause due to COVID-19


The Solar Energy Corporation of India (SECI) issued a letter to the Uttar Pradesh Power Corporation Limited (UPPCL) stating that its claim of ‘force majeure’ for its inability to pay its dues was not valid.

Earlier, the UPPCL had issued a notice that the ongoing COVID-19 pandemic affected its ability to perform its obligations under its power purchase agreements and that it should not be held liable for any breaches arising because of the force majeure event.

A ‘force majeure’ is declared in the event of unforeseeable circumstances that prevent parties from fulfilling a contract. The phrase is French for “a superior force.”

The notice claimed that the lockdown is likely to affect a significant proportion of consumers’ capacity to pay electricity bills on time. Eventually, there will be a ripple effect reaching the upstream utilities in the power sector value chain.

In its response to the UPPCL, SECI explained that the force majeure event the DISCOM sought was not for the non-availability of power generation capacity but for its inability to collects dues from its consumers as per the power sale agreement (PSA) between the two parties.

It added that this scenario was not covered under article 7 of the PSA, noting that the “insufficiency of finances or funds” was, in fact, considered a force majeure exclusion, as per article 7.4 of the PSA. Also, the UPPCL did not claim force majeure for the delivery or the consumption of power to maintain power supply operations to the state.

SECI said that force majeure could not be claimed for the non-payment of dues for power supplied by the developer and the power used by the UPPCL due to insufficient funds. It added that the remedies available to the UPPCL on account of the pandemic are restricted to relief measures issued for the power sector. It added that it would pass on the UPPCL’s notice claiming force majeure to the project developers it has signed PPAs with.

In its notice to solar power developers, it had signed the PSAs with SECI informed them that the force majeure event claimed by the UPPCL “shall apply mutatis mutandis” to the PPA between SECI and the developers. Mutatis mutandis is a Medieval Latin phrase meaning “having changed what needs to be changed” or “once the necessary changes have been made.”

Recently, Mercom reported that to provide operation and maintenance of the interstate transmission network during the ongoing COVID-19 nationwide lockdown, the Ministry of Power (MoP) has requested the administrations of all states and union territories to allow staff and vendors of power generation and transmission units to perform their duties.

Earlier, the government had clarified that the spread of Coronavirus should be treated as a case of natural calamity, and a force majeure clause can be invoked for the same. The central government announced a complete lockdown of the country on March 24, 2020, to arrest the spread of the virus.

Coronavirus pandemic is proving to be the solar industry’s biggest challenge this year, and the repercussions are being felt across industries all over the globe. Track the latest developments and initiatives taken by the government to fight the economic repercussions of the pandemic in the renewable industry here.