CASE No. 102 of In the matter of

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: CASE No. 102 of 2016 In the matter of Petition of Adani Power Maharashtra Ltd. for compensation in Tariff on account of Change in Law in respect of 800 MW out of 1320 MW power contracted under PPA dated with Maharashtra State Electricity Distribution Co. Ltd. Coram Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member Adani Power Maharashtra Ltd....Petitioner Vs. Maharashtra State Electricity Distribution Co. Ltd....Respondent Appearance For the Petitioner : Shri. Vikram Nankani (Sr. Counsel) For the Respondent : Smt. Deepa Chawan (Counsel) ORDER Date: 19 April, 2018 M/s Adani Power Maharashtra Ltd. (APML) has filed a Petition on for adjustment of tariff under the Power Purchase (PPA) dated for the 800 MW portion of the total contracted capacity of 1320 MW linked to the Lohara Coal Blocks, in order to offset the adverse financial consequences of Change in Law events under Article 13 of the PPA that occurred after seven days prior to the Bid Deadline, i.e., the Cut-Off Date, (the Bid Deadline was ). MERC Order Case No. 102 of 2016 Page 1 of 78

2 2. The prayers of APML are as under:- a) Admit this Petition. Approve events specified at Para 5 as Change in Law and direct the Respondent MSEDCL to pay compensation immediately for the past period i.e. from the date such Change in Law events have affected the Petitioner to the date of order by this Hon ble Commission through an interim Order, and for the future period based on the payment terms of the PPA. b) Approve the new Change in Law events as claimed at Para 8 in the Petition by suitable adjustment in tariff under PPAs and direct the Respondent MSEDCL to pay compensation for such events. c) Approve and direct the Respondent MSEDCL to pay carrying cost for all the Change in Law events claimed in this Petition from the date such Change in Law events have affected the Petitioner to the date of order by this Hon ble Commission. d) Allow the Petitioner to approach the Commission in future for Change in Law events not mentioned in this Petition. e) Direct the Respondents to make the payment of the compensation for the aforementioned Change in Law events from the date that such Change in Law events have affected the Petitioner 3. On , APMLfiled an Addendum to its Petition for two other Change in Law claims, with the following prayers: a) Allow the present Application. b) Approve the aforementioned Change in Law events as claimed in the present application by suitable adjustment in tariff under PPA dated c) Direct the Respondents to make the payment of the compensation for extra expenditure incurred/to be incurred by the Petitioner due to aforementioned Change in Law events from the notified effective dates i.e: i. Levy of Coal and Coke Terminal Surcharge w.e.f ii. Amendment in Notification on Utilization of Fly Ash generated from coal and lignite based thermal power projects dated The Petition, read with the Addendum,states as follows: 4.1. APML has set-up a Thermal Power Plant (TPP) at Tiroda, District Gondia, Maharashtra with installed capacity of 3300 MW (5 X 660 MW super-critical Units), out of which APML has signed PPAs for supply of 1320 MW, 1200 MW, 125 MW and 440 MW of power with MSEDCL on long term basis. The details of the Tiroda TPP and the PPAs are as follows: MERC Order Case No. 102 of 2016 Page 2 of 78

3 Date of PPAs Contracted Capacity (in MW) Beneficiary MSEDCL MSEDCL MSEDCL MSEDCL Total 3085 MSEDCL The entire power generated from APML s Tiroda Project would be supplied to MSEDCL after meeting the 6.5% Auxiliary Consumption The present Petition is for adjustment of tariff under the PPA dated for the 800 MW portion out of the total contracted capacity of 1320 MW linked to Lohara Coal Blocks, in order to offset the adverse financial consequences of Change in Law events under Article 13 of the PPA that occurred after the Cut-Off Date of The Change in Lawevents pertain to the various Changes/ Modification/ Introduction relating to various statutory taxes, duties, Royalty, Cess and surcharges etc. made by Indian Governmental Instrumentalities subsequent to resulting in the additional cost, and is required to be reimbursed to APML as Change in Law defined under Article 13 of the PPA Earlier, APML filed Petition No. 163 of 2014 for approval of following Change in Law events under the 1320 MW PPA: Sr.No. Change in Law Rate as on Cut-Off Date Notification As on Levy of Clean Energy Cess on Domestic Coal Change in Rate of Royalty on domestic coal Increase in Sizing Charges for Coal Increase in Surface Transportation Charges - Rs. 100/- per ton 55 Rs + 5% of the Basic Price Within range of 200 mm 250 mm- 35 Rs/ton Size limited to 100 mm 55 Rs./ton Size limited to 50 MM 70 Rs./ton 40 Rs./ton for more than 3 k.m. and 70 Rs/ton for more than 10k.m. and not more than 20 k.m. Royalty flat rate of 14% of basic price (Ad valorem basis) Within range of 200 mm 250 mm- 51 Rs/ton Size limited to 100 mm 79 Rs./ton Size limited to 50 MM 100 Rs./ton 57 Rs./ton for more than 3 k.m. and 116 Rs./ton for more than 10 k.m. and not more than 20 k.m. 5. Levy of Forest Tax on coal Rs 7 per tonne 6. Levy of Central Excise Duty on purchase of domestic coal % (including education Cess 2% and Higher Education Cess 1%) MERC Order Case No. 102 of 2016 Page 3 of 78

4 Sr.No Change in Law Inclusion of Stowing Excise Duty, Royalty and other State levies for Calculation of Central Excise Duty and other state levies Increase in Rate of Busy Season Surcharge on transportation of coal through railways during the busy season i.e. 9 months of the Financial year Increase in rate of Development surcharge levied by Indian Railway on Freight charged for transportation of Coal Levy of Service Tax, Education Cess and Higher Education Cess on Total Freight on Transportation of goods by Rail. Change in pricing mechanism from UHV basis to GCV basis Introduction of Fuel Adjustment Component in Railway Freight* Change in Class for Railway Freight for coal from 140 to 150 Increase in Minimum Alternate Taxlevied on Book Profits (for 1320 MW) - Rate as on Cut-Off Date Notification 5% at the time of bid 15% 2% 5% - UHV Basis As on Included from 1 March, % (including 2% education Cess and 1% Higher education Cess) on total freight with 70% abatement (effective rate 3.708%) GCV Basis 11.33% % The Railway Budget for levy of Fuel Adjustment Component from 1 April, The Commission vide Order dated in Case No. 163 of 2014 approved the following events as Change in Law with respect to change in statutory taxes, duties and levies, etc. against the 520 MW portion out of the total contacted capacity of 1320 MW PPA dated that occurred after , as under: Sr. No. 1 2 Change in Law Event Levy of Clean Energy Cess on Coal Change in Rate of Royalty on Domestic Coal Rate as on Cut-Off Date Notification Nil Royalty on Grade F of coal - Rs % of basic price per Existing Rate Applicable Rs. 400/Tonne 14% on the price of coal (Ad-valorem) MERC Order Case No. 102 of 2016 Page 4 of 78

5 Sr. No Change in Law Event Imposition of Excise Duty on Coal Inclusion of Stowing Excise Duty, Royalty and other State levies for computation of Central Excise Duty Levy of Service Tax, Education/Higher Education Cess on total freight on transportation of goods by Rail Increase in Minimum Alternate Tax Increase in Development Surcharge on Transportation of coal by Railway Increase in Busy Season Surcharge on Transportation of coal by Railway Rate as on Cut-Off Date Notification Tonne Nil 6% Nil - Nil 10% 21.34% 2% on Normal Tariff Rate (Basic Freight + Busy Season Surcharge + Other Charges) Existing Rate Applicable 4.2% (30% of 14%) without the impact of Swachh Bharat Cess and Krishi Kalyan Cess 5% of Normal Tariff Rate 5% of Basic Freight 15% of Basic freight 4.5. Since the Commission has already approved Change in Law events mentioned in the Table above for the 520 MW portion of contracted capacity out of total capacity of 1320 MW, the Commission may now consider and approve these events as Change in Law for the balance 800 MW capacity of the PPA also, and allow recovery of compensation for the past period immediately and for the future period in accordance with the payment terms of the PPA through an Interim Order as per the methodology agreed for recovery of 520 MW Pursuant to the Commission s Order dated approving the above Change in Law events, 10 more events have occurred which are adversely impacting APML s cost. These events have all the ingredients of qualifying as Change in Law events and need to be reimbursed to APML in terms of Article 13 of the PPA to bring it back to the same economic position as if such Change in Law had not occurred. Hence, APML has approached the Commission for adjustment in tariff in the PPA dated in order to offset the adverse financial consequences due to various Change in Law events with respect to 800 MW portion of total contracted capacity of 1320 MW Vide Petition dated , APML has separately approached the Commission [in Case No. of 38 of 2016 [which the Commission has since decided vide its Order dated ] for approval of the following new Change in Law events under the PPAs MERC Order Case No. 102 of 2016 Page 5 of 78

6 dated (to the extent of the 520 MW component), , and , which are yet to be approved by the Commission. Such new events are being claimed as Change in Law events vide present Petition also for approval by the Commission for recovery of compensation with respect to remaining 800 MW portion of the PPA dated : Sr. No Change in Law Event Levy of Swachh Bharat Cess on Service Tax for Rail transportation Levy of Krishi Kalyan Cess on Service Tax for Rail transportation Levy of Swachh Bharat Cess and Krishi Kalyan Cess on Service Tax(Operation Period) Payment to National Mineral Exploration Trust Payment to District Mineral Foundation Increase in Rate of Chhattisgarh Environment Cess (Paryavaran Upkar) Increase in Rate of Chhattisgarh Development Cess (Vikas Upkar) Levy of Port Congestion Surcharge Amendment to Environment (Protection) Rules, 1986 Rate as on Cut-Off Date Notification Nil 0.50% Nil 0.50% Existing Rate Applicable Nil 0.50% % Nil Nil Rs. 5 / Tonne Rs. 5 / Tonne Nil Nil 2% of Royalty 30% of Royalty Rs. 7.5/Tonne Rs. 7.5/Tonne 10% of Basic Freight Yet to be assessed by APML 4.8. Background of the Petition: MSEDCL initiated the process of Competitive Bidding for procurement of 2000 MW on long term basis by issuance of final Request for Proposal (RfP) on APML submitted its bid on and, on , executed the PPA for supply of 1320 MW power from Units 2 & 3 of the Tiroda TPP for 25 years at levelised tariff of Rs.2.64 per kwh On , APML filed a Petition before this Commission in Case No. 68 of 2012 for grant of relief due to withdrawal of Terms of Reference (ToR) for the grant of Environmental Clearance for Lohara (West) and Lohara (Extension) Coal Blocks ( Lohara Coal Blocks ) allocated to it. MERC Order Case No. 102 of 2016 Page 6 of 78

7 Vide Order dated in Case No. 68 of 2012, the Commission decided to form a Committee to look into the details of the case, evaluate the impact of withdrawal of ToR and accordingly decide a Compensatory Charge to be provided to APML Based on the recommendation of the Committee in the Report submitted on , the Commission vide its Order dated in suo-motu proceedings in Case No. 63 of 2014 determined the formula for computation of Compensatory Energy Charge Subsequently, APML approached the Commission in Case No.163 of 2014 for approval of Change in Law events under the 1320 MW of PPA dated seeking inter alia: (i) (ii) approval of the impact of the Change in Law which has affected APML s revenue or cost during the operating period. to allow APML restore its original economic position as envisaged under the PPA by recovering the amount of impact suffered on account of the Change in Law events from MSEDCL The Commission vide Order dated in Case No.163 of 2014 has allowed 8 events as Change in Law against the 520 MW portion of the total contracted capacity of 1320 MW of the PPA dated The approval for Change in Law events, except for impact due to change in Minimum Alternative Tax (MAT) on Book Profits of Power Plants, was for the electricity supplied from coal provided under long term linkage from Coal India Ltd. (CIL) subsidiaries corresponding to 520 MW portion of the total Contracted Capacity Since the Commission vide its Order dated has held the change in rate of MAT to be a Change in Law event for the entire contracted capacity of 1320 MW, it is not being claimed again in the present Petition Meanwhile, MSEDCL and Prayas (Energy Group) ( Prayas ) filed Appeal No. 166 of 2014 and 296 of 2013/218 of 2014, respectively, before the Appellate Tribunal for Electricity (APTEL) against the Orders of the Commission granting Compensatory Tariff to APML Vide its Judgment dated , APTEL has set aside the Commission s Order dated in Case No. 63 of 2014 and the Interim Order dated in Case No. 68 of 2012, except to the extent that it held that the plea of APML that the withdrawal of the ToR, which led to the inaccessibility of the Coal Blocks by APML and its subsequent de-allocation was not a Force Majeure event as per the terms of the PPA. The APTEL has observed that the Commission has no regulatory power to grant a Compensatory Tariff de hors the PPA and that, if a case of Force Majeure or MERC Order Case No. 102 of 2016 Page 7 of 78

8 Change in Law is made out, relief available under the PPA can be granted under the adjudicatory powers of the Commission In view of the above, the Compensatory Tariff granted by the Commission has become redundant. The Commission allowed Change in Law compensation only for 520 MW out of the PPA of 1320 MW because the compensation granted by the Commission vide its Orders dated and took into account the impact due to increase in the actual cost of fuel, including Change in Law, for the 800 MW portion of contracted capacity linked to Lohara Coal Blocks and, therefore, the need for claiming Change in Law separately did not arise Now, since there is no Compensatory Tariff at present for 800 MW, APML is left with no recourse for the recovery of claims against Change in Law events for this portion which was embedded in the Compensatory Tariff Order of the Commission Since the events have already been approved by the Commission for the 520 MW portion of the same PPA vide Order dated in Case No. 163 of 2014, the Commission may approve compensation for such already approved Change in Law events with respect to the 800 MW portion of the same PPA In case the claim of APML that the withdrawal of ToR for the Lohara Coal Blocks is a Force Majeure event is accepted by the APTEL, the relief to be granted against such event shall be adjusted to the extent recovered vide Change in Law events for 800 MW in the present Petition The Commission may accordingly allow recovery of compensation for the already approved Change in Law events mentioned in the Table below and direct MSEDCL to pay compensation for the past period immediately and for the future period in accordance with the payment terms of the PPA for the 800 MW portion through an interim Order during the pendency of this case along the same lines of 520 MW for which payments against the Change in Law events are being made. The view on new/additional Change in Law events claimed in this Petition may be taken by the Commission during the proceedings in the present Case as follows. Sr. No Change in Law Event Levy of Clean Energy Cess on Coal Change in Rate of Royalty on Domestic Coal Imposition of Excise Duty on Coal Rate as on Cut-Off Date Notification Nil Royalty on Grade F of coal - Rs % of basic price per Tonne Nil 6% Existing Rate Applicable Rs. 400/Tonne 14% on the price of coal (Ad-valorem) MERC Order Case No. 102 of 2016 Page 8 of 78

9 Sr. No Change in Law Event Inclusion of Stowing Excise Duty, Royalty and other State levies for computation of Central Excise Duty Levy of Service Tax, Education/Higher Education Cess on total freight on transportation of goods by Rail Increase in Minimum Alternate Tax Increase in Development Surcharge on Coal Transportation Increase in Busy Season Surcharge on Coal Transportation Rate as on Cut-Off Date Notification Nil - Nil 10% 21.34% 2% on Normal Tariff Rate (Basic Freight + Busy Season Surcharge + Other Charges) Existing Rate Applicable 4.2% (30% of 14%) without the impact of Swachh Bharat Cess and Krishi Kalyan Cess 5% of Normal Tariff Rate 5% of Basic Freight 15% of Basic freight Change in Law under Article 13 of the PPA dated Subsequent to the date seven days prior to the Bid Deadline, if there have been any changes in policies by Indian Governmental Instrumentalities, then the same are covered within the ambit of "Change in Law" as per Article 13 of the PPA The PPA contains the following definitions: "LAW:- means, in relation to this Agreement, all laws 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 CERC and the MERC; "INDIAN GOVERNMENTAL INSTRUMENTALITY:- means the GOI, Government of Maharashtra and any ministry or, department of or, board, agency or other regulatory or quasi-judicial authority controlled by GOI or Government of States where the Procurer and Project are located and includes the CERC and MERC; Article 13 of the PPA records the understanding between the parties to the effect that the introduction/increase/modification of any Law by a Competent Court, tribunal or Indian Governmental Instrumentality after the date seven days prior to the Bid Deadline, i.e , falls within the definition of "Change in Law": ARTICLE 13: CHANGE IN LAW MERC Order Case No. 102 of 2016 Page 9 of 78

10 Definitions In this Article 13, the following terms shall have' the following meanings: "Change in Law" means the occurrence of any of the following events after the date, which is seven (7) days prior to the Bid Deadline: (i) The enactment, bringing into effect, adoption, promulgation, amendment, modification.or repeal, of any law or; (ii) A change in interpretation of any Law by a Competent Court of law, tribunal, Indian Governmental provided such court of law, tribunal, Indian Governmental Instrumentality is final authority under law for such interpretation. But shall not include (i) any change in withholding tax on income or dividends distributed to the shareholders of the Seller, or (ii) change in respect of UI charges or frequency intervals by an Appropriate Commission "Competent Court" means: The Supreme Court or any High Court, or any tribunal or any similar judicial or quasi-judicial body in India that has jurisdiction to adjudicate upon issues relating to the Project Application and Principles for computing impact of Change in Law: While determining the consequence of Change in Law under this Article 13, the Parties shall have due regard to the principle that the purpose of compensating the Party affected by such Change in Law, is to restore through Monthly Tariff payments, to the extent contemplated in this Article 13, the affected Party to the same economic position as if such Change in Law has not occurred. a) Construction Period: As a result of any Change in Law, the impact of increase/decrease of Capital Cost of the Project in the Tariff shall be governed by the formula given below: For every cumulative increase/decrease of each Rupees One lakh twenty five thousand (Rs 1.25 lakhs) in the per MW capital cost, in relation to the Installed Capacity over the term of this Agreement, the increase/decrease in Non Escalable Capacity Charges shall be an amount equal to zero point two six seven percent (0.267%) of the Non Escalable Capacity Charges. Provided that the Seller provides to the Procurer documentary proof of such increase/decrease in Capital Cost for establishing the impact of such Change in Law. In case of Dispute, Article 17 shall apply. It is clarified that the above mentioned compensation shall be payable to either Party, only with effect from the date on which the total increase/decrease exceeds amount of One lakh twenty five thousand (Rs 1.25 lakhs) in the per MW capital cost, in relation to the Installed Capacity. b) Operation Period: As a result of Change in Law, the compensation for any increase/decrease in revenues or cost to the Seller shall be determined by the Maharashtra State Electricity Regulatory Commission whose decision shall be final and binding on both the Parties, subject to rights of appeal provided under applicable Law and effective from date specified in MERC Order Case No. 102 of 2016 Page 10 of 78

11 Provided that the above mentioned compensation shall be payable only if and for increase/ decrease in revenues or cost to the Seller is in excess of an amount equivalent to 1 % of the Letter of Credit in aggregate for a Contract Year Notification of Change in Law: If the Seller is affected by a Change in Law in accordance with Article 13.2 and wishes to claim a Change in Law under this Article, it shall give notice to the Procurer of such Change in Law as soon as reasonably practicable after becoming aware of the same or should reasonably have known of the Change in Law Notwithstanding Article , the Seller shall be obliged to serve a notice to the Procurer under this Article , if it is beneficially affected by a Change in Law. Without prejudice to the factor of materiality or other provisions contained in this Agreement, the obligation to inform the Procurer contained herein shall be material. Provided that in case the Seller has not provided such notice, the Procurer shall have the right to issue such notice to the Seller Any notice served pursuant to this Article shall provide, amongst other things, precise details of: a) the Change in Law; and (b) the effects on the Seller of the matters referred to in Article Tariff Adjustment Payment on account of Change in Law Subject to Article 13.2, the adjustment in Monthly Tariff Payment shall be effective from: (i) the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law; or (ii) the date of order/judgment of the Competent Court or tribunal or Indian Governmental Instrumentality, if the Change in Law is on account of a change in interpretation of Law The payment for Changes in Law shall be through Supplementary Bill as mentioned in Article However, in case of any change in Tariff by reason of Change in Law, as determined in accordance with this Agreement, the Monthly Invoice to be raised by the Seller after such change in Tariff shall appropriately reflect the changed Tariff. Impact due to increase in Taxes and Levies The Change in Law events for 800 MW are segregated in two parts as follows: A. The Commission s observations while approving Change in Law events vide Order dated in Case No.163 of 2014 (w.r.t 520 MW portion of the same PPA) B. New Change in Law events claimed vide the present Petition. A. Approved Change in Law Events vide Order dated (w.r.t 520 MW portion of the same PPA) MERC Order Case No. 102 of 2016 Page 11 of 78

12 4.14. Vide Order dated in Case No 163 of 2014, the Commission has approved 8 Change in Law events The observations of the Commission on Change in Law events for the 520 MW portion of the PPA are conclusive enough for the Commission to declare these events as Change in Law for the balance 800 MW portion of the same PPA as claimed in the present Petition. The Commission may approve these events as Change in Law and direct MSEDCL to pay compensation for such events for the past period immediately and for the future period in accordance with the payment terms of the PPA, through an Interim Order, pending final disposal of the present Petition. New Change in Law Events Apart from above 8 claims of Change in Law events which are already approved by the Commission for 520 MW portion of the PPA, 8 new events have occurred which have impacted the cost of supply of power of APML. APML has issued Change in Law notices under Article of the PPA for these new events vide letters dated , , , , , , and However, there is neither any response from MSEDCL to the notices nor is it paying compensation for the new events. A. Levy of Swachh Bharat Cess on Service Tax for Rail Transportation As on the Cut-Off Date of , i.e. seven days prior to the Bid Deadline, no Swachh Bharat Cess (SBC) was levied on services. Subsequently, SBC of 0.5% has been levied on all taxable services from (a) (b) (c) By Section 119 of the Finance Act, 2015, Parliament levied a Cess to be called the SBC, as Service Tax on all or any of the taxable services at the rate of two per cent. By Notification No. 21 of 2015 dated , Section 119 of Finance Act, 2015 came into effect from By Notification No. 22 of 2015 dated , Govt. of India (GoI) exempted SBC over and above 0.5% of the value of taxable services In view of levy of SBC, the Ministry of Railways issued Corrigendum No. 5 to Rate Circular No. 29 of 2012 on 12 November, 2015, thereby revising Service Tax from 4.20% to 4.35% w.e.f Pursuant to the Corrigendum No. 5, Railways is charging Service Tax at the revised rate of 4.35% (i.e. 14.5%*30%) Vide Order dated in Case No. 163 of 2014, the Commission has already approved Change in Service Tax on total freight on Transportation of Goods by Rail as a Change in Law event under Article (i) of the PPA dated , MERC Order Case No. 102 of 2016 Page 12 of 78

13 4.20. In view of the above sequence of events, the imposition of the said Cess is squarely covered under Article 13 of the PPA. 5. Vide Notice dated under Article the PPA, APML has informed MSEDCL oftheabove Additional Change in Law The indicative per unit impact of this levy is worked out as under: S. No Particulars Units w.e.f A Rail Freight Rs/ton B Busy Season 15% applicable for 9 months Rs/ton C Normal Tariff Rate Rs/ton D Development 5% of C Rs/ton E Total Freight (C + D) Rs/ton F Service Tax including SB Cess on Rail Transportation (30% of 14.5% on E) Rs/ton G Gross Heat Rate kcal/kwh 2,350 H Auxiliary Consumption % 6.50% I Net Heat Rate kcal/kwh 2,513 J GCV of Linkage Coal kcal/kg 3,300 K SCC for energy sent out kg/kwh 0.76 L Per Unit Impact for energy scheduled at Tiroda ex-bus (corresponding to effective rate of 4.35%*) Rs/kWh * Change in Law impact corresponding to effective Service Tax rate of 4.2% was already approved by Commission vide Order dated in Case No. 163 of The impact on account of 0.5% increase in Service Tax rate due to inclusion of SBC is Rs per kwh for which the approval of Commission is sought in the present Petition. B. Levy of Krishi Kalyan Cess on Service Tax for Rail Transportation 5.2. As on the Cut-Off Date of , no Krishi Kalyan Cess (KKC) was levied on services. Subsequently, GoI, in exercise of the powers conferred by Section 93(1) of the Finance Act, 1994read with Section 161(5) of the Finance Act, 2016 has levied 0.5% on the values of all taxable services with effect from Ministry of Finance, GoI has issued Gazette Notification No. 30/2016 Service Tax dated in this regard In view of levy of KKC, the Ministry of Railways has issued Notification No. TCR/1078/2015/15 dated , by which the rate of Service Tax on Rail Transportation of coal w.e.f stands revised from 4.35% to 4.50% (i.e. 15% x 30%) On account of KKC, the effective rate of Service Tax will increase from 14.5% to 15% (Service 14% %) and the effective rate of MERC Order Case No. 102 of 2016 Page 13 of 78

14 Service Tax on Rail Freight will increase to 4.50% from 4.35%. In view of the same, APML will have to bear extra financial burden due to increase in the Service Tax rate on account of inclusion of KKC The Commission vide Order dated in Case No. 163 of 2014 has already approved Change in Service Tax on total freight on Transportation of Goods by Rail as a Change in Law event under Article (i) of the PPA dated Hence, any levy upon Service Tax which has been promulgated by an Indian Governmental Instrumentality having the force of law would be covered under Article 13 of the PPA. Therefore, the Commission may approve it as a Change in Law The imposition of KKC will impact expenditure on account of change in Service Tax rate during the OperatingPeriod from Vide Notice dated under Article the PPA, APML has informed MSEDCLof the above Additional Change in Law The indicative per unit impact of this levy is as follows: S. No Particulars Units w.e.f A Rail Freight Rs/ton B Busy Season 15% applicable for 9 months Rs/ton C Normal Tariff Rate Rs/ton D Development 5% of C Rs/ton E Total Freight (C+D) Rs/ton F Service Tax including SBCess&KKC on Rail Transportation (30% of 15% on E) Rs/ton G Gross Heat Rate kcal/kwh 2,350 H Auxiliary Consumption % 6.50% I Net Heat Rate kcal/kwh 2,513 J GCV of Linkage Coal kcal/kg 3,300 K SCC for energy sent out kg/kwh 0.76 L Per Unit Impact for energy scheduled at Tiroda ex-bus (corresponding to effective rate of 4.50%*) Rs/kWh * Change in Law impact corresponding to effective Service Tax rate of 4.2% was already approved by Commission vide Order dated in Case No. 163 of The impact on account of 0.5% increase in Service Tax rate due to inclusion of SBC is Rs per kwh and further, 0.5% increase in Service Tax rate due to levy of KKC is Rs per kwh for which the approval of Commission is sought in the present Petition. C. Levy of SBC and KKC on Service Tax 6.2. As on the Cut-Off Date, only Service 10.30% was leviable. Subsequently, GoI, under Section 119 of the Finance Act, 2015 inserted 0.5 % on the value MERC Order Case No. 102 of 2016 Page 14 of 78

15 of all taxable services from This has ultimately increased the Service Tax rate from 14% to 14.5% which has increased the overall production cost As on the Cut-Off Date of , no KKC was levied on services. Subsequently, under Finance Bill, 2016, Ministry of Finance proposed levy of KKC at the rate of 0.5% on all taxable services with effect from In view of the above, APML will have to bear extra financial burden due to increase in the Service Tax rate on account of inclusion of SBC and KKC on expenditure related to Operation and Maintenance (O&M) of the Plant, etc On account of levy of SBC and KKC, the effective rate of Service Tax will increase from 10.30% applicable as on Cut-Off Date to 15% (Service 14% %) as indicated below: Service Tax Rate Effective Date 12.36% Cut-Off Date (i.e ) 10.30% % % % % In view of above submissions, the Commission may declare levy of SBC and KKC on Service Tax (Operation Period) as a Change in Law event. The levy of KKC on Service Tax fulfils all the requirements of Article (i) of the PPA to qualify as a Change in Law event The objective of a Change in Law provision under the PPA is to restitute the affected party to the same economic position as if the Change in Law has not occurred. 7. Vide Notice dated under Article , APML has informed MSEDCL on the above Additional Change in Law event. D. Payment to National Mineral Exploration Trust & District Mineral Foundation 7.1. Mines and Minerals (Development and Regulation) (MMDR) Act, 1957 has been amended by the MMDR Amendment Act, 2015 w.e.f Sections 9B and 9C were inserted, under which the District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) were established, respectively As per the MMDR Amendment Act, 2015:- MERC Order Case No. 102 of 2016 Page 15 of 78

16 (a) (b) Section 9B (4) provides that the holder of a mining lease granted before the date of the amendment shall, in addition to the royalty, pay to the DMF an amount equivalent to such percentage of the royalty paid in terms of the Second Schedule, not exceeding one-third of such royalty, as may be prescribed by the GoI; Section 9C (4) provides that the holder of a mining lease shall pay to the NMET, a sum equivalent to 2% of the royalty, in such manner as may be prescribed by the GoI On , GoI issued the NMET Rules, 2015 and, on , the Mines and Minerals (Contribution to DMF) Rules, 2015, thereby fixing the amount payable to DMF as:- (i) 10% of the royalty in respect of mining lease granted on or after (ii) 30% of the royalty in respect of mining lease granted before As on the Cut-Off Date, i.e., , there were no payments to be made to NMET and/or DMF. After the Amendment, the Coal Company is paying these charges and in turn passing on these levies on Royalty to APML as part of coal invoices resulting in increase of expenditure by APML In view of the above, the imposition of these charges is squarely covered under Article 13 of the PPA By the Amendment, the GoI has mandated the payment of the above charges which are a levy on the payment of Royalty. These payments in fact amount to a surcharge on the payment of Royalty Levy of NMET and DMF as a percentage of Royalty has been promulgated by an Indian Governmental Instrumentality having the force of law, and therefore it is squarely covered under Article 13 of the PPA The Coal Companies are passing on the payments on Royalty to the coal consumers/apml and these levies are billed along with the Royalty. Since these charges result in additional cost of coal which has a direct impact on the cost of generation of electricity, they are covered under Article 13 of the PPA. 8. Vide Notice dated under Article the PPA, APML has informed MSEDCL of these Additional Change in Law events The indicative per unit impact of these levies is worked out as under: MERC Order Case No. 102 of 2016 Page 16 of 78

17 S. No Particulars Units As on Cut-Off Date W.e.f (for NMET) and (for DMF) Incremental A Basic Price Rs/ton B Crushing/Sizing Charges Rs/ton C Royalty Rs/ton D Stowing Excise Duty Rs/ton E Clean Energy Cess Rs/ton F Surface Transportation Charges Rs/ton G Vikas Upkar Rs/ton H Paryavaran Upkar Rs/ton I Niryatkar Rs/ton J 2% on Royalty Rs/ton K 30% on Royalty Rs/ton L Central Excise 6% Rs/ton M 2% Rs/ton N Total Change in Law Impact on account of NMET & DMF on Rs/ton Royalty Value O Gross Heat Rate kcal/kwh 2,350 P Auxiliary Consumption % 6.50% Q Net Heat Rate kcal/kwh 2,513 R GCV of Linkage Coal kcal/kg 3,300 S SCC for energy sent out kg/kwh 0.76 T Per Unit Impact for energy scheduled at Tiroda ex-bus Rs/kWh Out of total impact of Rs per kwh, the impact due to NMET is Rs per kwh from and impact due to DMF is Rs per kwh from Increase in Rate of Chhattisgarh Environment Cess (Paryavaran Upkar) and Chhattisgarh Development Cess (Vikas Upkar) 8.3. Chhattisgarh State Government promulgated the Chhattisgarh (Adhosanrachna Vikas Evam Paryavaran) Upkar Adhiniyam, 2005 ( Chhattisgarh Act ) for levy of Cesses on land for raising funds to implement infrastructure development projects and environment improvement projects. Section 3 (1) of the Act provides for levy of Infrastructure Development Cess and Section 4 (1) provides for levy of Environmental Cess. As per Schedule (I), Development Cess of Rs.5 per ton and as per Schedule (II), Environment Cess of Rs.5 per ton of annual dispatch was levied on land covered under coal and iron ore mining lease at the time of the Cut-Off Date. MERC Order Case No. 102 of 2016 Page 17 of 78

18 8.4. Subsequently, the Chhattisgarh Government, vide Gazette Notification dated issued an amendment to the Chhattisgarh Act vide which the Chhattisgarh Development and Environment Cess rates were revised as indicated below: Duty/Tax Details Ratesas on Cut-Off Date Revised Rates (w.e.f ) CG Environment Cess Rs.5 /Ton Rs / Ton CG Development Cess Rs.5/ Ton Rs / Ton 8.5. The revision of rates was made applicable to all despatches/lifting from as mentioned by South Eastern Coalfields Limited (SECL) in its Notice no. SECL/BSP/S&M/2015/1420 dated Therefore, the above revision of rates under the Chhattisgarh Act is a "Change in Law" event under Article (i) of PPA. APML had notified its occurrence to MSEDCL vide its notice dated , in accordance with Articles of the PPA The indicative per unit impact of the increase in Chhattisgarh Environment and Development Cesses is worked out as under: S. No Particulars Units As on Cut-Off Date (Rs. 5/Ton) With effect from (Rs. 7.5/Ton) Incremental A Basic Price Rs/ton B Crushing/Sizing Charges Rs/ton C Royalty Rs/ton D Stowing Excise Duty Rs/ton E Clean Energy Cess Rs/ton F Surface Transportation Charges Rs/ton G Vikas Upkar Rs/ton H Paryavaran Upkar Rs/ton I Niryat kar Rs/ton J Central Excise 6% Rs/ton K 2% Rs/ton L Total Change in Law Impact for CG Paryavaran & Vikas Rs/ton 5.41 Upkar M Gross Heat Rate kcal/kwh 2,350 N Auxiliary Consumption % 6.50% O Net Heat Rate kcal/kwh 2,513 MERC Order Case No. 102 of 2016 Page 18 of 78

19 S. No Particulars Units As on Cut-Off Date (Rs. 5/Ton) With effect from (Rs. 7.5/Ton) Incremental P GCV of Linkage Coal kcal/kg 3,300 Q SCC for energy sent out kg/kwh 0.76 R Per Unit Impact for energy scheduled at Tiroda ex-bus Rs/kWh E. Levy of Port Congestion Surcharge 8.8. As on Cut-Off Date, no Port Congestion Surcharge was applicable on freight for goods traffic originating from ports. Pursuant to Section 30 to 32 of Railways Act, 1989, Ministry of Railways, vide its Notification dated , levied Port Congestion Surcharge on 10% of the Base Freight Rate on Goods Traffic originating from Ports from The levy of Port Congestion Surcharge has all the ingredients to qualify as Change in Law event under Article (i) of the PPA The above Change in Law event was intimated by APML to MSEDCL vide notice dated The indicative per unit impact of the levy is worked out as under: S. No Particulars Units As on Cut-Off Date W.e.f Incremental A Rail Freight Rs/ton B GoI Rs/ton C Busy Season 15% applicable for 9 months Rs/ton D Development Surcharge Rs/ton E Service Tax including SBC and KKC on Rail Transportation Rs/ton F Total Change in Law Impact on account of Port Congestion Surcharge Rs/ton G Gross Heat Rate kcal/kwh 2,350 H Auxiliary Consumption % 6.50% I Net Heat Rate kcal/kwh 2,513 J GCV of Linkage Coal kcal/kg 3,300 MERC Order Case No. 102 of 2016 Page 19 of 78

20 S. No Particulars Units As on Cut-Off Date W.e.f Incremental K SCC for energy sent out kg/kwh 0.76 L Per Unit Impact for energy scheduled at Tiroda ex-bus Rs/kWh F. Amendment to Environment (Protection) Rules, As per Gazette Notification no. S.O (E) dated , Ministry of Environment, Forest and Climate Change (MoEF) has amended the Environment (Protection) Rules, 1986 vide which various environmental standards have been revised and further, new norms have been introduced, which would require additional capital investment by way of installation of necessary equipment to adhere to the stipulated norms In addition to increase in capital cost, installation of such new equipment would also result in an increase in the Auxiliary Consumption of the Plant. In other words, higher fuel consumption would be required in order to maintain the same level of ex-bus injection as it would have been if the additional equipment were not required to be installed. The amended Environment (Protection) Rules, 1986 would also result in an increase in the operating cost of the Plant, in addition to the increase in capital cost, for maintaining the standards on continuous basis by utilizing necessary consumables and chemicals etc The environmental norms introduced/modified by MoEF vide Notification dated are summarized below: Insertion of new Clause 5A Prevailing norms as on Cut-Off Date N/A Current Norm (Notified vide Notification dated All existing CT-based Plants reduce specific water consumption up to maximum of 3.5m 3 /MWh within a period of two years from the date of publication of this notification. Amendment in Clause 25 Current Norms revised vide notification Prevailing norms as on Cut-Off Date dated For TPPs (units) installed after 1 st Jan,2003, up to 31 st Dec Parameter Standard Parameter Standard Particulate Matter Emission: Particulate - For generation capacity 210 MW or more 150 mg/nm3. Matter(for thermal 50 mg/nm3 Power Plants) - For generation capacity MERC Order Case No. 102 of 2016 Page 20 of 78

21 Prevailing norms as on Cut-Off Date less than 210 MW. 350 mg/nm3 Current Norms revised vide notification dated For TPPs (units) installed after 1 st Jan,2003, up to 31 st Dec mg/nm3 (Units Smaller than 500MW Sulphur Dioxide (SO2) N/A having capacity of Sulphur Dioxide capacity units) 200 (SO2) mg/nm3 (for units 500MW and above) Oxides of Nitrogen(NOx) N/A Oxides of Nitrogen(NOx) 300 mg/nm3 Mercury ( Hg) N/A Mercury ( Hg) 0.03 mg/nm The Amendment to Environment (Protection) Rules, 1986 is squarely covered under Change in Law Article (i) of the PPA. Vide Notice dated , APML has informed MSEDCL regarding the Change in Law event The financial impact on account of thischange in Law is currently being assessed and will be submitted in due course. The Commission may approve the amended environmental standards as "Change in Law" and allow APML to pass on the consequential financial impact, and direct MSEDCL to reimburse it to APML APML has been paying regularly to various statutory authorities and Government agencies for the increase in input costs due to the Change in Law events since commissioning of the respective Units under the PPA. It has already suffered a loss of about Rs. 174 crore, excluding carrying cost, due to the approved Change in Law events. However, due to non-recovery of payments against these, the cash flow situation of APML has remained precarious. Further, APML has to continuously borrow at exorbitantly high rates for its working capital requirements, aggravating the already stressed financial situation It is an admitted fact that there has been additional expenditure to APML on account of Change in Law events for the entire contracted capacity of 1320 MW of the PPA. However, currently, the reimbursement by MSEDCL is limited to 520 MW and APML, though incurring costs for the balance 800 MW, is not getting any reimbursement from MSEDCL to that extent. Therefore, APML is subjected to additional interest cost to that extent and suffering loss on this account also. As a principle, carrying cost shall be applicable on the Change in Law compensation since that principle is inherent in the PPA as Article 13 of the PPA mandates that APML be MERC Order Case No. 102 of 2016 Page 21 of 78

22 restored to the same economic position as if Change in Law event has not taken place. APML had to incur costs due to Change in Law events from the date such events came into force resulting in cash outflow from the date of actual payment to the relevant authorities. Since APML is already incurring these costs, it is burdened with additional working capital interest till it gets reimbursed. On the other hand, MSEDCL would stand to get benefit as the cash outflow to it is being deferred till such time and there will be saving in interest cost to MSEDCL to that extent. Nongrant of carrying cost would vitiate and defeat the purpose of Change in Law provision of the PPA of restoring the affected party to the same economic position. The carrying cost for the already approved events of Change in Law computed based on the interest rates applicable as per the MERC (Multi Year Tariff) Regulations ( MYT Regulations ), 2011 and 2015 on the outstanding Change in Law amount of around Rs. 190 crore, corresponding to the 800 MW portion of the PPA, is worked out at around Rs. 36 crore from to In view of the above, the Commission may approve the carrying cost. 9. In its Reply dated , MSEDCL has stated as follows: 9.1. APML entered into PPA on for supply of 1320 MW for 25 years with MSEDCL under Competitive Bidding process. APML had filed a Petition (Case No. 68 of 2012) before the Commission for termination of the PPA or, alternatively, for tariff revision due to withdrawal of ToR for Lohara Coal Blocks In its Order dated in Case No. 68 of 2012, the Commission constituted a Committee to evaluate the impact of cancellation of Lohara Coal Blocks and to determine the Compensatory Charge to be provided to APML.Also, it directed interim relief to bill the quantity of power supplied beyond 520 MW at Rs per kwh The Commission initiated suo moto proceedings in Case No.63 of 2014 on the Report submitted by the Committee on Compensatory Charges in Case No. 68 of Vide Order in Case No. 63 of 2014 dated , the Commission has given Compensatory Tariff to APML The following Appeals were filed before APTEL against these Orders: MSEDCL had filed an Appeal No.166 of 2014 on against the Order dated in Case No. 63 of Prayas had also filed an Appeal (No.218 of 2014 & I.A. No.337 of 2014) against that Order. Prayas submitted that the Commission has no jurisdiction or power or authority to re-open the quoted tariff. The only exception provided is adjustment to the tariff as per Force Majeure Clause of the PPA and Bid Documents. MERC Order Case No. 102 of 2016 Page 22 of 78

23 Prayas had filed a Petition before APTEL (No. 296 of 2013) against the Order dated in Case No. 68 of APML has also filed an Appeal along with IA for condonation of delay of 382 days (I.A. No. 443/2014 DFR 2635 of 2014) against Order dated in Case No. 68 of The Appeal filed by APML before APTEL is pending. Thus there is no decision regarding whether cancellation of Lohara Coal Blocks is a Force Majeure Event or a Change in Law Vide its Daily Order in IA 443 of 2014 DFR 2635 of 2014 dated , the APTEL has observed that, In our Judgment dated 7/4/2016 in Appeal No.100 of 2013 and batch matters, we have held that the Appropriate Commission has no regulatory power togrant compensatory tariff to the generating companies where the tariff is discovered by a competitive bidding process under Section 63 of the said Act. We have also held that if a case of Force Majeure or Change in Law is made out, relief available under the PPA can be granted under the adjudicatory power of the Appropriate Commission...We have partly allowed Appeal no.296 of 2013 and set aside order dtd: in case 68/2012 except to the extent it holds that the plea of APML that withdrawal of the ToR, which leads to the inaccessibility of the coal block, was not a Force majeure event as per PPA. Since the issues involved in this appeal namely whether the withdrawal of ToR, which led to the inaccessibility of the coal block by APML and the subsequent deallocation of the said block, was a Force Majeure event under the PPA is kept open by us, we direct the Registry to separate these matters and place them before the regular bench for appropriateorders The following Change in Law events w.r.t. 520 MW have been approved by the Commission in Case No. 163 of Sr. No. Change in Law Event Rate as on Cut-Off Date Notification Existing Rate Applicable 1 Levy of Clean Energy Cess Nil Rs. 400/ tonne 2 Change in Rate of Royalty on Royalty on Grade F Domestic Coal Coal - Rs % 3 Imposition of Excise duty on coal 4 Inclusion of Stowing Excise Duty, Royalty and other state levies for computation of Central Excise Duty 14% on the price of coal (ad-valorem) basic price/ tonne Nil 6% Nil - MERC Order Case No. 102 of 2016 Page 23 of 78

24 Sr. No. Change in Law Event 5 Levy of Service Tax, Education/ Higher Education Cess on total freight on transportation of goods by Rail 6 Increase in Minimum Alternate Tax 7 Increase in Development Surcharge on Transportation of coal by Railways 8 Increase in Busy Season Surcharge on Transportation of coal by Railways Rate as on Cut-Off Date Notification Existing Rate Applicable Nil 4.2% (30% of 14%) without the impact of Swach Bharat Cess and KKC 10% 21.34% 2% on Normal Tariff Rate (Basic Freight + Busy Season Surcharge + Other Charges) 5% of Normal Tariff Rate 5% of basic freight 15% of basic freight 9.8. With respect to 800 MW capacity pertaining to Lohara Coal Blocks, the matter is pending before APTEL and final Judgment/ Order is not passed in the matter APML has filed this Petition based on the partial proclamation in the APTEL Daily Order in IA 443 of 2014 DFR 2635 of 2014, dated Hence, the Commission may not to hear this contention of APML prior to the Final Judgment of APTEL After the de-allocation of the Lohara Coal Blocks, the source of fuel for 800 MW capacity is not known. As per Article 13.2 regarding application and principles for computing impact of Change in Law: While determining the consequences of Change in Law under this Article 13, the Parties shall have due regard to the principle that the purpose of compensating the Party affected by such Change in Law, is to restore through Monthly Tariff payments, to the extent contemplated in Article 13, the affected party to the same economic position as if such Change in Law has not occurred Thus, the plea that the Commission may approve recovery and compensation for such already approved Change in Law events withrespect to the 800 MW portion of the same PPA is not tenable since important details with respect to the source of fuel for 800 MW capacity is not available. Accordingly, it is not possible to compute the change in the economic position as a result of Change in Law events for the quantum of 800 MW. However, MSEDCL re-iterates that the capacity of 800 MW is subjudice with APTEL for adjudication on Force Majeure. Hence, Change in Law for 800 MW capacity should not be considered and recovery of the compensation for 800 MW portion of the same PPA under Change in Law should not be allowed Change in Law Events: MERC Order Case No. 102 of 2016 Page 24 of 78

25 [The Commission notes that MSEDCL has quoted the definitions and Article 10 of the other 3 APML PPAs and not the definitions and the relevant Article 13 of the PPA dated , and hence they are not being set out here. However, the provisions in this regard (apart from Article 19 of the PPA) are substantively similar.] In its earlier Order dated in Case No. 163 of 2014, the Commission had elaborated on the key characteristics for an event to qualify as Change in Law : 12.6 Although the definition of Law is illustrative under the PPA, in order to do justice to the respective contentions of the parties it is necessary to evaluate each event to arrive at a finding as to whether or not it qualifies as a Change in Law or not, keeping in mind the PPA provisions and judgments of the ATE and Supreme Court. In the Commission s view, the key characteristics for an event to qualify as Change in Law are as follows: a) The definition of Law in the PPA is an inclusive and illustrative definition and contemplates all laws applicable in India in various forms. To be considered a Change in Law event, it is imperative that the event is caused by an Indian Government Instrumentality; b) "Change in Law" means the occurrence of any of the following events after the date, which is seven days prior to the Bid Deadline; c) There should be an actual increase or decrease in revenue or cost to the Seller which should financially impact it. d) The object of the Change in Law provision is to ensure compensation to the Party affected by such Change in Law, and to restore such Party, through monthly tariff payment, to the same economic position as if such Change in Law had not occurred. e) The Change in Law events are described in Article of the PPA. f) During the Operation Period, the relief on account of Change in Law will be governed by Article 13.2(b) of the PPA: The compensation for any decrease in revenue or increase in expenses to the Seller shall be payable only if the decrease in revenue or increase in expenses of the Seller is in excess of an amount equivalent to 1% of the value of the Letter of Credit in aggregate for the relevant Contract Year Events Claimed by APML as Change in Law A. Increase in Education Cess and Secondary Education Cess& HSE Education Cess on account of increase in Additional Duty on imported steam coal B. Levy of SBC on Service Tax for Rail Transportation C. Levy of KKC on Service Tax for Rail Transportation D. Contribution to NMET and DMF MERC Order Case No. 102 of 2016 Page 25 of 78

26 E. Increase in rate of Chhattisgarh Environmentand Development Cesses F. Levy of Port Congestion Surcharge The above cost includes the cost on coal consumption. Therefore, it is necessary to ensure that the inefficiency of the Generator is not passed on to the Distribution Utility and to the end consumers. Therefore, operational parameters such as Station Heat Rate (SHR), Aux. Consumption, etc. need to be revalidated by thecommission before allowing such additional cost as a pass through. Any cost relating to nonefficiency regarding de-gradation of SHR, lower Gross Calorific Value (GCV) of coal resulting in higher quantum of procurement of coal may not be passed on to MSEDCL. Also, the Commission needs to have a detailed prudence check of the financial calculation In case of 520 MW, the Commission needs to perform prudence check in order to ensure that any inefficiencies with respect to generation are not passed on to MSEDCL. With respect to 800 MW capacity, the case is subjudice and the matter is pending for adjudication with APTEL for force majeure. Further, the source of fuel details for 800 MW capacity has not been provided. Currently, APML has computed the impact considering energy set out of the 1320 MW capacity. However, the details of source of fuel for 800 MW capacity has not been provided. Hence, the assessment of impact of Change in Law for 800 MW capacity cannot be done In its Judgment dated in Appeal No. 288 of 2013, the APTEL has clarified the matter of computation of any impact of Change in Law as follows: 24..The compensation is only with respect to the increase/decrease of revenue/expenses of the Seller following the Change in Law. The minimum financial impact to qualify for claim of compensation is also linked to the increase in expenses/decrease in revenue of the seller. 25. For example, if the tax on cost of coal has been increased from 5% to 8%, then for computing the impact of Change in Law, only the increase in the actual expenditure of Seller due to increase in tax from 5% to 8% has to be considered. This is because if the tax had not increased, the Seller would have paid tax of 5% on the actual cost of coal. With the Change in Law, the Seller has now to pay 8% on the actual cost of coal. Therefore, to restore the Seller to the same economic position as if such Change in Law has not occurred, the Seller has to be compensated for additional tax of 3% on the actual cost of coal. However, the Seller will have to submit proof regarding payment of tax on coal As stipulated in Article of the PPA, the impact of such Change in Law should be computed from the date that it affects the seller and proof of the expenditure actually incurred by it on account of such Change in Law events should be provided. G. Amendment to Environment Protection Rules, 1986 MERC Order Case No. 102 of 2016 Page 26 of 78

27 9.19. [The Commission notes that MSEDCL has quoted the definitions and Article 10 of the other 3 APML PPAs with reference to computing the impact of Change in Law and not the definitions and the relevant Article 13 of the PPA dated , and hence they are not being set out here. However, the provisions in this regard (apart from Article 19 of the PPA) are substantively similar.] The financial impact of such costs have not been assessed and submitted by APML. As per the terms of the PPA, the financial impact has to be assessed, which shall be determined by the Commission and the costs allowed based on prudence check For 800 MW of capacity as per the PPA, the assessment of economic impact on account of Change in Law cannot be computed nor it can be verified since the base data in the form of source and quantum of coal sourced for the said capacity has not been provided. Most importantly, the matter with respect to de-allocation of Lohara Coal Blocks for 800 MW capacity is pending adjudication with APTEL. Hence, pending the adjudication of the matter, the impact of Change in Law for 800 MW capacity should not be allowed. However, with respect to 520 MW of capacity, the Commission needs to perform prudence check in order to ensure that any inefficiencies with respect to the generation is not passed on to MSEDCL 10. At the hearing held on 8 September, 2016, APML set out the background of the Case, the Orders passed by the Commission on Compensatory Tariff, Change in Law events and the APTEL Judgment on Compensatory Tariff With reference to the Appeal No of 2014 pending before APTEL on the claim of Force Majeure, APML stated that APTEL has delinked that Appeal from the Appeals against the Compensatory Tariff Orders. The present Petition is independent of its Appeal pending before the APTEL.The Commission has already passed an Order in Case No. 163 of 2014 in its favour for relief on account of Change in Law events for 520 MW.The same events of Change in Law are in toto applicable to the remaining 800 MW of contracted power being supplied to MSEDCL, notwithstanding de-allocation of Lohara Coal Blocks. APML s prayer for interim relief is with respect to domestic coal only MSEDCL stated that, as per Article 19 of the PPA, no Tariff adjustments are allowed for supply from alternative sources of fuel and from sources other than the Unit identified by the Seller in the RFP. Hence, the interim relief sought by APML should not be allowed. Moreover, the Petition is bereft of all details of the Change in Law events and their applicability to the event of de-allocation of Lohara Coal Blocks. Moreover there is no urgency for interim relief. MERC Order Case No. 102 of 2016 Page 27 of 78

28 10.4. On being asked by the Commission, MSEDCL replied that Compensatory Tariff was not being paid to APML The Commission asked APML whether a notice as required under the PPA for relief under Change in Law event was served on MSEDCL. APML replied that it had served such notices for each event as and when they occurred. However, these notices were for new Change in Law events. The Commission enquired as to whether it had served notices for thechange in Law events forwhich interim relief is sought. APML replied that such notices were initially served for 1320 MW as a whole.post the Compensatory Tariff Judgment of APTEL, it had not issued fresh notices on the Change in Law events referred to in the interim relief application The Commission stated that the issues of new Change in Law events would be dealt with the other similar Cases scheduled on 20 October, 2016, i.e. Case No. 38 of 2016 filed by APML and Case No. 84 of 2016 filed by RattanIndia Power Ltd. (RPL) The Commission asked APML to file its Rejoinder within a week s time and MSEDCL to file its additional submission, if any, on the issue of interim relief within a week Based on the Rejoinder/submissions of the Parties, the Commission will decide on the interim relief sought by APML. 11. In its Rejoinder dated ,APML stated as follows: Vide Orders dated and , the Commission in Case Nos. 68 of 2012 and 63 of 2014, respectively, granted Compensatory Tariff to APML in respect of 800 MW out of the contracted capacity of 1320 MW under the PPA dated for the reason that the ToR for the Lohara Coal Blocks was withdrawn by MoEF. As such, the coal from that mine was not available in respect of 800 MW capacity. Vide Order dated , the Commission held that the event does not qualify as Change in Law or Force Majeure In that Order, the Commission clearly specified that the compensation was limited only to 800 MW capacity and no relief in respect of 520 MW was included. TheCompensatory Tariff formula approved by the Commission for 800 MW capacity covered the entire additional cost incurred over and above the PPA tariff and, as such, included the compensation for Change in Law also In respect of the 520 MW capacity, APML filed a Petitionin Case No. 163 of 2014 for adjustment in tariff on account of Change in Laweventsthat occurred subsequent to the Cut-Off Date (i.e. 7 days prior to the Bid Deadline) under the PPA. The MERC Order Case No. 102 of 2016 Page 28 of 78

29 Commission vide Order dated allowed 8 Change in Law events in respect of 520 MW out of 1320 MW in respect of the PPA dated Prayas challenged the Orders of the Commission in Case No. 68 of 2012 and 63 of 2014 vide Appeal Nos. 296 of 2013 and 218 of MSEDCL also challenged the Order in Case No. 63 of 2014 vide Appeal No.166 of 2014 before the ATE on the ground that the Commission could not have granted Compensatory Tariff to APML under its regulatory powers. APML also challenged the Order dated vide DFR No of 2014 on the ground that the above event qualifies as Force Majeure as per provisions of the PPA On , the Full Bench of APTEL partly allowed the Appeals of Prayas and MSEDCL, holding that the Commission has no regulatory powers to grant Compensatory Tariff. However, the issue of whether the withdrawal of the ToR, which led to inaccessibility of the Coal Blocks and their subsequent de-allocation was a Force Majeure event under the PPA was kept open to be decided by the ATE Since the Compensatory Tariff granted by the Commission for the 800 MW capacity under PPA dated has been set aside by APTEL by Order dated , APML is now seeking adjustment in tariff for the Change in Law events in respect of this 800 MW In respect of all the Change in Law events claimed in this Petition, APML has already notified MSEDCL in terms of Article 13.3 of the PPA. The notices already issued pertain to the entire contracted capacity of 1320 MW under the PPA dated , and thus there is no further requirement to re-notify MSEDCL in respect of the Change in Law events claimed in this Petition. Article 13.3 contemplates that notice is to be given once within a reasonable time, and that has been complied with by APML. 12. In the above background, APML s Rejoinder to the contentions in MSEDCL s Reply dated is as follows: MSEDCL has contended that the Appeal No of 2014 filed by APML is pending and as such this Petition is not maintainable The contention of MSEDCL is not correct as the issue before the APTEL is in respect of an event, i.e. withdrawal of ToR and subsequent de-allocation of Lohara Coal Blocks, as being a Force Majeure, whereas the approval sought in the present Petition is related to compensation payable towards Change in Law under Article 13 of the MERC Order Case No. 102 of 2016 Page 29 of 78

30 PPA and it is not part of that Appeal before ATE. The causes of action in the present Petition and the pending Appeal are independent of each other Thus, there is no possibility of any duplication of the relief that may be granted to APML under these two separate proceedings. APML cannot be deprived of timely and legitimate relief which is allowed under the PPA MSEDCL has contended that the source of fuel for 800 MW capacity is not known and, therefore, the impact of Change in Law cannot be computed APMLhas been granted Tapering Linkage for the 800 MW capacity and the Change in Law has been claimed only for domestic coal on the same lines of approval granted by the Commission for the 520 MW portion under the same PPA which has coal linkage from CIL. Therefore, MSEDCL s contention is unfounded The Change in Law events claimed by APML in this Petition would also have been applicable if the coal was sourced from Lohara Coal Blocks had they been operational. The Change in Law events that would have been applicable in case the coal was sourced from Lohara Coal Blocks are as follows: S. No Change in Law Event Applicability 1 Levy of Clean Energy Cess on Coal Applicable 2 Change in Rate of Royalty on Domestic Coal Applicable 3 Imposition of Central Excise Duty on Coal Applicable Inclusion of Stowing Excise Duty, Royalty and other State levies for computation of Central Excise Duty Levy of Service Tax, Education/Higher Education Cess on total freight on transportation of goods by Rail Increase in Development Surcharge on Transportation of coal by Railway Increase in Busy Season Surcharge on Transportation of coal by Railway Applicable Applicable Applicable Applicable MERC Order Case No. 102 of 2016 Page 30 of 78

31 12.7. MSEDCL has also placed reliance on Article 19 of the PPA to contend that, if fuel from alternate source is utilised to meet the requirement of supply of power under the PPA, compensation under Change in Law would be applicable only in respect of the original fuel source. This interpretation of Article 19 is misplaced. Article 19 is not applicable in the present cases, since APML is claiming Change in Law for power supplied from the identified Units, i.e. Unit 2 and 3 of Tiroda TPP. Article 19 of the PPA reads as below: Supply from alternate sources of fuel and from sources other than the unit identified by the Seller in the RFP for competitive bidding process initiated by the Procurer through issue of RFQ and RFP for process for procurement of generation capacity and purchase and supply of electricity is allowed. However, in such cases no tariff adjustment or change in quoted transmission charge/ transmission loss is allowed. Provisions for Change in Law and force majeure shall be applicable to the unit identified in the RFP, notwithstanding anything contained in this document The first part of Article 19 provides that tariff adjustment will not be allowed in case of supply from alternate source. However, in case of Change in Law / Force Majeure, there is no such stipulation, and the only condition is to supply from the Identified Unit. APML is supplying power under the PPA from the Identified Units only, i.e., Unit 2 and Unit 3. Therefore, its claim is justified and in line with the provisions of PPA In any case, APML is claiming Change in Law only on the domestic coal used in lieu of the coal from the Lohara Coal Blocks It is a common practice to grant Tapering Linkage to a Developer who has been allotted a captive Coal Blocks in order to allow it to meet its obligation under the PPA during the period when the coal block is being developed As regards prudence check of the financial calculations to ensure that any inefficiencies with respect to generation (i.e. due to degradation of SHR, lower GCV of coal resulting in higher procurement) is not passed on to MSEDCL: The methodology of claiming Change in Law compensation was agreed to by both the parties and MSEDCL has and is making payments from time to time against the Change in Law compensation claimed in respect of 520 MW capacity. The Commission s approval of the Change in Law events vide Order dated has attained finality and no Appeal has been filed by MSEDCL. Therefore, MSEDCL now cannot re-agitate the issue which is already settled and has attained finality. MERC Order Case No. 102 of 2016 Page 31 of 78

32 In any case, the claims are being made by APML considering normative operational parameters and, ultimately, MSEDCL is limiting the payment to the lower of the actual quantity or normative quantity, and as such operational inefficiencies are not being passed on to MSEDCL. Change in Law compensation for Amendment to Environment (Protection) Rules, MSEDCL has stated that the financial impact of Change in Law events claimed by APML has to be assessed and the Commission may allow such cost after prudence check No cost or compensation for any Change in Law event approved by the Commission is granted without prudence check being done. Even in the case of approval of Change in Law events for the 520 MW capacity, the Commission while approving the methodology for payment has taken into account the financial impact on MSEDCL after carrying out prudence check. Grounds for grant of Interim Compensation In view of the above, the Commission may grant interim relief for the events already approved vide Order dated as Change in Law by the Commission based on the following grounds: a) The PPA dated provides for Change in Law for the entire contracted capacity of 1320 MW. b) APML had earlier claimed Change in Law only for 520 MW capacity, since Compensatory Tariff granted for 800 MW covered the actual cost which included impact due to Change in Law. Further, the Commission, also vide its Order dated , had specified that the Change in Law events approved therein were to be made applicable only on the 520 MW portion of contracted capacity. c) Till date no payment has been made towards the Compensatory Tariff by MSEDCL since the commencement of power supply under the PPA (i.e ) and now the Compensatory Tariff order has been set aside by the APTEL. d) Meanwhile, APML has been paying all the taxes and duties for the coal being procured for the 800 MW portion of contracted capacity from time to time since March, e) The cash outflow for the approved Change in Law events has increased drastically and, if such costs incurred by APML towards Change in Law for the approved events are not reimbursed immediately for the past period as well as on a regular basis for the future period, it would be difficult for APML to sustain its operations. The year-wise impact of Change in Law is detailed in the Tables below: MERC Order Case No. 102 of 2016 Page 32 of 78

33 Change in Law event Clean Energy Cess (Rs. Cr) Central Excise Duty (Rs. Cr) Royalty (Rs. Cr) Service Tax on Rail Transportation (Rs. Cr) Busy Season Surcharge (Rs. Cr) Development Surcharge (Rs. Cr) Year-wise impact of approved Change in Lawevents, as per APML FY FY FY FY (till Jul 16) Total (Rs. Cr) Total (Rs. Cr) Sch. Energy corresp. to 800 MW (MUs) Per Unit Impact (Rs/kWh) 3, , , Impact of approved Change in Law events for July, 2016 Change in Law event Impact in Rs. Cr Clean Energy Cess Central Excise Duty 2.04 Royalty 0.54 Sch. Energy corresponding to 800 MW (MUs) Per Unit Impact (Rs/kWh) Service Tax on Rail Transportation 0.81 Busy Season Surcharge - Development Surcharge MERC Order Case No. 102 of 2016 Page 33 of Total

34 f) It will be seen that the impact of Clean Energy Cess alone is 30 paise per unit, which translates to about 21% of the PPA tariff of Rs. 1.44/kWh. g) The amount raised is towards reimbursement and APML shall submit all data, information and documents regarding actual payment in the bills to be raised for payment For these reasons, besides there being a prima facie case, the balance of convenience also lies in favour of APML and no prejudice would be caused to MSEDCL if, in the interim, compensation is granted for the approved Change in Law events in view of following: a) The Commission has already approved the events as Change in Law under the same PPA vide Order dated in Case No. 163 of 2014 for 520 MW and these events are equally applicable for 800 MW in view of foregoing. b) MSEDCL is already paying for these Changes in Law events for 520 MW. c) There is no legal hindrance either since Compensatory Tariff Orders dated and in Case Nos. 68 of 2012 and 63 of 2014, respectively, with regard to 800 MW are set aside by APTEL in the Appeal filed by MSEDCL. d) Delay in recovery of such approved Change in Law events has caused huge injury to APML since it has had to arrange for additional fund and bear burden of about Rs 20 crore every month. e) Even otherwise, the PPA being a long term contract, any payment thereunder can be recovered towards the future supply APML is already facing hardship due to withdrawal of the ToR and subsequent withdrawal of Lohara Coal Blocks from which the coal was to be sourced. The financial burden of these Change in Law events coupled with financial hardship on account of non-availability of fuel from Lohara Coal Blocks is affecting the viability of the Power Plant. The financial constraints may have an adverse effect on the power supply to the consumers Hence, the Commission may grant relief for the approved Change in Law events in respect of 520 MW by way of adjustment in tariff for the 800 MW portion of contracted capacity by way of an Interim Order. 13. In its submission dated 13 December, 2016 with regard to the additional reliefs sought by AMPL, MSEDCL has stated as follows: MERC Order Case No. 102 of 2016 Page 34 of 78

35 13.1. APML has claimed Change in Law relief under the PPA dated in respect of the loading and unloading charges imposed by the Railways and the cost of transportation of ash to construction sites. These do not qualify for Change in Law under Article 13 and other provisions of the PPA. Without prejudice submissions: Levy of Coal and Coke Terminal Surcharge w.e.f Ministry of Railways has issued a Corrigendum dated whereby coal and coke terminal surcharge is levied on the coal freight falling under class 145A for the distance beyond 100 kms. As per the PPA provisions, the coal for 800 MW was envisaged to be obtained from Lohara Coal Blocks. The claimed Change in Law, if accepted, would have been applicable for the distance covered by rail transport between Lohara and Tiroda. Hence, the distance for which thechange in Law is being sought should be restricted to the rail travel envisaged for the coal sourced from Lohara Coal Blocks. The relief to be provided, if any, should be subject to scrutiny and verification The methodology to estimate additional charges due to Change in Law needs to be approved by the Commission after prudence check with regard to the efficiency parameters like coal consumption, SHR, Auxiliary Consumption etc. of the generation Plant The PPA provides that compensation under the Change in Law provision will be applicable only if it is in excess of 1% of the Letter of Credit (LC) in aggregate for a Contract Year. As to the components for which APML has asked for compensation, the Commission may carry out prudence check on each component considering this provision. Amendment in Notification on utilization of Fly Ash generated from coal and lignite based TPPs dated It is the social responsibility of the Generator to dispose of the Fly Ash for protection of environment, to conserve the top soil, to prevent the dumping and disposal of Fly Ash discharged from coal or lignite based TPPs on land As per APTEL Judgment in Appeal Nos. 108 of 2013, 149 of 2015, 171 of 2014 and 172 of 2014, corporate social responsibility (CSR) expenses meant for the welfare of the general public by providing education, health camps and other social activities, charities, etc. cannot be included in the Aggregate Revenue Requirement (ARR) and passed on to the consumers. MERC Order Case No. 102 of 2016 Page 35 of 78

36 13.7. The expenditure for the CSR activities would not be allowed as a pass through to the Distribution Licensee in line with the above APTEL Judgment. 14. Vide letter dated , MSEDCL stated that it wished to withdraw its submission dated MSEDCL s fresh submission dated on the additional reliefs claimed by APML states as follows: The additional reliefs claimed by APML relate to loading and unloading charges imposed by the Railways and the cost of transportation of Fly Ash to construction sites These do not qualify for Change in Law under Article 13 and other provisions of the PPA dated The facts, averments and submissions made by MSEDCL in the main Reply dated September 6, 2016 may be considered in the context of these additional claims also APML seeks to compute coal and coke terminal surcharge and utilization of Fly Ash with reference to the 800 MW portion of contracted capacity linked to Lohara Coal Blocks. The very basis for the claims is subjudice before the APTEL, linked to Lohara Coal Blocks whose allocation no longer subsists APML s claims ought to be rejected as they are bereft of any details. Change in Law cannot be urged without a factual matrix. I. Levy of Coal and Coke Terminal Surcharge w.e.f II. Amendment in Notification on utilization of Fly Ash generated from coal and lignite based TPPs dated [The Commission notes that MSEDCL s specific submissions on these two additional claims of APML are substantively similar to those made in its earlier submission dated 13 December, 2016, and set out at paras o 13.7 above.] 16. At the hearing held on , APML set out the chronology and stated the events of Change in Law and the relevant Notifications. Change in Law events had occurred on account of the following: a) Chhattisgarh Government has amended the Chhattisgarh Act, 2005 on , and notice of change of the Environment and Development Cesses from Rs. 5/MT to Rs. 7.50/MT is applicable for all SECL coal despatches from MERC Order Case No. 102 of 2016 Page 36 of 78

37 b) The MMDR Amendment Act, 2015 requires levies on Royalty to be paid to the DMF of the District in which mining operations are carried out, and also for payments by the holder of the mining lease to the NMET. The Notifications were issued on and , respectively. c) SBC on Service Tax on Rail Transportation, and on Service Taxin Operating Period. d) Port Congestion Surcharge on Railways Base Freight rates e) Capital investment required, if any, in compliance of Environment (Protection) Amendment Rules, 2015 dated and consequent operation costs on account of increase in Auxiliary Consumption f) KKC g) Coal and Coke Terminal Surcharge h) Amendment of Notification on Fly Ash utilisation Chhattisgarh Govt. Environment Cess and Development Cess APML stated that it had submitted the challans billed by SECL for levy of Environment Cess and Development Cess of Rs. 7.50/MT each on coal by the Chhattisgarh Govt. arising from amendment of the Chhattisgarh Act, 2005 and passed on by SECL. The Cesses were earlier Rs. 5/MT, which was factored in its bid by APML APML stated that, according to MSEDCL s Reply, the Chhattisgarh Govt. is not an Indian Govt. Instrumentality as defined in the PPAs. However, the definition of Change in Law, which refers to any law, has to be read with the definition of the term law in the PPAs, which has not been qualified and is all-inclusive and across India, and not limited to an Indian Govt. Instrumentality as defined. SECL has to pay the Cesses, and its incidence is passed on to APML. To the Commission s query as to the position if SECL were it to bill an all-inclusive price, APML stated that it was a hypothetical question as CIL/SECL shows the price components in its bills. In E- Auction also, bidding is on the Base Price, and any taxes and duties are levied separately on Rs./MT basis and not in percentage terms. The Commission asked why, if that is the case, coal is at all sourced from SECL, and whether MSEDCL s interest was factored in. Had the coal been procured from Western Coalfields Ltd. (WCL), for instance, instead of from SECL, there would not have been anysuch Chhattisgarh Cess liability. The issue is whether this liability can be passed on to the Procurer and its consumers by the Generator. APML responded that it would demonstrate the basis. MERC Order Case No. 102 of 2016 Page 37 of 78

38 MMDR Amendment Act levies As regards the levies on royalty now payable by mining lease holders to the DMF and the NMET, APML stated that, in the earlier Change in Law Case No. 163 of 2014, the Commission had concluded that the PPA provides the full framework for allowing tariff adjustments for Change in Law so as to restore the Seller to its original economic position. In other words, the levy does not have to be only one which is directly on the party itself. MSEDCL has not contested APML s claim on these levies but stated that it should be subject to prudence check, and APML has computed the per-unit impact. SBC on Service Tax for rail transportation, and on Service Tax in Operating Period APML stated that the Notification had been provided, and that the Commission had approved this as a Change in Law in an earlier Case. MSEDCL has not contested the claim, subject to prudence check. Port Congestion Surcharge by Railways According to MSEDCL, Art. 19 does not cover this. However, Art. 19 is only in one of the PPAs (dated for 1320 MW). It provides that there would be no tariff adjustment in respect of power supplied from alternative sources, and the Change in Law provision would apply only to Units identified in the RfP. The definition of Contracted Capacity identifies the Units. Art. 19 was a modified version of the Case 2 Standard Bidding Documents and included in the PPA because, at that time, the required Case 1 Documents had not been issued by the Central Govt. APML stated further that, according to MSEDCL, Art. 19 disentitles the Seller even if the Unit is the same but the coal source has changed, which is not a correct interpretation. The Commission observed that Art. 19 refers to alternate sources of fuel or Unit. APML responded that, as long as the Change in Law meets the stipulated tests, including to restore the party affected to the same economic position, it would apply. The primacy of the Change in Law provisions in Art. 13 is confirmed in Art. 19 which provides that the Change in Law and Force Majeure provisions shall apply notwithstanding anything in this document. Art. 19 of the PPA is for the Units identified in the RfP and not for the fuel source APML stated further that Busy Season Surcharge was approved by the Commission in its last Order, having been imposed by GoI under the Railways Act. The same analogy applies to the present claim regarding Port Congestion Surcharge. Para of the last Change in Law Order also discussed Art. 19. To the Commission s observation that the document of the Ministry of Railways does not indicate any notification having been issued or the legal provision, APML stated that it would file its submission. MERC Order Case No. 102 of 2016 Page 38 of 78

39 Amendment to Environment Protection Rules APML stated that the Environment (Protection) Amendment Rules, 2015 dated notified by GoI set new requirements to be met Generating Stations such as Cooling Towers, etc. and set more stringent emission norms. APML will have to make additional capital investment and Auxiliary Consumption may also increase. The assessment of its impact has not yet been done by APML. However, once the Commission approves it in principle as a Change in Law, the financial impact would be worked out and submitted To the Commission s query as to the treatment given by other Commissions, etc., APML stated that it would ascertain and submit the position. The Central Electricity Regulatory Commission (CERC) has been approached by Coastal Gujarat Power Ltd. (CGPL), a Generator, and has referred the issue to the Central Electricity Authority (CEA) with a view to deciding the way forward considering the impact on all such Generators. KKC (on Service Tax for rail transportation, etc.) APML stated that MSEDCL had objected because the financial impact had not been assessed. APML had now given the impact in its Rejoinder. Coal and Coke Terminal Surcharge APML stated that, according to MSEDCL, the Change in Law earlier allowed by the Commission was concerning the power based on the Lohara Coal Blocks (which were cancelled by the Central Govt.). Since coal was now being obtained from a different source, relief should only be to the extent of the difference in distance between the original (Lohara) source and the new source. As per the notification, the distance has to exceed 100 kms. However, both Lohara and the new source are more than 100 kms. away from the generation site. Amendment of Notification on Fly Ash utilization By an amendment dated , it is now mandatory for the Generator to bear the transport cost for supply of Fly Ash to user units within 100 kms. of the Plant. Beyond 100 kms., the cost is to be shared between the Generator and the units. According to MSEDCL, this is a part of the Generator s CSR. However, in fact, it is the Generator s legal obligation APML stated further that MSEDCL had raised the issue of the date of effect of Change in Law. Even the Change in Law approved earlier had not been implemented for the period in FY because, with regard to 1200 MW, MSEDCL contends that, although there was an agreement to pre-pone the supply as per the PPA MERC Order Case No. 102 of 2016 Page 39 of 78

40 provisions, the Change in Law provision is not applicable to the pre-poned period. In fact, the Change in Law is to apply from the date it affects the Seller, as also held by the Commission in its last Order. APML referred to the PPA provisions and the correspondence. The pre-poned supply of firm power had been agreed to at the same tariff, and all else was to be as per the PPA. The Commission may give specific directions not to withhold the due Change in Law payments. Moreover, according to MSEDCL, under Art of the PPA for 1200 MW and the corresponding provision in the PPA for 1320 MW, the compensation is due only if the cost exceeds 1%. However, Art does not deal at all with when the Change in Law is applicable. Besides, the floor of 1% is in aggregate and not event-wise As regards 800 MW, APML stated that MSEDCL has taken the plea that APML s appeal is pending in APTEL for invoking Force Majeure. However, these matters are independent of each other: the Lohara appeal is not concerned with Change in Lawbut other issues of Compensatory Tariff (set aside by APTEL) and Force Majeure (claimed by APML). The only concern may be double-counting, which can be addressed APML also stated that, in its Reply, MSEDCL refers to the joint application of both parties for a certain tariff for an earlier Scheduled Delivery Date (SDD) in which it was stated that APML would not ask for any interim tariff increase before the Revised SDD and that, therefore, Change in Law will not apply. However, Change in Law applies as and when supply commences APML submitted that, following the Orders in Case No. 163 of 2014 and other matters, some of the awarded claims had not been paid by MSEDCL. While carrying cost had not been given in those Orders, APML is now claiming carrying cost. To the Commission s observation that APML had not sought review of that Order which has attained finality, APML stated that para of the Order does not negate the principle of carrying cost. However, the interest incurred has to be shown and cannot be notional. Therefore, now APML is coming with supporting documents and proof regarding the actual interest incurred by it MSEDCL stated that Change in Law is an event which alters the economic position of a party, and which needs to be restored. Thus, each and every Change in Laweventis not covered under Art. 13. In the case of the amendment to the Environment (Protection) Rules, for instance, the precise impact on APML s economic position has to be shown. Paras. 171 to 185 of the APTEL Compensatory Tariff Judgment dated 7 April, 2016 enumerates the principles of Change in Law. Art (of the PPA dated ) is an exhaustive definition of Change in Law, which means and not means and includes. In other PPAs, Article 10 sets out the applicability of tariff adjustment on account of Change in Law. MERC Order Case No. 102 of 2016 Page 40 of 78

41 MSEDCL also referred to other Sections of the Change in Law Article, and also to the definition of law and Indian Governmental Instrumentality. The latter includes this Commission, CERC, GoI and Govt. Of Maharashtra (GoM) (and agencies controlled by them) or the Govt. of the State where the Project is located. Hence, the intent was not to cover the Chhattisgarh mines. Para. 185 of the APTEL Judgment may be referred to in this context Citing the PPA definitions, including the last bullet point of Art which refers to as per the terms of the Agreement, MSEDCL stated that, for instance, if an intervening State sets a transit tax on transport of coal, it will not be covered under Change in Law because it is not on generation per se. 17. At the hearing held on 3 January, 2017, MSEDCL stated that Article 10 and Article 13 of the respective PPAs contemplate alteration of the economic position of the affected party for claiming Change in Law. The nomenclature of such Change is not relevant, and one should look into whether it is covered under the definition of law under the PPAs MSEDCL also stated that the impact on economic position has to be quantified at the time of filing the Petition, and the Petition is bereft of such details in case of certain claims such as the impact of the Environment (Protection) Amendment Rules, APML responded that, in such cases, the Commission may first determine whether they constitute a Change in Law or not. As regards the impact of the amendment to the Environment (Protection) Rules, some Generators have approached CERC, which has asked CEA to quantify its impact on capital cost effect on capital cost. The Commission may keep this issue pending till the outcome of the matter before CERC. MSEDCL agreed that the contentions of the Parties may be kept open on this issue MSEDCL stated that express mention of a certain thing in a particular clause of the PPAs will exclude other things even of a similar nature. Thus, whereas Art. 12 specifically includes the Parties contractors with regard to Force Majeure events, Art. 13 is silent on that point. The intention of the parties must be seen from the provisions of the PPAs as they stand, and not as might otherwise have been intended. In the Case of Hare Vs. Horton (circulated) a house with fixtures and foundry was to be sold. It was held that since only the word fixture was used with regard to the house, fixtures of the foundry were not included. Similarly, the Commission has to see the intention of the parties as reflected in the PPAs and not otherwise MSEDCL submitted that the definition of Government Instrumentality expressly covers only the GoI and GoM, thereby excluding other State Govts. Therefore, the Chhattisgarh Act revision does not qualify aschange in Law. Moreover, APML has not demonstrated how its economic position is affected. Further, the Chhattisgarh Cesses are levied on a 3 rd party, i.e., SECL, and not on APML. MERC Order Case No. 102 of 2016 Page 41 of 78

42 17.5. The Commission asked how an increase in costs arising from a Change in Law event would be distinguished from a change in the economic position of the affected Party. MSEDCL responded that compensation is due only if the Change has an impact exceeding 1 % of the LC in aggregate for a Contract Year. Since the PPAs are under Section 63 and are not based on cost-plus, the risk has inherently to be borne by the Bidder To a query of the Commission, MSEDCL responded that no precedent has been laid down by other State Commissions or CERC in similar matters as the Chhattisgarh Act amendment has taken place only in Also, payments to the DMF of the District in which the mining is carried out and to the NMET are to be made by the mining lease holder, i.e. SECL, which is a third party and not covered under Art MSEDCL stated that it is agreeable to the claims with regard to SBC and KKC, subject to prudence check by the Commission As regards Port Congestion Surcharge, MSEDCL that it arises from a Rate Circular issued by the Railway Board, and hence does not amount to a Change in Law considering the definition of law. To an observation of the Commission, MSEDCL stated that the Commission had accepted the claim for Busy Season Surcharge in its earlier Order in Case No. 163 of 2014, and had also stated that it was not covered under the CERC escalation index. However, MSEDCL reiterated that the Railways letter did not quote any section of law under which the Surcharge was imposed. In its reply to APML s claim letter, MSEDCL had said that the matter would be decided by the Commission. APML also needs to submit in a tabular format the claim against each head As regards KKC, MSEDCL accepts the claim subject to prudence check and confirmation of the dates MSEDCL referred to Clauses 2 (1) and 2 (3) of the MoEF Notification dated regarding utilisation of Fly Ash generated from Coal and Lignite based TPPs. As on the date of the Bid, APML had to supply Fly Ash free of cost within a certain distance, which was extended in In the subsequent Notification dated , Clause (3), the heading had been changed to Responsibilities of TPPs in place of Utilisation of Fly Ash. Thus, the disposal of Fly Ash is now a responsibility cast on TPPs, and hence APML cannot claim any change in its economic position on this count since it is purely in the nature of its responsibility, under S. 63 read with Art. 13. APML may also have factored in the entire cost as per the 1999 Notification at the time of the Bid. Every increase in cost cannot be passed on as Change in Law under Art. 13. MSEDCL referred to Clauses 2 (b) (10) and 2 (b) (14) of the latest Notification dated , which showed that the onus had to be borne by the Generator, and could not be covered under Art. 13. To a query of the Commission, MERC Order Case No. 102 of 2016 Page 42 of 78

43 MSEDCL stated that it could not find any legal precedents with regard to this claim, or any Cases pending elsewhere MSEDCL stated that the claim regarding terminal surcharge for loading/unloading of coal and coke was based only on Circulars of the Railways Ministry, and the incidence was on the agencies concerned/contractors. Hence, MSEDCL does not agree with it MSEDCL also emphasized that prudence check is necessary for each claim, and the Commission may ensure that no inefficiency of the Generator is passed on Referring to Article 13 (Art. 10 in other PPAs), APML stated that definitions have always to be read in the context of the other substantive provision of the PPAs. Article (i) refers to any law, neutral of who or where, or what kinds of laws. The definition of law cannot be at variance with the substantive provisions of Art This is followed by or sub-clause (ii) which refers to Indian Governmental Instrumentality. As in Article (i) and (ii), this distinction between law and Indian Governmental Instrumentality is throughout maintained in the PPA. Art read with Art entirely covers the Chhattisgarh Cesses as a Change in Law, since it has been imposed by the Legislature by statute APML stated that MSEDCL s contention that the Force Majeure provision covers contractors but is missing in the Change in Law provision, and hence that the intention of the Parties was to exclude contractors from Change in Law is not correct. Force Majeure and Change in Law are mentioned in different Section of the PPAs. The concepts of Force Majeure and Change in Law are totally different. In any case, SECL is not a contractor but a fuel supplier or vendor in terms of Change in Law. The intention of the Parties is to be gauged from what is in the contract and no adverse inference can be drawn from what is omitted. If there is no express provision in Art. 13, it cannot be said that the claim is not due. Paras. 185 and 186 of ATE Judgment dated 7 April, 2016 may be seen in this context APML stated further that Art 13.2 provides that the affected party be restored to the same economic position as if such Change in Law had not occurred. APML will demonstrate the extent of consequential change in its economic position. Art (b) of the PPAs provide that, in such cases, increases in costs to the Seller would require compensation to be decided by the Commission APML submitted that, to its notices under Art 13.2, MSEDCL only replied that it would be decided by the Appropriate Commission. None of the issues now raised by MSEDCL were cited in its replies to the notices. Art (notification of Change in Law) has some purpose; the response cannot be merely to say that the Commission may decide, and hence MSEDCL is estopped from raising new objections at this stage. In the context of there having been no substantive reply or objection to the MERC Order Case No. 102 of 2016 Page 43 of 78

44 notices, and considering the provisions of Art (b), Art and Art (ii), the Commission may only decide the extent of compensation due to APML. The Commission observed that, even if both parties agreed on a certain matter, the Commission s role may not be limited to merely determining the compensation APML referred to Art. 19 (which is only in one of the PPAs). It has three sentences, setting out what is allowed, what is not allowed, and the exception to what is allowed. In Case1 competitive bidding, it is APML s responsibility to arrange fuel, so change in fuel source is allowed. Tariff adjustment or change in quoted transmission charge is not allowed. The third sentence is an exception to the first sentence, that it is applicable to the Unit identified under the RfP. This means that, for Change in Law, change in fuel source is not a restriction, but change in Unit is not allowed because it is an exception as provided in the last sentence of Art APML stated that, at para 2.1 of MSEDCL s submission dated , it has accepted the levy of DMF and NMET, subject to prudence check APML stated further that, with regard to Port Congestion Surcharge, at para. 37 of its Order in Case No. 163 of 2014, the Commission had approved a similar Surcharge. While doing so, it had discussed the provisions of the Railways Act. The Railways Act gives a mandate to levy such charges, whether through notification or circular. The Railways letter refers to Central Govt. sanction: such sanction is under S. 30 of the Railways Act. APML cited the Judgment of Calcutta High Court AIR 2015, 288 (2), para 21 of Rashmi Metalliks Ltd. V/s Union of India, in which it was held that the rate circulars of the Railway Board are Orders, though termed as Circulars. Thus, the rate circular issued by the Railways Board has the force of law under Section 30 of the Railways Act. The same reasoning is applicable to Coke and Coal Terminal Surcharge As regards the amendment relating to Fly Ash, APML submitted that, by MSEDCL s logic, since everything is a responsibility of the Generator, nothing can be passed on. From 1999 to 2016, the TPP was required to dispose of Fly Ash in ash bunds, and then an obligation was cast only to make available the Fly Ash. In 2016, Clause 2(8) was added to the Notification. APML now has to transport the material to the Fly Ash user and incur additional costs whose impacts have been submitted As regards replies to APML s notices, MSEDCL stated that these notices were not issued under Art. 17.2, which requires a response from MSEDCL, but under Art which does not call for a specific response APML stated that the issue of carrying cost had also been raised on the previous occasion. In case the final Order in this Case would take time, some interim relief may be given along the lines of the Change in Law events which were allowed by the Commission in Case No. 163 of MSEDCL stated, however, that the claim for MERC Order Case No. 102 of 2016 Page 44 of 78

45 carrying cost had already been rejected by the Commission in Case No. 163 of Interim relief is also not warranted. 18. In its further written submission dated , APML stated as follows: The Petitionis filed for appropriate compensation for Change in Law events that have already been approved by the Commission vide its Order dated in Case No. 163 of 2014 as well as for new Change in Law events that have occurred subsequently, adversely impacting the costs and revenues for the 800 MW portion (out of the 1320 MW) contracted capacity under the PPA dated Since the Commission has already approved and MSEDCL has been paying the approved compensation for Change in Law events affecting the 520 MW capacity (out of total 1320 MW contracted capacity) pursuant to the above Order, the nature and impact of such Change in Law events on the balance 800 MW capacity does not require any further adjudication or determination by the Commission. In addition, the present Petition also seeks compensation for Change in Law events set out in Case No. 38 of 2016 for the 800 MW capacity. All the arguments and contentions regarding the merits of such events qualifying as Change in Law under the PPAs have been dealt with in detailin the written submissions dated filed byapml in Case No. 38 of 2016, which may be considered as part and parcel of the present submissions. Additional Case-specific issues relating to the present Petitionare dealt with below. Why did APML not claim Change in Law relief for 800 MW portion of the PPA in Case No. 163 of 2014,and why is APML now entitled to claim relief for such Change in Law? Vide Orders dated and , the Commission in Case No. 68 of 2012 and 63 of 2014, respectively, granted Compensatory Tariff to APML in respect of 800 MW out of the contracted capacity of 1320 MW under the PPAs for the reason that the ToR for the Lohara Coal Blocks was withdrawn by MoEF. As such, the coal from that mine was not available in respect of 800 MW capacity. Vide Order dated , the Commission held that this withdrawal of ToR does not qualify as Change in Law or Force Majeure event under the PPAs In those Orders, the Commission had clarified that the Compensatory Tariff was limited only to 800 MW capacity and no relief in respect of 520 MW capacity was provided. Since the Compensatory Tariff formula approved by the Commission for 800 MW capacity covered the entire additional cost incurred over and above the PPA tariff, compensation for Change in Law events were covered within the Compensatory Tariff formulae and as such there was no need to claim the same separately The Commission has noted at paragraph 4.4 of the Order dated as follows: MERC Order Case No. 102 of 2016 Page 45 of 78

46 As the compensation granted by the Commission takes into account the actual cost of fuel for the 800 MW portion of contracted capacity linked to Lohara Coal Block, vide the present Petition APML is seeking approval for adjustment in Tariff for Change in Law events in respect of various statutory taxes, duties, levies, royalty, etc, affecting Energy Charges for the balance 520 MW contracted capacity based on coal linkage from Coal India Ltd. (CIL) subsidiaries and, in addition, the Minimum Alternate Tax (MAT) for the entire 1320 MW contracted capacity Therefore, for the above reasons, APML had limited its Change in Law claim and compensation for the 520 MW capacity only. Vide its Order dated , the Commission allowed 8 Change in Law events in respect of 520 MW out of 1320 MW capacity in terms of the PPA Prayas challenged the Orders of the Commission in Case No. 68 of 2012 and 63 of 2014 vide Appeal Nos. 296 of 2013 and 218 of 2014, respectively. MSEDCL also challenged the Order dated vide Appeal No. 166 of 2014 before the APTEL on the ground that the Commission could not have granted Compensatory Tariff to APML under its regulatory powers. APML also challenged the Order dated vide Appeal No. 241 of 2016 (DFR No of 2014) on the ground that the withdrawal of ToR for Lohara Coal Blocks and related events qualified as Force Majeure events under the provisions of the PPA On , the Full Bench of APTEL partly allowed the appeals filed by Prayas and MSEDCL, holding that the Commission has no regulatory powers to grant Compensatory Tariff to APML. However, APML s Appeal regarding whether the withdrawal of ToR, which led to inaccessibility of coal block and its subsequent deallocation, was a Force Majeure event under the PPA has been kept open for adjudication by the APTEL in Appeal No. 241 of As a result of these Orders of APTEL, the benefit of Compensatory Tariff for the 800 MW capacity which included compensation for all the Change in Law events is no longer available to APML. Therefore, APML is now constrained to seek compensation in the form of tariff adjustment for specified Change in Law events in respect of 800 MW capacity under the PPA Since the Commission has already approved 8 Change in Law events for the 520 MW portion of the 1320 MW capacity under the same PPAs vide Order dated in Case No. 163 of 2014, those events ipso facto qualify as Change in Law for the balance 800 MW capacity of the PPA and APML is entitled to compensation for the same in terms of the Order dated The Change in Law events claimed in addition to the ones already approved by the Commission need to be adjudicated afresh based on the justifications provided by APML. These events being the same as MERC Order Case No. 102 of 2016 Page 46 of 78

47 those claimed in Case No. 38 of 2016,APML ssubmissions in Case No. 38 of 2016 (being the connected matter to the present Petition) may be read as part and parcel of the record of the present Case. Whether the pendency of the Appeal before APTEL prevents APML from claiming the reliefs in this Petition? MSEDCL in its Reply dated has contended that the Appeal No. No of 2014 filed by APML is pending and as such the Commission may not hear the present Petition until the final Judgment of the APTEL The contention of MSEDCL is misconceived since the limited issue pending consideration of the APTEL is whether withdrawal of the ToR by the MoEF and subsequent de-allocation of Lohara Coal Blocks qualifies as a Force Majeure event under the PPA. Quite distinct from this issue, the present Petition has sought compensation for events which have already been approved as Change in Law by the Commission pursuant to Article 13 of the PPA and MSEDCL has admitted as such in its Reply and has been paying such compensation without demur for the 520 MW capacity. Thus, APML has a separate and independent cause of action and relief available under the PPA and the appeal pending before the APTEL is not interconnected to or interdependent on the same. The PPA provides for separate and independent reliefs for Force Majeure under Article 12 and for Change in Law under Article Further, the contention of MSEDCL in its Reply is completely unfounded and there is no possibility of any duplication of the relief that may be granted to APMLin the two separate proceedings. A claim made in accordance with the PPA provisions cannot be rejected on the ground of duplication pursuant to a relief to be available to APML in future based on the outcome of Appeals pending before APTEL. APML cannot be deprived of a timely and legitimate relief which is allowed under the PPA. In any case, compensation for Force Majeure is also to be approved by the Commission and it can ensure that there is no duplication. Therefore, there is no valid ground for the Commission to not consider and grant the reliefs prayed for in the present Petition. Whether APML is entitled to payment of carrying cost for the compensation for Change in Law relating to 800 MW capacity? APML has already furnished detailed justifications about carrying cost in its written submission dated filed in Case No. 38 of 2016, which may be considered as a part and parcel of the present written submission. The Commission in its Order in Case No. 163 of 2014, taking into consideration the submissions of APML, did not reject the principle of award of carrying cost. However, it pointed out that the interest MERC Order Case No. 102 of 2016 Page 47 of 78

48 incurred has to be shown and cannot be based on notional workings. Therefore, APML has already furnished supporting documents regarding the actual interest cost incurred by it with its written submission dated in Case No. 38 of Appropriate supporting documents along with the invoice for the past period (i.e., from the date of commencement of relevant Change in Law events after the Cut-Off Date) will be furnished by APML to MSEDCL in respect of Change in Law compensation for 800 MW once the present Petition is allowed by the Commission. In view of the additional financial burden due to difference in timing of payment of approved Change in Law to the respective statutory authorities and reimbursement of the same by MSEDCL, the Commission may direct MSEDCL to pay carrying cost for the past period. Commission s Analysis and Rulings 19. The Commission has analysed and given its findings and rulings on the following: I. Adjudication of Change in Law claims by Commission; II. Scope and meaning of Change in Law as per the PPA; III. De-allocation of Lohara Coal Blocks, and PPA provision for supply from alternative sources; IV. Evaluation of events claimed by APML as Change in Law; V. Parameters for computing Change in Law impacts; VI. Carrying Cost; and VII. Supplementary Bills for Change in Law payments I. ADJUDICATION OF CHANGE IN LAW CLAIMS BY COMMISSION The PPA dated ( 2008 PPA ) between APML and MSEDCL was entered into following a Case I competitive bidding process in terms of Section 63 of the EA, 2003 and has been approved by the Commission.This Petition and Order are concerned with 800 MW out of the 1320 MW generation capacity contracted under that PPA. The quantum of 800 MW is distinct from the remaining capacity in this and the other 3 PPAs since it was to be based on coal from the Lohara Coal Blocks allocated to APML by GoI. That allocation was subsequently cancelled. The PPA is between APML, a Generating Company, and MSEDCL, a Distribution Licensee, and hence the claims raised by APML fall squarely within the Commission s jurisdiction under Section 86 (1) (b) and (f) of the EA, Article 13.2 (b) of the PPA provides that the Commission shall adjudicate any dispute between the parties arising fromchange in Law claims: MERC Order Case No. 102 of 2016 Page 48 of 78

49 13.2(b) As a result of Change in Law, the compensation shall be payable for any increase/ decrease in revenues or cost to the seller shall be determined by the Maharashtra State Electricity Regulatory Commission whose decision shall be final and binding on both the parties, subject to the rights of appeal provided under applicable law and effective from date specified in APML has filed this Petition accordingly. II. SCOPE AND MEANING OF CHANGE IN LAW AS PER THE PPA The PPA provides as follows with regard to Change in Law : Law means, in relation to this Agreement, all laws including Electricity Law 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 CERC and the MERC;... Indian Governmental Instrumentality means the GOI, Government of Maharashtra and any ministry or, department of or, board, agency or other regulatory or quasi-judicial authority controlled by GOI or Government of States where the Procurer and Project are located and includes the CERC and MERC;... ARTICLE 13: CHANGE IN LAW Definitions In this Article 13, the following terms shall have the following meanings: "Change in Law" means the occurrence of any of the following events after the date, which is seven (7) days prior to the Bid Deadline: (i) The enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any law or; (ii) A change in interpretation of any Law by a Competent Court of law, tribunal, Indian Governmental provided such court of law, tribunal, Indian Governmental Instrumentality is final authority under law for such interpretation. But shall not include (i) any change in withholding tax on income or dividends distributed to the shareholders of the Seller, or (ii) change in respect of UI charges or frequency intervals by an Appropriate Commission "Competent Court" means: MERC Order Case No. 102 of 2016 Page 49 of 78

50 The Supreme Court or any High Court, or any tribunal or any similar judicial or quasi-judicial body in India that has jurisdiction to adjudicate upon issues relating to the Project Application and Principles for computing impact of Change in Law: While determining the consequence of Change in Law under this Article 13, the Parties shall have due regard to the principle that the purpose of compensating the Party affected by such Change in Law, is to restore through Monthly Tariff payments, to the extent contemplated in this Article 13, the affected Party to the same economic position as if such Change in Law has not occurred. a) Construction Period: b) Operation Period: As a result of Change in Law, the compensation for any increase/decrease in revenues or cost to the Seller shall be determined by the Maharashtra State Electricity Regulatory Commission whose decision shall be final and binding on both the Parties, subject to rights of appeal provided under applicable Law and effective from date specified in Provided that the above mentioned compensation shall be payable only if and for increase/ decrease in revenues or cost to the Seller is in excess of an amount equivalent to 1 % of the Letter of Credit in aggregate for a Contract Year Notification of Change in Law: If the Seller is affected by a Change in Law in accordance with Article 13.2 and wishes to claim a Change in Law under this Article, it shall give notice to the Procurer of such Change in Law as soon as reasonably practicable after becoming aware of the same or should reasonably have known of the Change in Law Notwithstanding Article , the Seller shall be obliged to serve a notice to the Procurer under this Article , if it is beneficially affected by a Change in Law. Without prejudice to the factor of materiality or other provisions contained in this Agreement, the obligation to inform the Procurer contained herein shall be material. Provided that in case the Seller has not provided such notice, the Procurer shall have the right to issue such notice to the Seller Any notice served pursuant to this Article shall provide, amongst other things, precise details of: (a) the Change in Law; and (b) the effects on the Seller of the matters referred to in Article MERC Order Case No. 102 of 2016 Page 50 of 78

51 13.4 Tariff Adjustment Payment on account of Change in Law Subject to Article 13.2, the adjustment in Monthly Tariff Payment shall be effective from: (i) the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law; or (ii) the date of order/judgment of the Competent Court or tribunal or Indian Governmental Instrumentality, if the Change in Law is on account of a change in interpretation of Law The payment for Changes in Law shall be through Supplementary Bill as mentioned in Article However, in case of any change in Tariff by reason of Change in Law, as determined in accordance with this Agreement, the Monthly Invoice to be raised by the Seller after such change in Tariff shall appropriately reflect the changed Tariff. Thus, the Change in Law provisions of the PPA have the following ingredients, and the evaluation of whether or not an event qualifies as a Change in Law or not, and its consequences, has to be addressed accordingly: a) The definition of Law under the PPA is an inclusive definition and contemplates all laws applicable in India in various forms. However, for an event to be considered a Change in Law event requires that it be caused by the operation of law or by an Indian Governmental Instrumentality; b) The term Indian Governmental Instrumentality covers GoI, GoM and any Ministry, Department, Board, Authority, Agency or Corporation under their direct or indirect control, or the CERC or this Commission, etc.; c) Change in Law encompasses introduction, increase, or modification of any law after the Cut-Off Date (which is in this case, i.e., 7 days prior to the Bid Deadline) which results in additional recurring or non-recurring expenditure to the Seller (APML), or in increase or decrease in revenues or cost to it; d) The recurring or non-recurring expenditure or income or decrease in cost to the Seller must be on actual basis and must financially impact APML as the Seller; e) The object of the Change in Law provision is to compensate the Party affected by such an event so as to restore it, through monthly Tariff Payments, to the same economic position as if such Change in Law event had not occurred. f) During the Operating Period, the relief on account of Change in Lawis governed by Article 13.2 (b) of the PPA: MERC Order Case No. 102 of 2016 Page 51 of 78

52 The compensation for any decrease in revenue or increase in expenses to the Seller shall be payable only if the decrease in revenue or increase in expenses of the Seller is in excess of an amount equivalent to 1% of the value of the Letter of Credit in aggregate for the relevant Contract Year. These are the guiding principles for ascertaining whether the events claimed as Change in Law by AMPL are to be treated as such under the PPA or not. III. DE-ALLOCATION OF LOHARA COAL BLOCKS, ANDPPA PROVISION FOR SUPPLY FROM ALTERNATIVE SOURCES As the Commission has recorded in its Order in Case No. 189 of 2013, APML and MSEDCL have entered into 4 PPAs for supply of power from Generating Units 1 to 5 of the Tiroda TPP as tabulated below:- Particulars Unit 2 Unit 3 Unit 1 Unit 4 Unit 5 Installed Capacity 660 MW 660 MW 660 MW 660 MW 660 MW Contracted in *1200 MW in PPA dated 31 March, 2010 the PPA(s) 8 September, 2008 *125 MW in PPA dated 9 August, 2010 dated *440 MW in PPA dated 16 February, 2013 Total PPA Contracted 1320 MW from Units 2 & MW from Units 1,4 and 5 Capacity Originally envisaged coal Coal from Captive Mine, Domestic Coal source as per Linkage Coal and Imported Coal Definition in PPAs Schedule 5 A of PPA: Details of Generation Source as submitted in the RfP Bid Primary Fuel Domestic Coal FSA for all 5 Units Originally envisaged coal source as per Schedule of PPA No Schedule relating to Coal Source Captive Coal Block (800 MW) Linkage with SECL/WCL (1180MW) Imported Coal Supply for Five Years and Long-Term Coal Linkage (1320 MW) Schedule 5 B of PPA: Details of Primary Fuel as submitted in the RfP Bid Primary Fuel Domestic/Imported Coal MERC Order Case No. 102 of 2016 Page 52 of 78

53 Particulars Unit 2 Unit 3 Unit 1 Unit 4 Unit 5 Fuel Source for all 5 Units Current coal supply arrangement Linkage Coal through FSA: 520 MW; Tapering Linkage (for Captive Coal Block): 140 MW Tapering Linkage (for Captive Coal Block) Captive Coal Block (800 MW) Linkage with SECL/WCL (1180MW) Imported Coal Supply for Five Years and Long-Term Coal Linkage (1320 MW Linkage Coal through FSA MoU with CIL subsidiaries MoU with CIL subsidiaries Note: * Units 1, 4 & 5 have been contracted in a combined manner with MSEDCL through 3 different PPAs. Thus, in the 2008 PPA with which this Order is concerned, fuel is defined as coal from captive mines, linkage coal from CIL and imported coal, and there is no Schedule 5. However, it is evident from a conjoint reading of that PPA along with the other 3 PPAs for the Tiroda TPP and their Schedules (summarised in the above Table) that, out of 1320 MW capacity under the 2008 PPA, 800 MW was envisaged on the basis of coal from the Lohara Coal Blocks and the remaining 520 MW on domestic linkage coal. Tapering (progressively reducing) Coal Linkage was provided by CIL for a limited period for the 800 MW capacity pending the availability of coal from the Lohara Blocks. These facts are undisputed. After the Cut-Off Date, the ToR for the Lohara Coal Blocks was cancelled by the MoEF and the Blocks de-allocated. In Case No. 68 of 2012, APML approached the Commission claiming this to be a Force Majeure event under the 2008 PPA. Consequently, APML sought its termination or, in the alternative, a revision in Tariff considering that neither an alternative Coal Block nor linkage coal was provided for the 800 MW capacity; and that, therefore, APML had to depend on the Tapering Linkage for a limited period, and on e-auction and/or imported coal all more expensive. In its Orders in Case No. 68 of 2012 and the subsequent suo moto Order in Case No. 63 of 2014, the Commission held that the cancellation of the Lohara ToR did not amount to a Force Majeure event under the PPA, but instead allowed a Compensatory Tariff over and above the PPA Tariff considering the higher coal and related costs. Vide its Orders dated in Appeal Nos. 81, 166 and 2014, APTEL set aside the Commission s Orders allowing APML a Compensatory Tariff considering cancellation of the ToR and the Lohara Coal Blocks allocation, citing its recent Judgment that the Appropriate Commission had no regulatory power to do so de MERC Order Case No. 102 of 2016 Page 53 of 78

54 hors the PPA and competitively discovered Tariff under Section 63 of the EA, The APTEL noted, however, that it was separately considering APML s Appeal against the Commission s Orders rejecting its claim of Force Majeure. That Appeal has yet to be decided. In the absence of a finding that the ToR and Coal Block cancellation amounts to a Force Majeure event under the PPA, APML is not entitled to any relief for the higher cost of coal sourced from elsewhere, imported or domestic. However, subject to Article 19 of the PPA, in the Commission s view, it would not be precluded from compensation for the other Change in Law events in terms of introduction or increases of taxes, duties and other levies after the Cut-Off Date. While recognising such Change in Law events in its Order in Case No. 163 of 2014, which was prior to the APTEL Judgment, the Commission had excluded (and APML did not claim) the impact in respect of 800 MW out of the total contracted capacity under the PPA dated (apart from the increase in MAT rate) because it had been separately provided a Compensatory Tariff. The Change in Law events approved in the Order in Case No. 38 of 2016 also excluded this 800 MW capacity since these were being dealt with in the present Case. Thus, in these proceedings the Commission is now dealing with the some of the Change in Law events that it had approved earlier for the other 3 PPAs and for 520 MW capacity out of this 2008 PPA. MSEDCL has contended that, notwithstanding this position, Article 19 of the PPA precludes supply from alternative sources of fuel, and more particularly imported coal, from the Change in Law provisions. Article 19 of the PPA reads as follows: Supply from alternate sources of fuel and from sources other than the unit identified by the Seller in the RFP for competitive bidding process initiated by the Procurer through issue of RFQ and RFP for process for procurement of generation capacity and purchase and supply of electricity is allowed. However, in such cases no tariff adjustment or change in quoted transmission charge/transmission loss is allowed. Provisions for Change in Law and force majeure shall be applicable to the unit identified in the RFP, notwithstanding anything contained in this document. Thus, Article 19 contains 3 stipulations: a) It allows supply from sources of fuel and Unit(s) other than identified by APML in the RfP; However, b) No tariff adjustment is allowed on that count. MERC Order Case No. 102 of 2016 Page 54 of 78

55 Article 1.1 defines the term tariff as the tariff as computed in accordance with Schedule 6. Paragraph 1.1(iii) of Schedule 6 provides that for the purpose of payments, the Tariff will be Quoted Tariff for the applicable Contract Year as per Schedule 10. But c) The Change in Law provisions shall be applicable to the Unit identified in the RfP, notwithstanding anything contained in the PPA. The Commission also notes that, in its Order in Case No. 117 of 2016 concerning JSW Energy Ltd. (whose contracted Generating Units are based on imported coal), the Commission had held that the import of coal from alternative sources did not debar the Change in Law claims made by JSWEL considering the provisions of Article 19 of its similar PPA. Thus, the Generating Units of the Tiroda TPP supplying 800 MW power being admittedly as identified in terms of the 2008 PPA, the use of fuel from alternative domestic sources because the Lohara Coal Blocks were de-allocated (and from the Tapering Linkage from CIL subsidiaries associated with that allocation) does not preclude the application of the Change in Law provisions to that capacity. As far as use of any imported coal is concerned, the Commission notes that, in its Rejoinder dated (summarised at paras , and earlier in this Order), APML has itself stated that 17. I submit that the Petitioner is granted Tapering Linkage for the 800 MW capacity. I also submit that, in the above captioned Petition, the Change in Law has been claimed for domestic coal only on the same lines of approval granted by Honourable Commission for the 520 MW portion under the same PPA which has coal linkage from Coal India Limited (CIL). Therefore the Contention raised by Respondent in its Reply is unfounded. 18. I also submit that the Change in Law events claimed by the Petitioner in the above captioned Petition would also have been applicable if the coal was sourced in from Lohara Coal Blocks had it been operational 21. In any case, the Petitioner is claiming Change in Law only on the domestic coal used in lieu of the coal from the Lohara coal block. Hence, the impact of the Change in Law events approved in this Order shall be compensated only to the extent of the use of domestic coal from alternative sources and not for any imported coal procured by APML. MERC Order Case No. 102 of 2016 Page 55 of 78

56 IV. EVALUATION OF EVENTS CLAIMED BY APML AS CHANGE IN LAW In its Orders dated in Case No. 163 of 2014 and dated in Case No. 38 of 2016, the Commission had approved certain Change in Law events in respect of the 520 MW portion (which was not originally envisaged on the basis of coal from the Lohara Coal Blocks) out of the total contracted capacity of 1320 MW under the 2008 PPA. APML is now seeking approval of the Change in Law events approved in those Orders for the remaining 800 MW capacity also, which it is supplying to MSEDCL under the 2008 PPA notwithstanding the de-allocation of the Lohara Coal Blocks. The Commission has evaluated these claims below. However, whether expressly mentioned or not, their approval is limited only to the extent of the use of domestic coal, as discussed in the preceding Section III. A. Levy of Clean Energy Cess on Coal GoI, in the Finance Bill , under Section 82, proposed to impose Clean Energy Cess for the use of coal, including imported coal, as specified in the Tenth Schedule of the Bill. The Tenth Schedule included a Clean Energy Cess on coal of Rs.100 per tonne. Subsequently, vide Notification Nos. 1/2010 and 3/2010 dated , Clean Energy Cess was levied under the Tenth Schedule to the Finance Act, 2010 at Rs. 100 per tonne. Before it was made operative, the Cess was reduced to Rs. 50 per tonne and effected from Thereafter, vide Notification No. 20/2014 dated , the Clean Energy Cess was increased to Rs The introduction and increase in the Clean Energy Cess is subsequent to the Cut-Off Date. The event falls squarely within the definition of Law as the levy has been imposed through the Finance Act, 2010 and subsequent notifications by a Governmental Instrumentality. The Commission had held the imposition of Clean Energy Cess to be a Change in Law event in several earlier Orders, including in Case No. 163 of 2014 with regard to 520 MW out of the 1320 MW total contracted capacity of the present PPA. Hence, the Commission considers the imposition and increase in Clean Energy Cess to be a Change in Law event in terms of the 2008 PPA and that it meets the requirements explained earlier. B. Increase in rate of Royalty on Domestic Coal GoI, Ministry of Coal, vide Notification no. G.S.R. 349 (E) dated , MERC Order Case No. 102 of 2016 Page 56 of 78

57 increased the rate of Royalty on coal to 14% ad-valorem on the price of coal, after the Cut-Off Date. Therefore, the event has all the ingredients of Change in Law, having been effected under the law by an Indian Governmental Instrumentality, and meets the requirements explained earlier in this Order. The Commission had held the increase in the rate of Royalty on domestic coal to be a Change in Law event in earlier Orders, including in its Order in Case No. 163 of 2014 with regard to 520 MW out of the 1320 MW total contracted capacity of the present PPA. C. Imposition of Excise Duty on Domestic Coal In exercise of powers under Section 5-A (1) of the Central Excise Act, 1944, GoI issued a Notification No.1/2011-CE dated imposing Excise Duty on domestic coal classified under Chapter 27 at Serial No of the First Schedule to the Central Excise Tariff Act, 1985, upto 1% ad-valorem. As in the case of imposition of Clean Energy Cess, the Excise Duty on coal is a statutory levy introduced by an Indian Governmental Instrumentality after the Cut-Off Date, and satisfies the requirements of Change in Law explained earlier in this Order. In earlier Orders also, the Commission had held the imposition of Excise Duty on Domestic Coal to be a Change in Law event, including in Case No. 163 of 2014 with regard to 520 MW out of the 1320 MW total contracted capacity of the present PPA. D. Inclusion of Stowing Excise Duty, Royalty and State levies for computation of Central Excise Duty Vide SECL s Notification No. SECL/BSP/S&M/504 dated 8 March, 2013, Stowing Excise Duty and Royalty have been included for arriving at the assessable value for computation of Excise Duty on coal sales from This was in accordance with the decision of the Central Excise Department, GoI on computation of the Transaction Value for levy of Central Excise Duty as defined in Section 4 of the Central Excise Duty Act, The Central Excise Duty Act, 1944 defines the Transaction Value as the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with MERC Order Case No. 102 of 2016 Page 57 of 78

58 the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Thus, the Act has allowed exclusion of amounts relating to Excise Duty, Sales Tax and other taxes from the price actually paid by the buyer while determining the Transaction Value. All other payments made by the buyer are required to be included in the Transaction Value. Therefore, in addition to its Notification dated , vide Notification No. SECL/BSP/S&M/619 dated , SECL has included the Chhattisgarh Development and Environment Cesses and other levies of the Chhattisgarh Govt. applicable to coal mined in that State, etc. for the purposes of computation of Central Excise Duty. The Notifications have been issued subsequent to the Cut-Off Date and arise from the statutory provisions with regard to Central Excise Duty, and meet the requirements set out earlier in this Order. The Commission notes that the imposition or increase in the rates of certain State levies per se, such as the Chhattisgarh Cesses, have not beenaccepted as Change in Law events in this Order. However, that does not negate the above conclusion since, in this case, they are a part of the Transaction Value considered for the levy of Central Excise Duty. The Commission had also declared inclusion of Stowing Excise Duty, Royalty and State levies for computation of Central Excise Duty as a Change in Law event in otherorders, including in Case No.163 of 2014 for 520 MW out of the 1320 MW contracted capacity of the 2008 PPA. E. Levy of Service Tax, Education Cess and Higher Education Cess on Total Freight on Transportation of Goods by rail Under Ministry of Finance, GoI Notification No. 9/2010 dated read with Rate Circular No. 27 of 2012 dated of Ministry of Railways, Service Tax, Education Cess and Higher Education Cesshave been levied on Total Freight on Transportation of Goods by Rail. The Notification was issued by an Indian Governmental Instrumentality under the applicable statute subsequent to the Cut-Off Date, and satisfies the requirements set out earlier in this Order. In earlier Orders also, the Commission had held this to be a Change in Law MERC Order Case No. 102 of 2016 Page 58 of 78

59 event, including in Case No.163 of 2014 with regard to 520 MW out of the 1320 MW total contracted capacity under the 2008 PPA. Service tax rate changes themselves were also recognised as Change in Law events in earlier Orders. F. Increase in Minimum Alternative Tax In its earlier Order in Case No. 163 of 2014, the Commission had approved the increase in the MAT rate as a Change in Law event, subject to certain qualifications. While that Order otherwise dealt with the other 3 PPAs and 520 MW out of the total capacity contracted under the 2008 PPA, the increase in the MAT rate had been considered in respect of all the PPAs, including 800 MW of the 2008 PPA. That being the case, APML has stated that it is not raising the issue of MAT since it has already been addressed by the Commission Case No. 163 of However, in its subsequent Judgment dated 19 April, 2017 in Appeal No.161 of 2015 and others against certain CERC Orders concerning similar competitivelybid PPAs, the APTEL has held that changes in the MAT rate are not Change in Law events in terms of such PPAs: It is submitted that in Ajanta Pharma, the Supreme Court has observed that Section 115 JB is a self-contained Code and levies a tax on deemed income. Therefore, MAT is not a tax on the net profit. Even a company which has no taxable income can be liable to pay MAT and, therefore, it directly impacts the revenue as any increase in MAT imposes an additional burden on the company. It is not possible to accept this submission. In Ajanta Pharma, the Supreme Court observed that the scheme or levy of minimum tax on companies having book profits introduced by the Finance (No.2) Act, 1996envisages payment of minimum tax by deeming 30% of the book profits computed under the Companies Act as taxable income, in a case where the total income as computed under the Income Tax Act is less than 30%of the book profit. The Supreme Court further observed that Section 115 JA of the Income Tax Act, which provides for MAT is a self contained Code. Book Profit was explained by the Supreme Court in following manner: 9.The word book profit has been defined in Section115-JA(2)read with the Explanation thereto to mean the net profit as shown in the profit and loss account, as increased by the amount(s)mentioned in clauses (a)to (f),and as reduced by amount(s)covered by clauses (i)to(ix)of the Explanation. These may be called for the sake of brevity as upward and downward adjustments. From the above it is clear that Section 115-JA is a self-contained code and will apply notwithstanding any provisions in the 1961 Act. 33. Thus, book profits are profits of the company. MAT is a tax on income computed in a manner different from regular Income Tax. MAT is an MERC Order Case No. 102 of 2016 Page 59 of 78

60 alternative Income Tax. MAT is Income Tax. Once this clarity is achieved, further conclusion must follow that MAT is post profit. It is an application of profits of the company and not an expense to arrive at profit. MAT is not related to or is not the cost of the business of selling electricity and has, therefore, rightly been disallowed. 34. We must also bear in mind that we are concerned here with competitive bidding process under Section 63 of the said Act. We appreciate the submission of Mr. Ramachandran, learned counsel appearing for HPCC that tax on income cannot be considered as pass through in the competitive bidding process under Section 63 of the said Act. The tariff is a per unit tariff allowed on the electricity generated and supplied and such a bid submitted by bidder is inclusive of all elements. There is no separate return on equity or reasonable return. The quantum of return revenue/profit is not identified in the bid price nor assured by the procurers. Income Tax including MAT being on profit, there is no identification of tax payable at the time of cut-off date. It is, therefore, not possible at all to factor in the increase or decrease in the Income Tax - including MAT. The Commission cannot therefore speculate what return the company had assumed for submission of the bid. Therefore, it will not be possible to compute the tax to be allowed. 35. As against this, in case of determination of tariff under Section 62 of the said Act, there is an assured return on equity of a specified percentage. The tariff regulations framed by the Central Commission / State Commissions provide for one of the components as tax on income. Regulation 25 of the CERC (Terms and Conditions of Tariff) Regulations, 2014 is cited as an example. It is rightly contended that this requires the procurers/beneficiaries of the generating company to bear the tax on income at the hand of the generating company. In case of competitive bidding scheme, there is no assured return and no provision for pass through of Income Tax. 36. We must now deal with certain judgments on which reliance is placed by the Appellant. In Sumitomo Heavy Industries Limited, the agreement related to an international contract. The contractor had undertaken the responsibility of the tax liability of the sub-contractor and ONGC had undertaken the tax liability of the contractor. Even the Change in Law clause was wide. It referred to all necessary and reasonable costs. The PPA in the instant case refers to costs in the business of selling electricity. Therefore, reliance placed on this judgment is misplaced. 37. In Oil and Natural Gas Corporation Limited, challenge was to the arbitration award wherein the scope of appeal was limited. In that case, the contractor under the agreement was responsible for the taxes payable by the employees of the contractor. Therefore, the tax in the said case was not an application of profits of the contractor but part of payment to its employees and employees cost is a cost of carrying out business. Therefore, such costs were allowed as increased costs due to Change in Law. This judgment is clearly distinguishable from the present case. MERC Order Case No. 102 of 2016 Page 60 of 78

61 38. In Jaiprakash Hydro Power Ltd., this Tribunal was concerned with a tariff determination under Section 62 of the said Act. The argument was that since MAT was already provided in the Income Tax Act before signing of the PPA, the same cannot come under the purview of enactment or enforcement of any law envisaged in sub-clause (b)(i) of Clause of the PPA. Thus, the issue was whether amendment of law is covered under Change in Law or not. The question whether MAT affects the cost or revenue of business of selling electricity was not considered by this Tribunal. 39. Even in Rattan India Power Ltd., on which reliance is placed, the Maharashtra Commission has not examined the issue whether MAT is related to revenue or costs of business of selling electricity. It is necessary to refer to this Tribunal s judgment in Bangalore Electricity Supply Company Limited v. Tata Power Company Limited & Anr.21 on which Maharashtra Commission has placed reliance in Rattan India Power Ltd. In that case, the issue was not whether the changes in rate of MAT were Changes in Law. There was a clause in the PPA regarding reimbursement of the PPA. This judgment refers to judgment of this Tribunal in Tamil Nadu Electricity Board v. M/s. GMR Power Corporation Limited. There again this Tribunal was not concerned with the question whether MAT is a Change in Law. The question was whether the Tamil Nadu Electricity Board was liable to pay interest for delay in reimbursement of MAT. Therefore, Tata Power Company Ltd. & Anr. is not applicable to this case. 40. We must also refer to the judgment of this Tribunal in Bangalore Electricity Supply Company Limited v. Karnataka Electricity Regulatory Commission. That judgment, in our opinion, is not applicable to this case. There, the question was of reimbursement of MAT. Moreover, the tariff was determined vide Tariff Order 2009 passed under Section 62 of the said Act. In that case, pass through of Income Tax including MAT was an integral component of the tariff determined by the Tariff Order Besides, Regulation 23 of the CERC Tariff Regulations clearly stated that taxes and duties shall be allowed as pass through. Moreover, this Tribunal was not concerned with the question whether MAT was part of the expenses of the company incurred for the purpose of carrying on the business of selling electricity and, therefore, covered by the Change in Law provision. This judgment is, therefore, clearly not applicable to this case. In view of the above, the CERC s finding that changes in Income Tax or increase in MAT are not Changes in Law must be confirmed and is accordingly confirmed. MSEDCL may approach the Commission in the light of this subsequent APTEL Judgment. G. Development Surcharge on Coal Transportation by rail As on the Cut-Off Date, the applicable Development Surcharge was 2% of the Normal Tariff Rate (NTR) as notified in Rate Circular No. 28 of 2007 dated MERC Order Case No. 102 of 2016 Page 61 of 78

62 That rate has been revised to 5% vide Rate Circular No. 38 of 2011 dated This increase has been effected by the Ministry of Railways, GoI in exercise of powers under Sections 30, 31 and 32 of the Railways Act, Rate Circulars issued by the Ministry of Railways are akin to Orders issued pursuant to an Act, in this case the Railways Act, 1989, by an Indian Governmental Instrumentality, i.e. Indian Railways. Thus, the increase in Development Surcharge on Coal Transportation by Railwaymeets the requirements set out earlier in this Order. In earlier Orders also, including in Case No. 163 of 2014 for 520 MW out of the 1320 MW contracted under the 2008 PPA, the Commission had held this to be a Change in Law event satisfying the requirements set out earlier in this Order. However, in its Order dated in Petition No. 8/MP/2014 (GMR Warora Energy Ltd. V/s MSEDCL, etc.), the CERC has taken a different view on a similar levy of Busy Season Surcharge, also notified by the Railway Board, namely that it is not a Change in Law. Consequently, in recent Change in Law Orders, this Commission had concluded that, depending on the APTEL decision on this point, the Generator may approach this Commission for its final decision on the levy of Development Surcharge as a Change in Law event. In none of its Change in Law Orders had the Commission provided for carrying cost on the impact of such events. Now, in its Judgment dated in Appeal No. 210 of 2017, the APTEL has ruled that carrying cost is due in such cases. Hence, subject to the final decision of APTEL on CERC s rejection of the similar Busy Season Surcharge as a Change in Law event, compensation shall be paid to APML for the increase in the Development Surcharge so as to avoid the accumulation of carrying cost which will have to be borne by MSEDCL s consumers if the APTEL decides otherwise. MSEDCL may approach the Commission depending on APTEL s decision. H. Busy Season Surcharge on Coal Transportation by rail Busy Season Surcharge on Coal Transportation by rail was imposed after to the Cut-Off Date, vide Rate Circular no. 13/2011 on The rate of 5% was subsequently increased to 10%, 12% and then to 15% vide Rate Circulars 38/ 2011 (dated ), 28/ 2012 (dated ) and 24/ 2013 (dated ), respectively. The Surcharge has been imposed and increased by the Ministry of Railways, GoI in exercise of powers under Sections 30 to 32 of the Railways Act, Such Rate Circularsare pursuant to the statute, i.e. the Railways Act, 1989, by an MERC Order Case No. 102 of 2016 Page 62 of 78

63 Indian Governmental Instrumentality, i.e. the Railway Board of the Ministry of Railways. As such, the introduction and increases in Busy Season Surcharge on Coal Transportation satisfy the requirements of Change in Law set out earlier in this Order. In earlier Orders also, including in Case No. 163 of 2014 for 520 MW out of the 1320 MW contracted under the 2008 PPA, the Commission had held these to be Change in Law events. As mentioned earlier, in its Order in Petition No. 8/MP/2014, the CERC has taken a different view with regard to Busy Season Surcharge, namely that it is not a Change in Law event.consequently, in its recent Change in Law Orders, this Commission had concluded that, depending on the APTEL decision on this point, the Generator may approach this Commission for its final decision on the levy of Busy Season Surcharge as a Change in Law event. However, in none of its Change in Law Orders had the Commission provided for carrying cost on the impact of such events. Now, in its Judgment dated in Appeal No. 210 of 2017, the APTEL has ruled that carrying cost is due in such cases. Hence, subject to the final decision of APTEL on CERC s rejection of Busy Season Surcharge as a Change in Law event, compensation shall be paid to APML for its impact so as to avoid the accumulation of carrying cost which will have to be borne by MSEDCL s consumers if the APTEL decides otherwise. MSEDCL may approach the Commission depending on APTEL s decision. I. Levy of Port Congestion Surcharge In pursuance of its powers under Sections 30 to 32 of the Railways Act, 1989 to determine rates and surcharges, the Railway Board, vide its Notification dated , has levied a Port Congestion Surcharge on 10% of the Base Freight Rate on goods traffic originating from ports from , i.e. after the Cut- Off Date. Such Notifications and Rate Circulars are orders issued pursuant to the statute, namely the Railways Act, 1989, by an Indian Governmental Instrumentality, namely the Railway Board of the Ministry of Railways. Hence, as the Commission has held in Case No. 38 of 2016, the imposition of a Port Congestion Surcharge, which flows from the sanction of an Indian Governmental Instrumentality under the Railways Act, would ordinarily be a Change in Law event under Article 13 of the PPA, and meet the requirements explained earlier in this Order. MERC Order Case No. 102 of 2016 Page 63 of 78

64 However, since the Port Congestion Surcharge would relate to imported coal, no Change in Law compensation is to be provided to APML for the 800 MW capacity under the 2008 PPA, as discussed in Section III earlier in this Order. J. Levy of Coal and Coke Terminal Surcharge Vide Corrigendum No. 14 dated to Rate Circular No. 8 of 2015 dated , the Railway Board introduced a Coal Terminal Surcharge of Rs. 55/- per tonne at both the loading and unloading terminals (i.e. a total of Rs. 110/- per tonne) for the traffic of coal beyond 100 kms., from On , another Corrigendum No. 15 was issued by the Railway Board providing as follows: o The earlier Freight Rate Table was replacedby a Table containing the Base Freight Rate per tonne for Special Class 145 A (Train Load) and Class 145 B (Wagon Load)for Coal & Coke in the Goods Tariff No. 48 Part I (Vol. II) and Part II. o The Coal Terminal Surcharge was replaced by a Coal and Coke Terminal Surcharge at Rs. 55/- per tonne at both loading and unloading terminals, over and above the Base Freight Rate of Class 145 A for distances beyond 100 kms. As on the Cut-Off Date, no such Surcharge was applicable to APML. With the issue of these Rate Circulars, the Surcharge became applicable from Coaland Coke Terminal Surcharge has been imposed by the Railway Board in exercise of powers under Sections 30 to 32 of the Railways Act, Rate Circulars are akin to orders issued pursuant to the Railways Act by the Railway Board of the Ministry of Railways, which is an Indian Governmental Instrumentality. Incidentally, as discussed in earlier Change in Law Orders of the Commission, such Charges / Surcharges are not subsumed in the Base Freight Rate escalations covered by the CERC Escalation Index. In the context of the point raised by MSEDCL, the Commission also notes in passing APML s statement that, even if the Lohara Coal Blocks had been available, this Surcharge would have been payable since they are more than 100 kms. from the Tiroda TPP. Hence, the introduction of Coal and Coke Terminal Surcharge is a Change in MERC Order Case No. 102 of 2016 Page 64 of 78

65 Law event under Change in Law provisions of the PPA and satisfies the requirements set out earlier in this Order. This is also consistent with the view taken by the Commission in its Order dated 38 of K. Increase in Chhattisgarh Environment and Development Cess rates The Chhattisgarh Cess Act, 2005 promulgated by the Chhattisgarh State Government provides for levy of Cesses on land for fundingof infrastructure development and environment improvement projects. Sections 3(1) and 4(1), respectively, provide for levy of Infrastructure Development Cess and Environment Cess on lands on which land revenue or rent is levied. Under Schedules I and II of the Act, the Development and Environment Cess rates were each fixed at Rs. 5 per tonne of annual despatch on lands under coal and iron ore mining leases as on the Cut-Off Date. Thereafter, the Chhattisgarh Government, vide Notification No. 340 dated , revised these Cess rates as follows by amending the Schedules to the Chhattisgarh Cess Act.Vide Notice dated , SECL made this revision of the Cess rates applicable to all despatches and lifting of coal from : Cess Original Rates Revised Rates (w.e.f ) Environment Cess Rs. 5 / Tonne Rs / Tonne Infrastructure Development Cess Rs. 5 / Tonne Rs / Tonne Article of the PPA defines Change in Law as follows: "Change in Law" means the occurrence of any of the following events after the date, which is seven (7) days prior to the Bid Deadline: (ii) The enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any law or; (iii)a change in interpretation of any Law by a Competent Court of law, tribunal, Indian Governmental Instrumentality provided such court of law, tribunal, Indian Governmental Instrumentality is final authority under law for such interpretation... Thus, a distinction has been made between the promulgation or amendment of any law, which does not refer to and is not limited to an Indian Governmental Instrumentality, and a change in its interpretation which is restricted to such an Instrumentality. However, both sub-clauses have to be read with the definition of the term law. MERC Order Case No. 102 of 2016 Page 65 of 78

66 The PPA defines the term law as follows: Law means, in relation to this Agreement, all laws including Electricity Law 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 CERC and the MERC;... APML has argued that the definition of law in the PPAs is unrestricted and that, therefore, the definition of Change in Law covers the increase in the Development and Environment Cesses under the Chhattisgarh Act. However, in the Commission s view, that is not the meaning of law that emerges from its definition when read as a whole. The definition of law underlying the Change in Law provisions in the PPAs has to be read as a whole and not as consisting of distinct, separate and independent parts, or else there is no reason why the term Indian Governmental Instrumentality was at all required and defined in the PPAs in the context of Change in Law. In fact, on that argument, the reference to Indian Governmental Instrumentality in the PPAs is entirely redundant (except for the reference to the CERC or this Commission), and the definition of law could merely have referred only to all laws in force in India and stop at that. The Commission considers that argument to be untenable. Moreover, not relating the term all laws to the subsequent part of the same sentence in the definition which refers to Indian Governmental Instrumentality and considering it to be entirely independent of it would mean that, while such an Instrumentality can interpret its laws or rules, another entity like the Chhattisgarh State Government may make statutes which are acceptable as Change in Law events but its interpretation of its own statutes has no such standing. That is also not tenable. Hence, the Commission is of the view that Change in Law in the PPAs is with reference to statutes and associated dispensations and interpretations by Indian Governmental Instrumentalities. Considering the definition of that term, the Chhattisgarh State Government is not an Indian Governmental Instrumentality under the 2008 PPA since neither MSEDCL nor APML s Tiroda TPP are located in Chhattisgarh. As such, the increase in the Cess rates under the Chhattisgarh Act does not constitute a Change in Law event. The Commission notes that, in its earlier Orders, including in Case No 38 of 2016 for 520 MW out of the total capacity contracted under the 2008 PPA also, the MERC Order Case No. 102 of 2016 Page 66 of 78

67 Commission has held that the increase in the Chhattisgarh Cess rates does not constitute a Change in Law event in similar circumstances. L. National Mineral Exploration Trust and District Mineral Foundation Levies on Royalty Subsequent to the Cut-Off Date, on ,GoI promulgated the MMDR Amendment Ordinance, That Ordinance added Sections 9B and Section 9C in the MMDR Act, Section 9B provided that the holder of a mining lease or a prospecting licence-cum-mining lease shall, in addition to the Royalty on coal, pay to the DMF of the District in which the mining operations are carried out an amount exceeding one-third of the Royalty. Section 9C provided that the holder also pay to the NMET an amount equivalent to 2% two percent of the Royalty. The Ordinance was replaced by the MMDR Amendment Act, 2015 on Vide Notification No. 507 dated , in exercise of its power under Sections 9C(2), (3) and (4) and Section 13 of the MMDR Amendment Act, the Ministry of Mines, GoI brought into force the requirement of payment to the NMET. On , it notified that, from , payment was to be made to the DMF at the following rates: (a) 10% of the Royalty paid in respect of mining leases or prospecting licensecum-mining leases granted from , and (b) 30% of the Royalty paid in respect of mining leases granted before The introduction by GoI of contributions payable to the DMF and NMET by SECL, as the mining lease holder and coal supplier, and shown as separate components in its bills, having been introduced by the GoI in pursuance of the MMDR Amendment Act and the subsequent Rules, is a Change in Law event under Article 13 of the PPAs and satisfies the requirements discussed earlier in this Order. The Commission has held the introduction of these levies to be Change in Law events under similar PPAs in other Orders also, including in Case No. 38 of 2016 which covers the other APML PPAs and 520 MW capacity out of the 2008 PPA. These contributions payable under the MMDR Amendment Act and the subsequent Rules are linked to the rate of Royalty on coal. The Commission notes in passing that it has held in this and earlier Orders that changes in the rate of Royalty on coal constitute Change in Law events, and so have APTEL and CERC. MERC Order Case No. 102 of 2016 Page 67 of 78

68 M. Introduction of Swachh Bharat Cess on Service Tax No SBC was applicable as on the Cut-Off Date. Vide Notification Nos. 21/2015 and 22/2015 dated under Section 119 of the Finance Act, 2015, the GoI introduced 0.5 % on the value of all taxable services from The levy of SBC by an Indian Governmental Instrumentality under the Finance Act, 2015 constitutes a Change in Law event under Article 13 of the PPA, and satisfies the requirements set out earlier in this Order. The Commission had also held the levy of SBC on Service Tax to be a Change in Law event in its Order in Case No. 38 of 2016 for the other APML PPAs and 520 MW capacity out of the 2008 PPA. N. Levy of Swachh Bharat Cess on Service Tax for Rail Transportation By Section 119 of the Finance Act, 2015, effected by Notification No. 21/2015 dated , GoI levied a SBC on Service Tax on all taxable services at 2% effective from Vide Notification No. 22 of 2015 dated ,GoI exempted SBC above 0.5% of the value of taxable services. Considering the introduction of SBC, the Ministry of Railways issued Corrigendum No 5 to its Rate Circular No. 29/2012 on to revise the levy of Service Tax on transportation of goods by rail from This Notification modified the earlier Rate Circular as follows: (i) (ii) SBC at 0.5% was added to the Service Tax rate of 14% of the total value of services mentioned in Corrigendum No. 3 to Rate Circular No. 29/ 2012; Service Tax of 14% and SBC of 0.5% is chargeable on 30% of the freight, i.e.a levy of 4.35% of the total freight. Consequently, Indian Railways started charging Service Tax at the revised rate of 4.35 % (i.e. 14.5% x 30%) of the total freight. In its Order in Case No. 163 of 2014, which covers 520 MW out of the total capacity contracted under the 2008 PPA, the Commission has approved changes in Service Tax on the total Freight on Transportation of Goods by Rail as a Change in Law event. MERC Order Case No. 102 of 2016 Page 68 of 78

69 The levy of SBC on the Service Tax on Rail Transportation flows from the Finance Act, 2015 and the consequent Notifications of the Ministry of Railways. It is, therefore, a Change in Law event under Article 13 of the PPA and meets the requirements explained earlier in this Order. In its Order in Case No. 163 of 2014, which covers 520 MW out of the total capacity contracted under the 2008 PPA, the Commission has approved changes in Service Tax on the total Freight on Transportation of Goods by Rail as a Change in Law event. In its Order in Case No. 38 of 2016, the Commission has approved changes in Service Tax on the total Freight on Transportation of Goods by Rail arising from the introduction of SBC. O. Introduction of Krishi Kalyan Cess on Service Tax As on the Cut-Off Date, no KKC was applicable. On , GoI notified the Finance Act, 2016 which provides for the levy of KKC on Service Tax at the rate of 0.5% on all taxable services from The levy of KKC at 0.5% on all taxable services, having been introduced by an Indian Governmental Instrumentality under the applicable statute after the Cut- Off Date, constitutes a Change in Law in terms of the PPAs and satisfies the requirements set out earlier in this Order. The Commission has also held the levy of KKC on Service Tax to be a Change in Law event in its Order in Case No. 38 of 2016 for 520 MW capacity out of the capacity contracted under the 2008 PPA. P. Levy of Krishi Kalyan Cess on Service Tax for Rail Transportation As stated earlier, on the Cut-Off Date, no KKC was applicable. On , the GoI notified the Finance Act, 2016 which provides for the levy of KKC at the rate of 0.5% on all taxable services from Following the introduction of KKC through the Finance Act, 2016, the Ministry of Railways notified on the levy of KKC on the transportation of goods by rail so as to add SBC at 0.5% as well as KKC at 0.5% to the Service Tax rate of 14%. The levy ofkkc at 0.5% on the Service Tax for Rail Transportation is, therefore, a Change in Law event under Article 13of the PPAand meets the requirements explained earlier in this Order. MERC Order Case No. 102 of 2016 Page 69 of 78

70 Q. Change in Environmental Norms by amendments to Environment (Protection) Rules, 1986 Vide Notification dated , the MoEF, GoI amended the Environment (Protection) Rules, 1986 so as to revise certain environmental standards and introduce new norms, which APML has contended would entail additional costs on the necessary equipment. The relevant environmental standards and norms introduced or revised by the amendment to Schedule I of the Rules are summarized below: Addition of Sr. No. 5A in Schedule I As on Cut-Off Date N/A Current Norm (vide Notification dated ) Existing CT-based Plants must reduce specific water consumption up to a maximum of 3.5m 3 /MWh within 2 years. Amendment to Sr. No. 25 in Schedule I urrent Norms (Notification dt As on Cut-Off Date For TPPs (Units) installed after up to ) Parameter Standa rd Parameter Standard Particulate Matter Emission: - Generation capacity of 210 MW or more 150 mg/n - Generation capacity m 3. Particulate Matter less than 210 MW. (Thermal Power 50 mg/nm mg/n m 3 Plants) 600 mg/nm 3 (Units below 500 MW Sulphur Dioxide (SO2) N/A SO2 capacity), 200 mg/nm 3 (Units of capacity of 500 MW and above) Oxides of Nitrogen(NOx) N/A NOx 300 mg/nm 3 Mercury ( Hg) N/A Hg 0.03 mg/nm 3 MERC Order Case No. 102 of 2016 Page 70 of 78

71 The Schedules to the Environment (Protection) Rules have been amended by a Governmental Instrumentality, the MoEF, after the Cut-Off Date in terms of its powers under the applicable statute. However, as the financial impact on account of these amendments has not been assessed by APML, its claim is premature. No capital expenditure has been incurred and detailed estimation of the likely capital cost and its underlying basis has not been provided. Therefore, no dispensation can be given on this account at this stage and there is no question of its blanket approval as a Change in Law event. The Commission also notes that, in its Order dated in Petition No. 72/MP/2016, the CERC had directed the Petitioner in that Case to refer a similar matter to the CEA and approach MoEF, as follows: In our view, since, the implementation of new norms in the existing and under construction thermal generating stations would require modification of their existing system and installation of new systems such as Retro-fitting of additional fields in ESP/replacement of ESP, etc. to meet Suspended Particulate Matter norms, installation of FGD system to control SOx and Selective Catalytic Reduction (SCR) systems for DeNox, the petitioner is directed to approach the Central Electricity Authority to decide specific optimum technology, associated cost and major issues to be faced in installation of different system like SCR, etc. The petitioner is also directed to take up the matter with the Ministry of Environment and Forest for phasing of the implementation of the different environmental measures. Accordingly, the petitioner is granted liberty to file appropriate petition at an appropriate stage based on approval of CEA and direction of MoEF which shall be dealt with in accordance with law. The Commission notes that CEA has constituted a Committee with regard to adherence to the revised environmental norms, and has been engaging with the Generating Companies on the time-frame and related issues.the Commission also understands that the deadline for installation of FGD Plants and other requirements has been extended in some cases. APML shall study the requirements for its TPP and/or individual Generating Units, the alternatives available,the estimated costsand their basis, and their financial impact in terms of the Change in Law provisions considering any revised deadline and the directions of MoEF and the CEA, and may approach the Commission thereafter. A similar view has been taken by the Commission in other Cases, including in Case No. 38 of 2016 for the other APML PPAs and 520 MW capacity out of the 2008 PPA. R. Amendment to Notification on utilization of Fly Ash from coal-based TPPs dated MERC Order Case No. 102 of 2016 Page 71 of 78

72 In exercise of its powers under the Environment (Protection) Act, 1986 and in pursuance of the Order dated of the Delhi High Court, the MoEF issued directions to promote the utilization of Fly Ash in the manufacture of building materials and in construction activities within a certain radius of coal and lignite-based TPPs, vide Notificationdated That Notification was amendedon and Vide Notification dated , MoEF has further amended the dispensation for Fly Ash utilization, which is now as follows: - The cost of transportation of Fly Ash for road construction projects or for manufacturing Ash-based products or for use as soil conditioner in agriculture within 100 kms. from a coal-based Power Plant shall be borne by it. The cost of transportation beyond 100 kms. and up to 300 kms. Shall be shared equally between the user and the Plant. - Such Power Plants shall promote, adopt and set up Ash-based product manufacturing facilities within or in the vicinity of their premises so as to reduce the transportation of Fly Ash. - Plants in the vicinity of cities shall promote, support and assist in setting up of Ash-based product manufacturing units to meet the requirements of bricks and other building construction material and reduce Fly Ash transportation. - The Plants shall bear the entire cost of Fly Ash transportation within 300 kms. to the sites of road construction projects under the Pradhan Mantri Gramin Sadak Yojana and other asset creation programmes of the Government for construction of buildings, road, dams and embankments. - The Plantsshallbear the entire cost of transportation of Fly Ash up to the manufacturing sites of Ash-based products for use as soil conditioner in agriculture and road construction projects located within 100 kms. The cost of transportation beyond 100 kms. and up to 300 kms. will be shared equally between the users and the Plants. According to the MoEF Notification, the coal or lignite-based TPPs shall comply with these provisions in addition to 100% utilisation of Fly Ash generated by them before MERC Order Case No. 102 of 2016 Page 72 of 78

73 APML has not provided the financial impact of this Notification, and several issues have to be addressedto assess its nature and financial impact, some of which may become evident only at the time of actual implementation. In this context, the Commission would require the following: (i) (ii) Details of the extent and manner in which APML had complied with the requirements in force prior to the Notification dated , and the costs incurred. In particular, even prior to this Notification, APML used to dispose of the Fly Ash in various ways. The cost incurred in such disposal as also in the deposit of Fly Ash in the Ash Bunds, including the cost of land and its financial implications, would have been subsumed by APML in its Bid. APML needs to show how it has segregated this cost in a transparent manner. (iii) The details of the land required for the Ash Pond and associated infrastructure at the time of Environmental Clearance need to be provided, along with details of the Fly Ash generated from the Plant and the proportion, manner and cost at which it is being currently disposed. (iv) Assessment of the financial implications of the supply of Fly Ash to various user sites, along with its underlying basis. (v) The Notification also requires that the Plants promote, adopt and set up the associated infrastructure for Fly Ash-based product manufacturing facilities within or in the vicinity of its premises so as to reduce its transportation. The activities proposed by APML and their financial implications need to be assessed. Without these details, the Commission is not inclined to deal with this issue for the time being under the Change in Law provisions. To do so would be highly premature. APML may approach the Commission separately with comprehensive information on the above points. A similar view has been taken by the Commission in its Order in Case No. 38 of 2016 for the other APML PPAs and 520 MW capacity out of the 2008 PPA. V. PARAMETERS FOR COMPUTING CHANGE IN LAW IMPACTS MSEDCL has flagged the issue of the operational parameters to be considered for compensating the impact of the approved Change in Law events. Although the nature of the Change in Law events dealt with in those Cases was different, MERC Order Case No. 102 of 2016 Page 73 of 78

74 on the analogy of its Orders in Case No. 189 of 2013 (APML) and Case No. 154 of 2013 (RPL), the impact of the Change in Law events approved in this Order shall be computed with reference to the operational parameters as submitted by APML in its bid or the normative operational parameters, whichever are superior, and as follows: Parameter Station Heat Rate Reference GCV of Tapering Linkage or other coal supply by CIL subsidiaries GCV of other alternativecoal (eauction) Basis Net SHR as submitted in the Bid, or SHR and Auxiliary Consumption norms specified for new Thermal Generating Stations in MYT Regulations, 2011, whichever are superior. Middle value of the GCV range of the assured coal grade Actual as received Note: The SHR specified in the MYT Regulations, 2011 will be applicable even for FY , because, although the subsequent MYT Regulations, 2015 were in force in FY , they treat APML's Units as "Existing Generating Station", for which the norms specified under the MYT Regulations, 2011 are applicable. VI. CARRYING COST APML has claimed carrying cost for the period when the approved Change in Law impacts became effective and till the compensation is paid. It has stated that, in its Orders in Case Nos.2 and 163 of 2014, the Commission had not rejected the principle of carrying cost on such payments, but said that the cost actually incurred had to be shown and could not be notional. APML has now quantified the carrying cost considering the interest rate in the MYT Regulations. In none its other Change in Law Orders has the Commission provided carrying cost on the amounts payable against the approved Change in Law events. In its Order in Case No. 38 of 2016 concerning the other 3 PPAs of APML and 520 MW out of the capacity contracted under the 2008 PPA, the Commission had held as follows: Referring to the Commission s earlier observation, APML has now furnished some material in support of its claim of the interest cost that it has actually incurred since the Change in Law events became applicable and pending their adjudication by the Commission. However, neither Article13.4 of the PPA dated nor Article 10.5 of the other three PPAs, which govern the tariff adjustment payments on account of Change in Law, provide for such interest cost, nor do any other provisions. In the absence of any such provision in the PPAs, the Commission is of the view that APML is not entitled to interest. MERC Order Case No. 102 of 2016 Page 74 of 78

75 The Commission concurs in this regard with the similar ruling of the CERC in its Order dated in Petition No. 156/MP/2014, and with its elaboration of this decision and its discussion on the case law. However, any delay by MSEDCL in the payment of the compensation on account of the events accepted as Change in Law by the Commission after Supplementary Bills are raised by APML would attract a Late Payment Surcharge, as expressly provided in the relevant provisions of the PPAs. However, in its Judgment dated in Appeal No. 210 of 2017 (filed by APML) against another CERC Order (No. 235/MP/2015), APTEL has now held that carrying cost is payable on the compensation for Change in Law events in similar PPAs in which it is based on the principle of restitution: 12. d) Whether the Central Commission has erred in not allowing the Carrying Cost and therefore:- (i) Defeated the very purpose of restitutive relief provided under Article 13.2 in the PPAs of restoring the affected party to the same economic position as if the Change in Law Event had not occurred? (ii) Acted contrary to the settled position of law?, we observe as below: i. The Central Commission by relying on its Order dated in Petition No. 156/MP/2015 (actually the Petition No. is 156/MP/2014) has decided that carrying cost on the principle of restitution from the date of occurrence of Change in Law till the date of billing cannot be allowed to the Appellant as there is no such provision in the PPAs. iii. it can be seen that while determining the consequence of Change in Law, the affected party is to be restored to the same economic position as if such change in law has not occurred. vi. the Central Commission has held that there is provision of payment of late payment surcharge if the payment is not made by the Respondents 2 to 4 beyond 30 days of raising of bills. There is no provision for payment of carrying cost from the effective date of Change in Law event till the Change in Law is approved by the Central Commission. Further the Central Commission has held that in case of SECL the liability was crystallised after the enhancement of royalty by the State Government and interest became payable because of failure to pay the amount as per the liability. And hence the facts of present case are distinguishable from SECL case.in NTPC case as there was no provision in regulations or the PPA hence interest is not applicable to NTPC due to revision in tariff. Regarding judgement in SLS case the Central Commission has distinguished it from the present case as there is no re-determination of tariff in present case and there was redetermination of tariff in SLS case. Hence interest is not payable in present case. vii. After going through the SLS case we find that this Tribunal has held that the principle of carrying cost has been well established in the various MERC Order Case No. 102 of 2016 Page 75 of 78

76 judgments of this Tribunal and the carrying cost is the compensation for time value of money or the monies denied at the appropriate time and paid after a lapse of time and accordingly, the developers are entitled to interest on the differential amount due to them as a consequence of re-determination of tariff by the State Commission on the principles laid down in the said judgment. viii. After perusal of the NTPC case we find that the interest was not payable as there was no enabling provision either through Regulations or in terms of the PPA. In the SECL case the Hon ble Supreme Court has also gone into the principle of Restitution and has held that in Law, the term restitution is used in three senses (i) Return or restoration of some specific thing to its rightful owner or status (ii) compensation for benefits derived from wrong done to another (iii) compensation or reparation for loss caused to another. Further, after perusal of the SECL case we find that the matter was related to payment of interest for the period after the expiry of date fixed by the State Government for payment of royalty till the actual payment. Here the case is regarding payment of interest from the effective date of Change in Law till the approval of Change in Law by the Central Commission and not from the date of payment of raising of bill till the actual payment of bill after the expiry of the payment date. In our view both the cases viz SECL case and NTPC case are not applicable to the present case in view of their facts and circumstances. ix. In the present case we observe that from the effective date of Change in Law the Appellant is subjected to incur additional expenses in the form of arranging for working capital to cater the requirement of impact of Change in Law event in addition to the expenses made due to Change in Law. As per the provisions of the PPA the Appellant is required to make application before the Central Commission for approval of the Change in Law and its consequences. There is always time lag between the happening of Change in Law event till its approval by the Central Commission and this time lag may be substantial. As pointed out by the Central Commission that the Appellant is only eligible for surcharge if the payment is not made in time by the Respondent Nos. 2 to 4 after raising of the supplementary bill arising out of approved Change in Law event and in PPA there is no compensation mechanism for payment of interest or carrying cost for the period from when Change in Law becomes operational till the date of its approval by the Central Commission. We also observe that this Tribunal in SLS case after considering time value of the money has held that in case of redetermination of tariff the interest by a way of compensation is payable for the period for which tariff is re-determined till the date of such redetermination of the tariff. In the present case after perusal of the PPAs we find that the impact of Change in Law event is to be passed on to the Respondent Nos. 2 to 4 by way of tariff adjustment payment as per Article 13.4 of the PPA. The relevant extract is reproduced below: 13.4 Tariff Adjustment Payment on account of Change in Law Subject to Article 13.2, the adjustment in Monthly Tariff Payment shall be effective from MERC Order Case No. 102 of 2016 Page 76 of 78

77 (a) the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law; or (b) the date of order/ judgement of the Competent Court or tribunal or Indian Government instrumentality, if the Change in Law is on account of a change in interpretation of Law. (c) the date of impact resulting from the occurrence of Article From the above it can be seen that the impact of Change in Law is to be done in the form of adjustment to the tariff. To our mind such adjustment in the tariff is nothing less then re-determination of the existing tariff. x. Further, the provisions of Article 13.2 i.e. restoring the Appellant to the same economic position as if Change in Law has not occurred is in consonance with the principle of restitution i.e. restoration of some specific thing to its rightful status. Hence, in view of the provisions of the PPA, the principle of restitution and judgement of the Hon ble Supreme Court in case of Indian Council for Enviro-Legal Action vs. Union of India &Ors., we are of the considered opinion that the Appellant is eligible for Carrying Cost arising out of approval of the Change in Law events from the effective date of Change in Law till the approval of the said event by appropriate authority. It is also observed that the Gujarat Bid-01 PPA have no provision for restoration to the same economic position as if Change in Law has not occurred. Accordingly, this decision of allowing Carrying Cost will not be applicable to the Gujarat Bid-01 PPA. The Commission notes that the provision for payment for Change in Law events in Article 13.4 of the APML s 2008 PPA is similar to that in the PPA quoted by APTEL, and the Change in Law provisions in the 2008 PPA are also based on the principle of restitution referred to by APTEL. Hence, APML shall be entitled to the carrying cost from the effective dates from which it was affected and incurred expenditure on account of the approved Changein Law events till the date of this Order. Such carrying cost shall not, however, be applicable on any amounts or interest arising from delays on its part in making payments. The rate of interest for the payment of carrying cost shall be as specified for the interest on working capital in the MYT Regulations applicable to the relevant periods. VI. SUPPLEMENTARY BILLS FOR CHANGE IN LAW PAYMENTS APML may raise Supplementary Bills for the impact of events which have been accepted in this Order as Change in Law in accordance with Article of the PPA, and for the carrying cost. The Bills should be accompanied with proof MERC Order Case No. 102 of 2016 Page 77 of 78

78 regarding the expenditure actually incurred on these. Considering Article of the PPA, the impact of such Change should be computed from the date that it affects APML or the SDD of the respective Generating Units, whichever is later, during their Operating Period. The payments should be made net of the amounts, if any, already paid as Compensatory Tariff by MSEDCL in pursuance of the Commission s earlier Orders consequent to the withdrawal of the ToR and de-allocation of the Lohara Coal Blocks. It should also be ensured that, in aggregate (i.e., for all the approved Change in Law events taken together), the financial impact of the events approved as Change in Law under the 2008 PPA exceeds 1% of the LC amount in the relevant Contract Year, as required by Article The Petition of Adani Power Maharashtra Ltd. in Case No. 102 of 2016 stands disposed of accordingly. Sd/- (Deepak Lad) Member Sd/- (Azeez M. Khan) Member MERC Order Case No. 102 of 2016 Page 78 of 78