CASE No. 38 of Coram. Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member. Adani Power Maharashtra Ltd.

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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. 38 of 2016 In the matter of Petition of Adani Power Maharashtra Ltd. for tariff adjustment on account of Change in Law events under its four PPAs with Maharashtra State Electricity Distribution Co. Ltd. Coram Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member Adani Power Maharashtra Ltd. Maharashtra State Electricity Distribution Co. Ltd....Petitioner...Respondent Appearance For the Petitioner : Adv. Shri Vikram Nankani For the Respondent : Adv. Smt. Deepa Chawan ORDER Date: 18 October, 2017 M/s Adani Power Maharashtra Limited (APML), has filed a Petition on , under Section 86 of the Electricity Act (EA), 2003 read with theprovisions of the Power Purchase Agreements (PPAs) dated (1200 MW), (125 MW) and (440 MW) with Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL), seeking adjustment in tariff due to certain Change in Law events. 2. The prayers of APML are as follows:- a) Admit this Petition. b) Allow Change in Law compensation for change in Chhattisgarh Environment and Development Cess rates as per paras 23 to 26 above. MERC Order Case No. 38 of 2016 Page 1 of 103

2 c) Allow Change in Law compensation for National Mineral Exploration Trust and District Mineral Foundation levies on Royalty as per paras 27 to 31 above. d) Allow Change in Law compensation for Swachh Bharat Cess on Service Tax on Rail Transportation and on Service Tax(Operation Period) as per paras 32 and 37 above. e) Allow Change in Law compensation for Port Congestion Surcharge on Base Freight Rates applied on goods traffic originating from ports as per para 33 above and. f) Allow Change in Law compensation for additional capital investment required (if any) for compliance of stipulated norms as per the amended Environment (Protection) Rules 1986 and consequent operation cost on account of increase in Auxiliary Consumption of Plant as per paras 34 to 36 above. g) Allow the Petitioner to approach the Commission in future for Change in Law events not mentioned in this Petition. 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. h) Direct the Respondent to make payment for the Change in Law compensation claimed by the Petitioner in accordance with the Hon ble Commission s orders dated and for the period from the actual date of power supply to commencement of full Contracted Capacity under PPAs dated and Subsequently, on , APML filed an Interlocutory Application with the following prayers regarding the levy of Krishi Kalyan Cess (KKC) in addition to the claims in its original Petition: a) Allow the present Application. b) Approve the aforementioned Change in Law event as claimed in the present application by suitable adjustment in tariff under respective PPAs. c) Direct the Respondents to make the payment of the compensation for extra expenditure incurred by the Petitioner due to aforementioned Change in Law event i.e., Levy of Krishi Kalyan Cess from the notified effective date i.e., Thereafter, through another Application dated for additional reliefs with regard to levy of Coal and Coke Terminal Surcharge and a Notification on the Utilisation of Fly Ash, APML made 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 respective PPAs. MERC Order Case No. 38 of 2016 Page 2 of 103

3 c. Direct the Respondents to make the payment of the compensation for extra expenditure incurred/to be incurred by APML 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 In its Petition, APML has stated as follows: 5.1. APML is a Generating Company setting up a Thermal Power Station (TPS) at Tiroda, District Gondia, Maharashtra with installed capacity of 3300 MW (5 x 660 MW supercritical 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 Tiroda TPS and the PPAs tied up are as below: Date of PPAs Contracted Capacity(in Beneficiary MW) Beneficiary MSEDCL MSEDCL MSEDCL MSEDCL Total 3085 MSEDCL Thus, the entire power generated from APML's Tiroda TPS will be supplied to MSEDCL after meeting its 6.5 % Auxiliary Consumption APML had filed Petitions in Case No. 163 of 2014 and M.A. No. 11 of 2014 and Case No. 2 of 2014 and M.A. No. 12 of 2014 for adjustment in tariff in the PPAs dated and dated , and , respectively, in order to offset the adverse financial consequences of various Change in Law events under Article 10 and Article 13 of the respective PPAs that occurred seven days prior to the Bid Deadline The Change in Law Petitions were disposed of by the Commission vide Order dated in Case No. 163 of 2014 and Order dated in Case No. 2 of APML has filed this Petition for adjustment in tariff in the PPAs dated (1320 MW), (1200 MW), (125 MW) and (440 MW), in order to offset the adverse financial consequences due to introduction of new MERC Order Case No. 38 of 2016 Page 3 of 103

4 taxes/duties/cesses by Government of India (GoI) and/or various State Government(s), subsequent to the above Orders of the Commission, which have resulted in additional burden on APML in respect of procurement and transportation of coal for power generation, as set out below: Change in Law affecting Revenue and Cost during Operation Period of PPAs Sr. No Change in Law As on Bid Deadline As on date 1. Chhattisgarh Environment Cess (Paryavaran Upkar) 2. Chhattisgarh Development Cess (Vikas Upkar) 3. Levies on Royalty (i) NMET (ii) DMF 4. Inclusion of Swachh Bharat Cess on Service Tax for rail transportation 5. Inclusion of Swachh Bharat Cess on Service Tax Operation Period Rs. 5/Tonne Rs. 5/Tonne Nil Nil Nil (No Service Tax is applicable on rail freight as on cut-off date. However, MERC has already approved this item as a Change in Law at an effective rate of 4.20%) 10.30% (Service Tax rate has increased to 14%. However, MERC has already approved this item as a Change in Law) Rs. 7.5/Tonne Rs. 7.5/Tonne (i) 2% of Royalty Value on Coal. (ii) 30% of Royalty Value on Coal Service Tax of 14% and Swachh Bharat Cess of 0.5% are chargeable on 30% of freight (effective rate 4.35%) Service Tax of 14% and Swachh Bharat Cess of 0.5% are chargeable on the value of all taxable services 6. Port Congestion Surcharge Nil 10% on Base Freight Rate 7. Amendment to Environment (Protection) Rules 1986 Nil Yet to be assessed by APML MERC Order Case No. 38 of 2016 Page 4 of 103

5 The above events qualify as Change in Law, under Article 10 and Article 13 of the respective PPAs, that occurred seven days prior to the Bid Deadline, i.e., (for PPA dated ) and (for PPAs dated , and ). The additional cost which has resulted pursuant to the above Changes in statutory taxes, duties and levies is required to be reimbursed to APML as Change in Law defined under Article 13 and Article 10 of the respective PPAs The above list of Change in Law events is indicative and not exhaustive. APML reserves its right to approach the Commission as and when it comes to know of other Change in Law events which are not mentioned above. Background of 1320 MW PPA dated MSEDCL initiated the process of Competitive Bidding for procurement of long-term power up to 2000 MW under Case 1 bidding process and issued final Request for Proposal (RFP) on APML submitted its bid on It was selected as the lowest (L1) bidder and MSEDCL issued a Letter of Intent (LoI) dated to it for supply of 1320 MW of power from Tiroda TPS. Consequently, APML and MSEDCL entered into the PPA for supply of 1320 MW power from Unit 2 & 3 of APML s Tiroda TPS for the period of 25 years at levelised tariff of Rs. 2.64/ kwh on Background of PPAs dated (1200 MW), (125 MW) and (440 MW) 5.7. MSEDCL initiated the process of Competitive Bidding by floating an advertisement and a RFP document dated 18 May, 2009 for procurement of 2000 (-20/+ 30%) MW power on long term basis under Case 1 bidding. APML offered 1200 MW of power in its bid dated quoting levelised tariff of Rs /kWh. APML s bid was based on domestic coal for which APML, vide letters dated and addressed to Ministry of Coal, GoI, applied for coal linkage in terms of the New Coal Distribution Policy (NCDP) After negotiations, APML and MSEDCL agreed to supply and procure 1200 MW power at a levelised tariff of Rs. 3.28/kWh. Accordingly, APML executed the PPA dated for supply of 1200 MW from Tiroda TPS at a levelised tariff of Rs. 3.28/kWh. Thereafter, the tariff agreed by APML and MSEDCL was adopted by the Commission vide Order dated in Case No. 22 of In view of the power deficit situation in the Maharashtra, APML had offered to MSEDCL an additional 125 MW of power vide letter dated for supply on the same terms and conditions as the PPA for 1200 MW at a levelised tariff of Rs. 3.28/kWh. MSEDCL accepted the offer for additional quantum of 125 MW power on MERC Order Case No. 38 of 2016 Page 5 of 103

6 Long-term basis vide letter dated Thereafter, a PPA dated was signed between for supply of additional quantum of 125 MW at levelised tariff of Rs. 3.28/kWh. With respect to this additional quantum, the Commission also accorded its approval for adoption of tariff vide Order dated 19 May, 2011 in Case No.56 of 2010 and for executing the PPA on the same terms and conditions as applicable to the PPA for supply of 1200 MW signed on Tiroda TPS has installed capacity of 3300 MW (5 x 660 MW) in different phases. APML had signed PPAs for supply of 1320 MW, 1200 MW and 125 MW power with MSEDCL on long-term basis. Thereafter, as MSEDCL was in further need of power, APML vide letter dated offered an additional 440 MW of power to MSEDCL on the same terms and conditions as applicable tothe1200 MW PPA dated at the negotiated levelised tariff of Rs. 3.28/kWh. Government of Maharashtra (GoM) accorded its approval, which was intimated to APML by MSEDCL vide letter dated The PPA was executed on , subject to approval by the Commission. The Commission accorded its approval to the PPA for supply of additional quantum in Case No. 53 of 2012 vide Order dated Thereafter, the PPA for supply of 440 MW power was entered into between APML and MSEDCL on Appeal No. 70 of 2013 was filed by Wardha Power Co. Ltd. before the Appellate Tribunal for Electricity (ATE) challenging the Commission s Order dated in Case No. 53 of 2012 approving the purchase of power by MSEDCL from APML (440 MW) and Indiabulls Realtech Ltd. (Nashik) on long-term basis. Vide Judgment dated 10 February, 2015, the ATE directed MSEDCL to approach Indiabulls Realtech Ltd. (Nashik) and Wardha Power to give their offers for long-term supply matching the levellised tariff of Rs per kwh and to approve the quantum on pro-rata basis, if all the qualified bidders agree to supply power on long-term basis. Indiabulls Realtech Limited (Nashik) challenged the ATE Judgment before Supreme Court by in Appeal No of The Supreme Court on directed to maintain status quo. Hence, Case No. 53 of 2012 is kept pending by the Commission till the status quo Order is vacated The Scheduled Delivery Date (SDD) under the PPA for 1200 MW of power is However, APML was in a position to start supply prior to the SDD and MSEDCL had also given its consent. APML started supplying power to MSEDCL from as per the terms and conditions of the 1200 MW PPA In view of Article 13 of the PPA dated and Article 10 of the PPAs dated , and , any modification/increase/introduction of various statutory taxes, levies and duties, etc. made by the Indian Governmental Instrumentalities subsequent to the cut-off dates (i.e., for the PPA dated and for the PPAs dated , and ) fall within the ambit of Change in Law as embodied in Article 13 and Article 10 of the MERC Order Case No. 38 of 2016 Page 6 of 103

7 respective PPAs. The Commission is empowered to adjudicate and decide upon the issues contended to be events of Change in Law. Therefore, APML has filed the present Petition (i) to seek approval of the impact of additional Change in Law events which have affected APML during the performance of its obligations under the PPAs; and (ii) to allow APML to restore its original economic position as envisaged under the PPAs by recovering the amount of impact suffered on account of such additional Change in Law events from MSEDCL. Change in Law under Article 13 of PPA dated (1320 MW) On or after seven days prior to Bid Deadline, if there have been any changes in policies by Indian Governmental Instrumentalities, they are covered within the ambit of "Change in Law" as per Article 13 of the PPAs The following definitions in the PPA is relevant : 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 of the PPA regarding Change in Law reads as follows: 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) (ii) The enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any law or; 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. MERC Order Case No. 38 of 2016 Page 7 of 103

8 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 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. MERC Order Case No. 38 of 2016 Page 8 of 103

9 13.3 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) (ii) the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law; or 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. Change in Law under Article 10 of PPAs dated (1200 MW), (125 MW) and (440 MW) The PPAs provide the following relevant definitions: LAW:- Shall mean 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 MERC Order Case No. 38 of 2016 Page 9 of 103

10 include without limitation 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 Appropriate Commission; Indian Governmental Instrumentality shallmean the GoI, Government of state(s) of Maharashtra, and any ministry, department, board, authority, agency, corporation, commission under the direct or indirect control of GoI or any of the above state Government(s) or both, any political sub-division of any of them including any court or Appropriate Commission(s) or tribunal or judicial or quasi-judicial body in India but excluding the Seller and the Procurer; Article 10 of the PPAs provides 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 : 10 ARTICLE 10: CHANGE IN LAW 10.1 Definitions In this Article 10, 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 resulting into any additional recurring/non-recurring expenditure by the Seller or any income to the Seller: The enactment, coming into effect, adoption, promulgation, amendment, modification or repeal (without re-enactment or consolidation) in India, of any Law, including rules and regulations framed pursuant to such law: A change in the interpretation or application of any law by any Indian Governmental Instrumentality having the legal power to interpret or apply such Law, or any Competent Court of Law; the imposition of a requirement for obtaining any Consents, Clearances and Permits which was not required earlier; a change in the terms and conditions prescribed for obtaining any Consents, Clearances and Permits or the inclusion of any new terms or conditions for obtaining such Consents, Clearances and Permits; except due to any default of the Seller; any change in tax or introduction of any tax made applicable for supply of power by the Seller as per the terms of this Agreement. 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 MERC Order Case No. 38 of 2016 Page 10 of 103

11 charges or frequency intervals by an Appropriate Commission or (iii) any change on account of regulatory measures by the Appropriate Commission including calculation of Availability Application and Principles for computing impact of Change in Law: While determining the consequences of Change in Law under this Article 10, 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 Payment, to the extent contemplated in this Article 10, the affected Party to the same economic position as if such Change in Law has not occurred Relief for Change in Law During Construction Period, as a result of any Change in Law, the impact of increase/decrease of Capital Cost of the Power Station 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 Capital Cost during the Construction Period, 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. In case of Dispute, Article 14 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 During Operating Period 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 For any claims made under Articles and above, the Seller shall provide to the Procurer and the Appropriate Commission documentary proof of such increase/ decrease in cost of the Power Station or revenue/ expense for establishing the impact of such Change in Law The decision of the Appropriate Commission, with regards to the determination of the compensation mentioned above in Articles and , and the date from which such compensation shall become effective, shall be final and binding on both the Parties subject to right of appeal provided under applicable Law Notification of Change in Law MERC Order Case No. 38 of 2016 Page 11 of 103

12 If the Seller is affected by a Change in Law in accordance with Article 10.1 and the Seller wishes to claim relief for such a Change in Law under this Article 10, 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 , even 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 Tariff Adjustment Payment on account of Change in Law Subject to Article 10.2, the adjustment in Monthly Tariff Payment shall be effective from: (i) (ii) the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law; or 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 Change in Law shall be through Supplementary Bill as mentioned in Article 8.8. 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 various events of Change in Law which have impacted the revenue and costs of APML for supply under the PPAs are elaborated below. A. INCREASE IN RATE OF CHHATTISGARH ENVIRONMENT & DEVELOPMENT CESS The Chhattisgarh State Government promulgated the Chhattisgarh (AdhosanrachnaVikas Evam Paryavaran) Upkar Adhiniyam, 2005 ( Chhattisgarh MERC Order Case No. 38 of 2016 Page 12 of 103

13 Cess Act ) to provide for a Cess on land for raising funds to implement infrastructure 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 tonne and as per Schedule (II), Environment Cess of Rs.5 per tonne of annual dispatch was levied on land covered under coal and iron ore mining leases, which were prevalent at the time of submission of the bids by APML Subsequently, the Chhattisgarh Government, vide Gazette Notification dated , amended this Act to revise the Cess rates as below: Duty/Tax Details Existing Rates(as on ) Revised ) Rates(w.e.f. Environment Cess Rs. 5 / Tonne Rs / Tonne Development Cess Rs. 5 / Tonne Rs / Tonne Therevision of rates was made applicable to all dispatches/ lifting from and South Eastern Coalfields Limited (SECL) as mentioned in its Notice No. SECL/BSP/S&M/2015/1420 dated Therefore, this revision of rates is a Change in Law event under Article (i) and Article Bullet (1) and Art Bullet (5) of the respective PPAs. APML had notified the occurrence of the above Change in Law event to MSEDCL vide its notice dated , in accordance with Articles and of the PPAs The indicative per unit impact of the increase in the Chhattisgarh Environment and Development Cesses is worked out as below: S. No. Per unit impact of increase in Chhattisgarh Environment and Development Cesses-for PPA dated As on Particulars Units cut-off W.e.f date (Rs. 7.5/Tonne) (Rs. Incremental 5/Tonne) A Basic Price Rs/tonne B Crushing/Sizing Charges Rs/tonne C Royalty Rs/tonne D Stowing Excise Duty Rs/tonne E Clean Energy Cess Rs/tonne F Surface Transportation Charges Rs/tonne G Vikas Upkar Rs/tonne MERC Order Case No. 38 of 2016 Page 13 of 103

14 As on cut-off S. W.e.f Particulars Units date No. (Rs. 7.5/Tonne) (Rs. Incremental 5/Tonne) H Paryavaran Upkar Rs/tonne I Niryatkar Rs/tonne J Central Excise 6% Rs/tonne K 2% Rs/tonne L Total Change in Law Impact of Paryavaran Rs/tonne 5.41 & Vikas Upkar M Gross Heat Rate kcal/kwh 2,350 N Auxiliary Consumption % 6.50% O Net Heat Rate kcal/kwh 2,513 P GCV of Linkage Coal kcal/kg 3,300 Q SCC for energy sent out kg/kwh 0.76 Per Unit impact for R energy scheduled at Rs/kWh Tiroda ex-bus Per unit impact of increase in Chhattisgarh Environment and Development Cesses - for PPAs dated , and As on cutoff date W.e.f Incrementa S. Particulars Units No (Rs. (Rs. 7.5/Tonne) l 5/Tonne) A Basic Price Rs/tonne B Crushing/Sizing Charges Rs/tonne C Royalty Rs/tonne D Stowing Excise Duty Rs/tonne E Clean Energy Cess Rs/tonne F Surface Transportation Charges Rs/tonne G Vikas Upkar Rs/tonne H Paryavaran Upkar Rs/tonne I Niryatkar Rs/tonne J Central Excise 6% Rs/tonne K 2% Rs/tonne L Total Change in Law Impact for CG Paryavaran & Vikas Rs/tonne 5.41 Upkar M Gross Heat Rate kcal/kwh 2,350 N Auxiliary Consumption % 6.50% MERC Order Case No. 38 of 2016 Page 14 of 103

15 As on cutoff date W.e.f Incrementa S. Particulars Units No (Rs. (Rs. 7.5/Tonne) l 5/Tonne) O Net Heat Rate kcal/kwh 2,513 P GCV of Linkage Coal kcal/kg 3,700 Q SCC for energy sent out kg/kwh 0.68 Per Unit Impact for R energy scheduled at Rs/kWh Tiroda ex-bus B. NATIONAL MINERAL EXPLORATION TRUST AND DISTRICT MINERAL FOUNDATION LEVY ON ROYALTY As per GoI Notification No. 3 of 2015 dated , the Mines and Minerals (Development & Regulation) Amendment Ordinance was promulgated. Under the Ordinance, Sections 9B and 9C were inserted in the Mines and Minerals (Development & Regulation) Act, 1957 ( MMDR Act ) whereby the holder of a mining lease or a prospecting license-cum-mining lease shall pay to the National Mineral Exploration Trust (NMET) 2% of the Royalty paid under the Second Schedule; and shall also, in addition to the Royalty, pay to the District Mineral Foundation (DMF) of the District in which the mining operations are carried on, an amount equivalent to such percentage of the Royalty paid in terms of the Second Schedule, not exceeding one-third of such Royalty. Subsequently, vide Gazette Notification dated , GoI notified that the MMDR Amendment Act, 2015 had been enacted Vide Gazette Notification dated , in exercise of powers under Section 9C(2), (3) and (4) and Section 13 of the MMDR Act, GoI has notified that the payment to the NMET shall be made from Thereafter,vide Notification dated , GoI has notified that,w.e.f , as contribution to be made to the DMF, the lease holder shall pay 10% of the Royalty for mining leases granted on or after and 30% of the Royalty for mining leases granted prior to By various Gazette Notifications, GoI implemented new Rules and amended the MMDR Act, Accordingly, vide notice dated , SECL notified regarding payment towards NMET and DMF w.e.f and , respectively. This imposes a financial burden on APML and, therefore, it is a Change in Law under Articles (i) and Bullet (1) of the respective PPAs. These levies of 2% on Royalty under NMET and 30% on Royalty under DMF, together amounting to 32% Levy on Royalty of coal, squarely fall under Articles10 and 13 of the respective PPAs as an event of Change in Law, and hence APML needs to be compensated for them. MERC Order Case No. 38 of 2016 Page 15 of 103

16 5.29. Giving reference to Articles and of the respective PPAs, APML has informed MSEDCL vide Notice dated regarding the additional Change in Law events The indicative per unit impact of these is worked out as below: Impact of NMET and DMF levies - For PPA dated W.e.f. S. No Particulars Units As on (for NMET) Cut-off and date (for DMF) Incremental A Basic Price Rs/tonne B Crushing/Sizing Charges Rs/tonne C Royalty Rs/tonne D Stowing Excise Duty Rs/tonne E Clean Energy Cess Rs/tonne F Surface Charges Transportation Rs/tonne G VikasUpkar Rs/tonne H ParyavaranUpkar Rs/tonne I Niryatkar Rs/tonne J 2% on Royalty Rs/tonne K 30% on Royalty Rs/tonne L Central Excise 6% Rs/tonne M 2% Rs/tonne N Total Change in Law Impact on account of NMET & DMF on Rs/tonne 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 Per Unit Impact for T energy scheduled at Rs/kWh Tiroda ex-bus Out of the total impact of Rs per kwh, the impact due to NMET is Rs per kwh which is effective from , and the impact due to DMF is Rs per kwh effective from MERC Order Case No. 38 of 2016 Page 16 of 103

17 Impact of NMET and DMF levies- For PPAs dated , and S. No Particulars Units As on Cut-off date W.e.f (for NMET) and (for DMF) A Basic Price Rs/tonne B Crushing/Sizing Charges Rs/tonne C Royalty Rs/tonne D Stowing Excise Duty Rs/tonne E Clean Energy Cess Rs/tonne F Surface Charges Transportation Rs/tonne G Vikas Upkar Rs/tonne H Paryavaran Upkar Rs/tonne I Niryatkar Rs/tonne J 2% on Royalty Rs/tonne K 30% on Royalty Rs/tonne L Central Excise 6% Rs/tonne Incremental M 2% Rs/tonne N Total Change in Law Impact on account of NMET & DMF on Rs/tonne 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 3,700 S SCC for energy sent out kg/kwh 0.68 Per Unit Impact for T energy scheduled at Rs/kWh Tiroda ex-bus Out of the total impact of Rs per kwh, the impact due to NMET is Rs per kwh effective from , and the impact due to DMF is Rs per kwh which is effective from C. SWACHH BHARAT CESS ON SERVICE TAX FOR RAIL TRANSPORTATION At the time 7 days prior to the Bid Deadline, no Swachh Bharat Cess (SBC) was applicable. Under Section 119 of the Finance Act, 2015, GOI inserted SBC to be MERC Order Case No. 38 of 2016 Page 17 of 103

18 0.5 % on the value of all taxable services from , and Notifications No. 21/2015 and 22/2015 dated provides for it Vide earlier notices issued by APML earlier regarding the occurrence of various Changes in Law, especially the letter dated , it had notified the Change in Law event of levy of Service Tax on Rail Transportation with 70% abatement, leading to an effective levy of 4.20% (14% x 30%) from In view of SBC, the Ministry of Railways has issued Notification dated by which the rate of Service Tax on Rail Transportation of Coal w.e.f stands revised from 4.20% to 4.35% In its Notice to MSEDCL, APML referred to the additional burden which entitles APML to claim Change in Law under Articles (i) and Article Bullet (1) & Bullet (5) of the respective PPAs. Further, referring to Articles and , APML has informed MSEDCL vide Notice dated regarding the Additional Change in Law.The indicative per unit impact of this levy is worked out as below: Impact of SBC on Service Tax for Rail Transportation of Coal - For PPA dated S. No Particulars Units w.e.f A Rail Freight Rs/tonne B Busy Season 15% applicable for 9 months Rs/tonne C Normal Tariff Rate Rs/tonne D Development Surcharge Rs/tonne E Total Freight Rs/tonne F Service Tax including Swachh Bharat Cess on Rail Transportation Rs/tonne 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 Note: Change in Law impact corresponding to effective Service Tax rate of 4.2% was already approved by the 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. MERC Order Case No. 38 of 2016 Page 18 of 103

19 Impact of SBC on Service Tax for Rail Transportation of Coal - For PPAs dated , and S. No Particulars Units Rate A Rail Freight Rs/tonne B Busy Season 15% applicable for 9 months Rs/tonne C Normal Tariff Rate Rs/tonne D Development Surcharge Rs/tonne E Total Freight Rs/tonne F Service Tax including Swachh Bharat Cess on Rail Transportation Rs/tonne 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 3,700 K SCC for energy sent out kg/kwh 0.68 L Per Unit Impact for energy scheduled at Tiroda ex-bus (corresponding to effective rate of 4.35%*) Rs/kWh Note: Change in Law impact corresponding to effective Service Tax rate of 4.2% was already approved by the Commission vide Order dated in Case No. 2 of The impact on account of 0.5% increase in Service Tax rate due to inclusion of SBC is Rs per kwh. D. PORT CONGESTION SURCHARGE As on 7 days prior to the Bid Deadline, no Port Congestion Surcharge was applicable on freight for goods traffic originating from Ports. Ministry of Railways, GoI, pursuant to power conferred under Section 30 to 32 of the Railways Act, 1989, can fix and determine rates and surcharge. Accordingly, the 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 additional burden entitles APML to claim Change in Law under Articles (i) and Article Bullet (1) & Bullet (5) of PPAs respectively, and this Change in Law event was intimated by APML to MSEDCL vide Notice dated The indicative per unit impact of this levy is as below: Impact of Port Congestion Surcharge - For PPA dated S. No Particulars Units As on cutoff date w.e.f Incremental A Rail Freight Rs/tonne B Port Congestion Surcharge Rs/tonne MERC Order Case No. 38 of 2016 Page 19 of 103

20 S. No Particulars Units As on cutoff date w.e.f Incremental Busy Season C 15% applicable for 9 Rs/tonne months D Development Surcharge Rs/tonne Service Tax including E Swachh Bharat Cess on Rs/tonne Rail Transportation F Total Change in Law Impact on account of Port Congestion Rs/tonne Surcharge 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 Per Unit Impact for L energy scheduled at Rs/kWh Tiroda ex-bus Impact of Port Congestion Surcharge - For PPAs dated , and S. No Particulars Units As on cutoff date w.e.f Incremental A Rail Freight Rs/tonne B Port Congestion Surcharge Rs/tonne Busy Season C 15% applicable for 9 Rs/tonne months D Development Surcharge Rs/tonne Service Tax including E Swachh Bharat Cess on Rs/tonne Rail Transportation F Total Change in Law Impact on account of Port Congestion Rs/tonne Surcharge 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 3,700 K SCC for energy sent out kg/kwh 0.68 L Per Unit Impact for energy scheduled at Rs/kWh MERC Order Case No. 38 of 2016 Page 20 of 103

21 S. No Particulars Units As on cutoff date w.e.f Incremental Tiroda ex-bus E. AMENDMENTS 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 introduced new norms. These 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, this 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 than if the additional equipment were not required to be installed. The amended Rules 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 are summarized below: Insertion of new Clause 5A Current Norm Norms as on Cut-Off Date N/A (Vide Notification dated All existing CT-based Plants must reduce specific water consumption up to maximum of 3.5m 3 /MWh within 2 two years. Amendment to Clause 25 w Norms (vide Notification dated Norms as on 7 days prior to Bid Deadline For TPPs (Units) installed after 1st Jan,2003, up to 31st Dec Parameter Standard Parameter Standard Particulate Matter Emission: - For generation 150 mg/nm3. Particulate capacity 210 Matter(for Thermal MW or more - For generation 350 mg/nm3 PowerPlants) 50 mg/nm3 capacity less than 210 MW. Sulphur Dioxide (SO2) N/A Sulphur Dioxide 600 mg/nm3 (Units MERC Order Case No. 38 of 2016 Page 21 of 103

22 w Norms (vide Notification dated Norms as on 7 days prior to Bid Deadline For TPPs (Units) installed after 1st Jan,2003, up to 31st Dec (SO2) Smaller than 500 MW capacity units) 200 mg/nm3 (for units having capacity of 500 MW and above) Oxides of Oxides of N/A Nitrogen(NOx) Nitrogen(NOx) 300 mg/nm3 Mercury ( Hg) N/A Mercury ( Hg) 0.03 mg/nm3 Referring to Articles and of the PPAs, APML informed MSEDCL vide Notice dated regarding this Change in Law event These amendments to the Environment (Protection) Rules, 1986 impose a financial burden on APML and, therefore, they are a Change in Law under Articles (i) and Article (1) of PPAs and, therefore, the consequent increased cost needs to be compensated by MSEDCL The financial impact on account of this Change in Law event is being assessed and will be submitted in due course. In the meantime, the Commission may approve the amended environmental standards as Change in Law, allow APML to pass on the consequential financial impact, and direct MSEDCL to reimburse it to APML. F. SWACHH BHARAT CESS ON SERVICE TAX As mentioned earlier, GoI, under Section 119 of the Finance Act, 2015, inserted a provision for a SBC to be 0.5 % on the value of all taxable services from This has increased the Service Tax rate from 14% to 14.5% and is a Change in Law affecting APML during the Operation Period of the Plant. Vide Order dated in Case No. 2 of 2014, has already approved Change in Service Tax Rate as a Change in Law event as per 5 th Bullet of Article of PPAs dated , and Hence, MSEDCL will have to bear the increase in the Service Tax rate on account of inclusion of SBC These events of Change in Law have adversely impacted the revenue and the costs of APML, and it the impacts are required to be compensated and APML be restored to the position it would have been in had such events not taken place. APML has hence filed this Petition seeking compensation in tariff in accordance with Articles 13 and 10 of the respective PPAs. The above levies, changes, revisions and enactments are directly affecting APML s business. The Change in Law events along with details of relevant Acts/Notifications and the relevant provisions of the PPAs are summarised in the Table below: MERC Order Case No. 38 of 2016 Page 22 of 103

23 Summary of five Change in Law Events, as per APML Sr. No. Change in Law Event Act / Notification Clause in PPA 1. Chhattisgarh Environment & Development Cess 2. Levy of NMET and DMF on Royalty Gazette Notification dated Gazette Notification dated & Article (i) and Article Bullet (1) & Bullet (5) of PPAs respectively Article (i) and Article Bullet (1) of PPAs respectively 3. Levy of Swachh Bharat Cess Gazette Notification No. 21/2015 and 22/2015 dated under Section 119 of Finance Act. Article (i) and Article Bullet (1) & Bullet (5) 4. Levy of Port Congestion Surcharge 5. Amendments to Environment (Protection) Rules 1986 GoI vide its Notification dated u/s 30 to 32 of Railway Act 1989 Gazette Notification no. S.O (E) dated Article (i) and Article Bullet (1) & Bullet (5) Article (i) and Article Bullet (1) & Bullet (5) of PPAs respectively Date of applicability of Change in Law compensation approved as per Commission Orders dated and Vide its Orders dated and , the Commission held that APML may raise Supplementary Bills on MSEDCL for the impact of events which have been accepted by it as Change in Law and directed that, as stipulated in the PPAs, the impact of such Change should be computed from the date that it affects the Seller (APML) The Scheduled Commercial Operation (SCOD) for the PPA dated was However, as per mutual agreement between MSEDCL and APML, the supply date was pre-poned and actual supply under that PPA commenced from Based on the above direction of the Commission that impact of Change in MERC Order Case No. 38 of 2016 Page 23 of 103

24 Law is to be computed from the date that it affects the Seller, APML has raised Supplementary Bills on MSEDCL for the impact of Change in Law from onwards, in case of the PPA dated Since the power supply to MSEDCL commenced from onwards, APML was affected by the Change in Law events from that date. However, MSEDCL has not paid the compensation for the period from to Instead, vide letter dated , it has stated that this period does not fall within the Operating Period and, therefore, compensation is not payable. MSEDCL has to pay compensation on account of Change in Law with effect from , since APML has actually supplied power to MSEDCL from that date by incurring costs and was affected from then Similarly, in respect of PPA dated , the COD of Unit 2 was achieved on and firm power supply to MSEDCL commenced from COD of Unit 3 was achieved on , and supply from both Units commenced from the dates. The Change in Law claim of APML for the period from and was not admitted by MSEDCL. Since APML has incurred costs and has been affected by the Change in Law events from under PPA dated , the Commission may direct MSEDCL to pay the Change in Law compensation for the period from and Vide letter dated , APML clarified that MSEDCL had accepted supply of firm power under PPA dated and had accepted to pay the tariff in accordance with Clause 4.6 of Schedule 4; and that, once the tariff is paid as per PPA provisions, the associated costs, which include Change in Law compensation, are also required to be reimbursed. Further, as per Article , adjustment in monthly Tariff Payment on account of Change in Law shall be effective from the date of adoption, promulgation, amendment, re-enactment or repeal of the relevant Law The Commission has also, based on the relevant provisions of the PPAs, held that the impact of Change in Law should be computed from the date that it affects the Seller and that the objective of the Change in Law provision is to restore the economic position of an affected party which has been altered due to such Change. Hence, the Change in Law claims for the period from and under PPA dated and from to under PPA dated are strictly in accordance with the PPA provisions relating to Change in Law The Commission may approve APML s claims for various Change in Law events from the date of commencement of firm power supply under the respective PPAs or the date from which such Change in Law events became effective, whichever is later. 6. In its Interlocutory Application filed on seeking additional reliefs, APML has stated as follows: MERC Order Case No. 38 of 2016 Page 24 of 103

25 6.1. APML s main Petition is not yet scheduled for hearing. The present Application seeks relief due to occurrence of the following additional Change in Law events which were not included in the main Petition:- I. The Application is filed for approval of KKC notified by GoI as a Change in Law event. The Cess is leviable on all taxable services from , i.e., subsequent to the filing of the Petition. The introduction of KKC has resulted in additional financial burden on APML in respect of procurement and transportation of coal and services for power generation, as set out below: Introduction of Krishi Kalyan Cess -Change in Law affecting revenue and cost during Operation Period of PPAs Change in Law As on Bid Deadline As on date Introduction of Krishi Kalyan Cess % on all taxable services - Effective rate of Service Tax has been increased from 14.5% to 15% (with effect from ) II. III. IV. The above event qualifies as Change in Law under Article 10 of the PPAs dated , and and Article 13 of the PPA dated since it has occurred after the cut-off date, which is (for PPA dated ) and (for PPAs dated , and ). The resultant additional cost is required to be reimbursed to APML as Change in Law defined under Articles 13 and Article 10 of the respective PPAs. As on the cut-off date, levy of KKC was not applicable. However, in the Finance Bill, 2016, Ministry of Finance, GoI had proposed levy of KKC at 0.5% on all taxable services from On account of KKC, the effective rate of Service Tax will increase from 14.5% to 15%. Subsequently, GoI, vide Gazette Notification dated , notified the Finance Act, V. Thereafter, in exercise of its powers under Section 68(2) of the Finance Act, 1994 read with Section 161(5) of the Finance Act, 2016, vide Notification 27 to 31/2016 Service Tax dated , Ministry of Finance notified that KKC shall be levied on the value of all taxable services from VI. In line with the above, Ministry of Railways vide Notification No. TCR/1078/2015/15 dated notified that the rate of Service Tax on MERC Order Case No. 38 of 2016 Page 25 of 103

26 Transportation of Goods by Rail from shall be as Service 14%, 0.5%; and 0.5% of total value of taxable services. VII. Further, since Service 14%, 0.5%; and 0.5% are chargeable on 30% of total freight, the effective rate of Service Tax on Rail Transportation will, therefore, be 4.5% of the total freight Imposition of KKC will impact expenditure on account of change in Service Tax during the Operational Period as well as levy of Service Tax on total freight on Transportation of Goods by Rail from its effective date i.e., APML is already raising invoices for payment of compensation on account of change in Service Tax rate based on the Commission s approval of it being a Change in Law event vide Orders dated and and MSEDCL has been paying the compensation The Commission has already approved change in Service Tax during the Operational Period as well as levy of Service Tax on total freight on Transportation of Goods by Rail as Change in Law events under the 5th Bullet of Article of PPAs dated , and vide Order dated in Case No. 2 of Similarly, the Commission has also approved change in Service Tax on total freight on Transportation of Goods by Rail as a Change in Law event under Art (i) of the PPA dated Order dated in Case No. 163 of APML has already notified MSEDCL with respect to the aforementioned Change in Law event vide notices dated and As per the terms of the PPA, APML is entitled to claim compensation due to such increase in expenses so as to restore it to the same economic position as if such Change in Law event has not occurred APML reserves its right to approach the Commission as and when other Change in Law events come to its knowledge which are not mentioned in its Petition and Application. Further, as introduction/modification of taxes, charges and rates are an omnipresent event in the economy and are bound to occur in future too, APML will approach the Commission in future for the same APML will suffer irreparable loss and injury if its Application is not accepted by the Commission and heard along with the Petition, whereas no loss and injury will be caused to MSEDCL if the same is granted. 7. APML filed a second Application dated seeking further reliefs, stating as follows: MERC Order Case No. 38 of 2016 Page 26 of 103

27 7.1. This Application seeks additional reliefs due to occurrence of additional Change in Law events subsequent to filing of the main Petition and which are not included in the main Petition or 1 st Application, with regard to the following Change in Law events under Article 13 of PPA dated and Article 10 of PPAs dated , and : I. Levy of Coal and Coke Terminal Surcharge for traffic of coal for distances beyond 100 kms., leviable from II. Amendment in Notification on Utilization of Fly Ash generated from coal and lignitebased Thermal Power Projects These Change in Law events have resulted in additional financial burden on APML in respect of transportation of coal for power generation and adherence to stipulated environmental norms as set out in the Table below: Impact of Coal and Coke Terminal Surcharge and amended Fly Ash Utilization Notification on Revenue and Cost in Operation Period under all PPAs Change in Law Event As on Bid Deadline As on date Levy of Coal and Coke Terminal Surcharge Amendment in Notification on Utilization of Fly Ash generated from coal and lignite-based Thermal Power Projects - Rs. 55 per tonne at both loading and unloading terminals (i.e. effective rate of Rs. 110/Tonne) excl. applicable Service Tax on Rail Transportation - Dependent on actual distance of transportation of ash LEVY OF COAL AND COKE TERMINAL SURCHARGE 7.3. Ministry of Railways, in exercise of its powers under the Railways Act, has been notifying various surcharges from time to time on the transportation of coal. Vide its Notification dated , viz. Corrigendum No. 14 to Rates Circular No. 8 of 2015, it has introduced the levy of Coal Terminal Surcharge from at the rate of Rs. 55/- per tonne at both loading and unloading terminals (i.e. total impact of Rs. 110/- per tonne) for the traffic of coal for a distance beyond 100 kms. MERC Order Case No. 38 of 2016 Page 27 of 103

28 7.4. Another Corrigendum dated was issued by the Ministry of Railways, viz. Corrigendum No. 15 to Rates Circular No. 8 of 2015,vide which the above levy was renamed Coal and Coke Terminal Surcharge and was made applicable at the above rate on the coal freight falling under Class 145A for the distance beyond 100 kms As the distance involved in transportation of coal by railways to the APML Tiroda Project is more than 100 kms, the new levy would be applicable to APML As on the cut-off date, i.e (for PPA dated ); and (for PPAs dated , and ), levy of Coal and Coke Terminal Surcharge was not applicable to APML. However, as per the above Ministry of Railway Circulars, the levy became applicable to APML from As per the terms of the PPA, APML is entitled to claim compensation due to such increase in expenses so as to restore it to the same economic position as if such Change in Law event had not occurred. APML has already notified MSEDCL with respect to this Change in Law event vide notice dated AMENDMENT IN NOTIFICATION ON UTILIZATION OF FLY ASH 7.8. In exercise of its powers under the Environment (Protection) Act, 1986 and in pursuance of the Order dated of the Delhi High Court, MoEF issued various directions for promoting the utilization of Fly Ash in the manufacture of building materials and construction activities within a specified radius of the coal or lignite-based Thermal Power Plants, vide Notification no. S.O. 763 (E) dated The Principal Notification dated was amended vide Notification S.O. 979 (E) dated and S.O (E) dated However, vide Notification No. S.O. 254 (E) dated , MoEF has further amended the Notification, under the Environment (Protection) Act 1986 and the Environment (Protection) Rules 1986, vide which new norms/stipulations have been introduced for coal and lignite-based Thermal Power Projects for ensuring the utilization of Fly Ash generated As per the amended Notification, coal and lignite-based Thermal Power Projects would be required to bear the entire cost of transportation of Ash up to the manufacturing sites of Ash-based products for use as soil conditioner in agriculture and/or road construction projects located within 100 kms. from such Power Projects. The cost of transportation beyond 100 kms.and up to 300 kms. would be shared equally between the User and the coal or lignite-based Thermal Power Plant Further, coal or lignite-based Thermal Power Projects would be required to bear the entire cost of transportation of ash to sites of road construction Projects under the Pradhan Mantri Gramin Sadak Yojna and asset creation programmes of the MERC Order Case No. 38 of 2016 Page 28 of 103

29 Government involving construction of buildings, roads, dams and embankments located within 300 kms. from such Power Projects MoEF has also issued a letter dated to ensure compliance of the provisions of the Notification dated by all States/Union Territories As on the cut-off date of the respective PPAs, there was no stipulation on coal or lignite-based Thermal Power Projects to bear the cost of transportation of ash to construction sites. That has been newly introduced vide the MoEF Notification dated and has to be complied with before These newly stipulated norms will result in additional financial impact on APML s Tiroda Power Project and qualify as a Change in Law event under Article 13 of PPA dated and Article 10 of PPAs dated , and The actual financial impact on account of this Change in Law event would depend on the actual distance of transportation, and would be claimed accordingly by APML APML has already notified MSEDCL with respect to this Change in Law event vide notice dated APML will suffer irreparable loss and injury if this Application is not accepted by the Commission and heard along with the main Petition, whereas no loss and injury will be caused to MSEDCL. 8. In its Reply dated , MSEDCL stated as follows: 8.1. Prudence check is required while allowing change in law so that any inefficiency in operation of the generating Plant is not passed on to MSEDCL and end consumers It is clear from the definition of Law in the PPAs [quoted earlier in this Order] that Change in Law is only a change in any statute, ordinance, regulation, notification or code, rule or any interpretation of any of these by an Indian Governmental Instrumentality. For any interpretation of the Article on Change in Law, the definition of law in the PPA would have to be considered The 5 th Bullet of Article in the PPAs dated , and includes Any change in tax or introduction of any tax made applicable for supply of power by the Seller as per terms of this agreement. Thus, only a change made applicable for supply of power by the Seller as per the terms of the PPAs should be allowed. This will also ensure that APML is liable for MERC Order Case No. 38 of 2016 Page 29 of 103

30 any business risks undertaken while quoting in its bid and also that it is restored to the same economic position as per the terms of the PPAs. Any commercial aspect or change due to inflation must not be allowed In its earlier Change in Law Orders dated in Case No.2 of 2014 and dated in Case No. 163 of 2014, the Commission had elaborated the key characteristics for an event to qualify as Change in Law as follows: 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 Governmental 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 relevent PPAs. f) During the Operation Period, the relief on account of Change in Law will be governed by Article 13.2(b)and of the relevant PPAs: 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. APML has quoted its price (comprising escalable and non-escalable components) as per the Competitive Bidding Guidelines for the contract period of 25 years. It is well known that all factors are not static and are bound to change during the contract period. Only those costs which have the nature of Change in Law as per Article 13 and Article 10 of the respective PPAs and approved by the Commission can be MERC Order Case No. 38 of 2016 Page 30 of 103

31 allowed for appropriate adjustment in tariff. I CHANGE IN CHHATTISGARH ENVIRONMENT AND DEVELOPMENT CESS RATES 8.5. The Chhattisgarh Cess Act was promulgated by the State Govt. in 2005to provide for levy of Cess on land to fund infrastructure development and environment improvement projects. However, the methodology to estimate the additional charges due to revision in rates needs to be approved by the Commission after prudence check with regard to the efficiency parameters of the Generation Plant Changes should have the force of law as per the PPAs. Each and every Notification may not constitute Change in Law. Thus, every Notification needs assessment as to whether it is commercial in nature or falls under Change in Law 8.7. The PPAs define the term Indian Governmental Instrumentality as follows: 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; Thus, as per this definition, the term Indian Governmental Instrumentality covers only GoI, GoM and any Ministry, Department, Board, Authority, Agency, Corporation or Commission under the direct or indirect control of GoI or GoM. 8.8 Art the PPA for 1320 MW supply reads as under: Change of 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 or Indian Governmental Instrumentality provided such Court of law, tribunal or Indian Governmental Instrumentality is final authority under law for such interpretation but shall not include (i) any change in any 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 Thus, the Notification regarding increase in the Cess rates issued by the Chhattisgarh State Government would not fall under the Change in Law provision as the APML Project is not located in the State of Chhattisgarh but in Maharashtra. Hence, the above promulgation may not be accepted as a Change in Law event as it does not fall MERC Order Case No. 38 of 2016 Page 31 of 103

32 under the purview of Indian Government Instrumentality as defined under the PPAs In view of the above, the figures and computations detailed in the Petition in this regard are irrelevant. II NMET AND DMF LEVY ON ROYALTY GoI has amended the MMDR Act. The Notifications dated and make the payments to the NMET and DMF applicable w.e.f and , respectively, and may be accepted subject to confirmation of the payment by APML on this count and prudence check. The figures claimed by APML have not been verified, and are 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, Station Heat Rate (SHR), Auxiliary Consumption etc. of the Generation Plant The PPAs provide 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. III SWACHH BHARAT CESS ON SERVICE TAX FOR RAIL TRANSPORTATION The GoI notified 0.5% under Section 119 of the Finance Act, 2015 to be levied on the value of all taxable services w.e.f Ministry of Railways vide Notification dated has revised the rate of Service Tax on Rail Transportation from 4.20% to 4.35% from As the SBC has been recently notified after the Bid Deadline, the Commission may allow the additional cost as a pass through under the Change in Law provisions after prudence check 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 PPAs provide that compensation under the Change in Law provision will be applicable only if it is in excess of 1% of the LC in aggregate for a Contract Year. As to the components for which APML has asked for compensation, the Commission MERC Order Case No. 38 of 2016 Page 32 of 103

33 may carry out prudence check on each component considering this provision. IV LEVY OF PORT CONGESTION SURCHARGE APML s Plant was set up based on coal from local sources and not on imported coal. The PPAs were entered into based on coal from local sources only. The claim would not fall within the ambit of Change in Law Ministry of Railways, GoI, vide order dated , notified the levy of Port Congestion Surcharge on 10% of the Base Freight Rate on goods traffic originating from Ports w.e.f Article 19 ( Supply from Alternate Sources ) stipulates that, in case there is a supply from alternate sources of fuel and from sources other than the Unit identified by the Seller in the document, no tariff adjustment or change in the quoted transmission charges/ losses is allowed, and the provisions of Change in Law and Force Majeure shall be applicable to the Unit identified in the document. APML has been providing supply from an alternate source of supply. Considering Article 19, for any quantum allowed by the Commission under the Change in Law provision, the same will not be applicable for the power from such alternate source Therefore, MSEDCL opposes the allowance of Port Congestion Surcharge as a Change in Law event as it cannot be applied in the present context. V AMENDMENTS TO ENVIRONMENT (PROTECTION) RULES, As per Notification dated , MoEF has amended the Environment (Protection) Rules, 1986 with regard to various environmental standards. APML claims that the new norms would require additional capital expenditure. The details are not included in the Petition, as APML has stated that: The Petitioner further submitted that the financial impact on account of the aforesaid Change in Law is currently being assessed and will be submitted in due course. The Petitioner requests the Commission to approve the amended environmental standards as Change in Law and allow the Petitioner to pass on the consequential financial impact under Change in Law and direct the Respondent to reimburse the same to the Petitioner. The claim is, therefore, premature and vague and cannot be considered As per Article 13.2 of the PPAs, the Application and Principles for computing impact of Change in Law are as follows: a) 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 MERC Order Case No. 38 of 2016 Page 33 of 103

34 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 b) Operation Period: As a result of any 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 the 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 APML has stated that the amendment to the environmental norms will lead to additional capital investment and increased Auxiliary Consumption, and to incur increased operating costs to maintain the revised standards. However, the financial impact has not been assessed and submitted by APML as required under the terms of the PPAs The compensation if any, shall be payable on its determination as Change in Law only if and for increase/ decrease in revenues or cost to the Seller is in excess of an amount equivalent to 1% of the LC in aggregate for a contract year. VI LEVY OF SWACHH BHARAT CESS ON SERVICE TAX (Operation Period) The GoI notified 0.5% under Section 119 of the Finance Act, 2015 to be levied on the value of all taxable services w.e.f The Commission has already approved the change in Service Tax rate to 14% earlier in its Order dated The financial impact have not been assessed and submitted by APML. The PPAs provide that compensation under the Change in Law provision will be applicable only if it is in excess of 1% of the 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. In reply to APML s Interlocutory Application I LEVY OF KRISHI KALYAN CESS ON SERVICE TAX (Operation Period) The GoI notified 0.5% under Finance Bill, 2016 to be levied on the value of all taxable services w.e.f Subsequently, vide Gazette Notification dated MERC Order Case No. 38 of 2016 Page 34 of 103

35 , GoI notified the Finance Act, 2016.Thereafter, under Section 68 (2) of the Finance Act, 1994 read with Section 161 (5) of the Finance Act, 2016, Ministry of Finance notified that KKC shall be levied on the value of all the taxable services from The financial impact has not been assessed and submitted by APML. The PPAs provide that compensation under the Change in Law provision will be applicable only if it is in excess of 1% of the LC in aggregate for a Contract Year The financial impact has to be assessed by APML and accordingly determined by the Commission. II LEVY OF KRISHI KALYAN CESS ON SERVICE TAX FOR RAIL TRANSPORTATION The GoI notified 0.5% under Finance Bill, 2016 to be levied on the value of all taxable services w.e.f Subsequently, vide Gazette Notification dated , GoI notified the Finance Act, Thereafter, under Section 68 (2) of the Finance Act, 1994 r/w Section 161 (5) of the Finance Act, 2016, Ministry of Finance notified that KKC shall be levied on the value of all taxable services from Subsequently, the Ministry of Railways, vide Notification dated , has notified 5% as the rate of Service Tax on rail transportation applicable from The financial impact has not been assessed and submitted by APML. The PPAs provide that compensation under the Change in Law provision will be applicable only if it is in excess of 1% of the LC in aggregate for a Contract Year. Date of applicability of Change in Law compensation as per Orders dated and The Change in Law for infirm power bills is for the power supplied during the Construction Period and not during the Operation Period, and impact the of Change in Law earlier approved by the Commission MERC vide Order dated cannot be made applicable for such infirm power bills. The bills upto March, 2014 cannot be covered under the Operation Period and, therefore, the compensation is not payable The PPAs define the term Operation Period as The period commencing from the delivery date, until the expiry date or date of earlier termination of this Agreement; Further, as per the PPAs, Delivery Date means MERC Order Case No. 38 of 2016 Page 35 of 103

36 the date on which the Seller commences supply of the Aggregate Contracted Capacity to the Procurer; The relevant part of Article 4.6 reads as follows: During the operating period if the seller is unable to provide supply of power the procurer upto the Aggregate Contracted Capacity from the power station except due to a force majeure Event due to a Procurer Event of Default, the seller is free to supply power up to the Aggregate Contracted Capacity from an alternative generation source to meet its obligations under this Agreement. Such power shall be supplied to the Procurer at the same Tariff as per the terms of this Agreement and subject to provision of Article In case the transmission and other incidental charges, including but not limited to application fees for open access, RLDC/SLDC charges, etc., applicable from the alternative source of power supply are higher than the applicable transmission charges from the Injection Point to the Delivery Point, the seller would be liable to bear such additional charges Thus, if the Seller provides power from an alternate source during the Operating Period, Change in Law shall not be applicable to that supply The criteria for relief for Change in Law as per the PPAs are to be met for appropriate adjustment in tariff. The compensation is payable on its determination as Change in Law only if the increase/decrease in revenues or cost to the Seller is in excess of 1% of the LC in aggregate for a Contract Year The Commission s Order dated in Case No.163 of 2014 (on APML s earlier Change in Law Petition), relating to the PPA dated , states as below: The computation of the impact of the Change in Law events approved by the Commission should be limited to 520 MW (i.e., excluding 800 MW capacity linked to Lohara Coal block) capacity, except for MAT in respect of which the impact should be computed on the complete contracted capacity under the PPA dated , i.e MW. Moreover, as stipulated in Article 19 of the PPA, the provisions of Change in Law are applicable only in respect of the generating Unit(s) identified in the PPA, and not to supply of power from alternate sources of fuel or from sources other than the Unit identified by the Seller APML has also filed Case No.102 of 2016 before the Commission on regarding Change in Law due to taxes and duties under Article 13 of the PPA dated , for 800 MW Out of the 1320 MW involved in the PPA dated , 800 MW of contracted capacity was linked with Lohara Coal Block. In the context of the cancellation of the Lohara Coal Block, Appeals filed by APML as well as MSEDCL are pending before the ATE, and there is no decision yet regarding whether cancellation of Lohara Coal Block is a Force Majeure Event or Change in Law. MERC Order Case No. 38 of 2016 Page 36 of 103

37 8.41. Hence, the Commission is requested not to consider the Change in Law for 800 MW out of 1320 MW before the final Judgment in the matters already before the ATE Regarding the PPA dated for 440 MW contracted capacity, MSEDCL and APML have filed a Joint Petition before the Commission in Case No. 66 of 2016 on The Petition seeks approval to the Joint Supplementary Agreement signed between APML and MSEDCL on and to the tariff of Rs. 3 per kwh or lower rate as may be deemed fit by the Commission, and states that APML shall not claim any interim increase in tariff for any reason, including for Change in Law before the Revised Scheduled Delivery Date i.e., [The Commission notes that, as recorded in its Order dated , that Petition has been disposed of as withdrawn by APML and MSEDCL.] Thus, at present, various Petitions filed by APML and MSEDCL regarding compensation in tariff are pending in various judicial and quasi-judicial fora. The Commission may carry out prudence check on each component demanded by APML in this Petition to avoid duplication The Central Electricity Regulatory Commission (CERC) publishes the escalation index of coal after every six months. Thus, the change in the methodology for coal pricing mechanism is duly taken care of by CERC. Allowing such additional cost under Change in Law may lead to duplication of cost. These costs require prudence check after due confirmation from CERC Article 19 ( Supply from Alternate Sources ) stipulates that, in case there is a supply from alternate sources of fuel and from sources other than the Unit identified by the Seller in the document, no tariff adjustment or change in the quoted transmission charges/ losses is allowed, and the provisions of Change in Law and Force Majeure shall be applicable to the Unit identified in the document. Hence, no Change in Law may be allowed for such power. 9. In its Rejoinder dated , APML stated as follows: 9.1. MSEDCL has wrongly interpreted the provisions of Change in Law in its Reply by stating that an event may be considered as a Change in Law event only if the individual Change in Law event has led to increase / decrease in cost / revenue which is more that 1% of the amount equivalent to the LC The total impact due to all the Change in Law events is to be considered in aggregate instead of considering the impact of each event individually. This will be seen from plain reading of the Change in Law provisions of the PPAs. This is also the interpretation of CERC in its Order dated in Petition No. 162/MP/2015: MERC Order Case No. 38 of 2016 Page 37 of 103

38 27. We are of the view that the increase or decrease in the actual expenditure on different items as on the COD of the generating station should be considered and the net increase or decrease should be allowed under change in law. Thereafter, APML should approach the Commission only when the additional expenditure allowable under change in law exceeds Rs.50 crore In this context, the relevant provisions of the respective PPAs are reproduced below: PPA dated for 1320 MW 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 I % of the Letter of Credit in aggregate for a Contract Year. PPA dated for 1200MW During Operating Period 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 The cost impact on APML of the Change in Law events which has been assessed so far is in excess of 1% of the LC in aggregate for a contract year CERC has considered the aggregate impact of all the allowed Change in Law events for comparison with the limit of Rs. 50 Crore [1% of the LC in that matter]. Therefore, the contention of MSEDCL that this condition applies on an individual event basis does not hold good The aggregate impact due to Change in Law events already approved by this Commission in Case Nos. 2 and 163 of 2014 was above 1% of LC under the respective PPAs. Therefore, the aggregate impact due to Change in Law events claimed in this Petition as well as the events approved earlier is ipso facto above 1% of LC under the respective PPAs. The indicative impact of the approved and proposed Change in Law claims are as follows: MERC Order Case No. 38 of 2016 Page 38 of 103

39 FY LC amount Amount of 1% of LC Amount # Approved Change in Law Amount of proposed Change in Law (Rs. Crore) Total 1320 MW PPA dated (520 MW Portion) ## ## Total MW PPA dated (800 MW Portion) ## ## 47.4* 47.4* * 56.27* NA * * * 72.24* Total * * 1320 MW PPA dated ## ## MW PPA dated Total MW PPA dated Total * Indicative impact for 800 MW Portion in Case No.102 of 2016 # Condition for 1% LC amount is applicable on entire PPA ## LC not provided for 1320 MW PPA in FY APML has issued notices for additional Change in Law to MSEDCL in compliance of the relevant Articles of the PPAs. As regards the contention of relief only if the event is claimed as per the definition of Law, APML has sought relief strictly in accordance with the Change in Law Article and the definition of Law. MERC Order Case No. 38 of 2016 Page 39 of 103

40 9.8. As regards the contention that Change in Law is allowed only on tax on supply of power specified in the 5 th bullet of Article , in fact the preamble of the Change in Law provision (Article / ) of the respective PPAs is very wide and covers any additional recurring/non-recurring expenditure by the Seller resulting from any of the Change in Law events covered under those Articles. It is not limited to tax on supply of power as contended by the MSEDCL. The tax on supply of power referred to in the Change in Law Articles also includes all the taxes that are payable for the raw materials or the inputs required for generation of power that are being supplied to the Distribution Licensee since these costs are basic to the supply of power. Any other interpretation would render Articles 10 and13 of the respective PPAs otiose, which was not the intent and purpose of the parties. This principle has already been explained by the ATE in its Judgment dated in Appeal No. 288 of 2013, in which the PPA had an identical Change in Law provision: 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 MSEDCL has wrongly interpreted the term taxes on supply of power If its argument is accepted, then the Change in Law provision would be applicable only from the period when the supply of power commences. In other words, it would not be applicable prior to commencement of supply or prior to commissioning of the Generating Units. Instead, the PPAs specifically provide for Change in Law even during the construction period. Therefore, the argument of MSEDCL is incorrect, misleading and only to delay the payment of legitimate compensation to APML Article of the 1200 MW PPA, especially the other Bullets, are not restricted to 1200 MW PPA, especially n to APML cover all events: "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 resulting into any additional recurring/non-recurring expenditure by the Seller or any income to the Seller: the enactment, coming into effect, adoption, promulgation, amendment, modification or repeal (without re-enactment or consolidation) in India, of any Law, including rules and regulations framed pursuant to such Law; MERC Order Case No. 38 of 2016 Page 40 of 103

41 a change in the interpretation or application of any Law by any Indian Governmental Instrumentality having the legal power to interpret or apply such Law, or any Competent Court of Law; the imposition of a requirement for obtaining any Consents, Clearances and Permits which was not required earlier; a change in the terms and conditions prescribed for obtaining any Consents, Clearances and Permits or the inclusion of any new terms or conditions for obtaining such Consents, Clearances and Permits; except due to any default of the Seller; any change in tax or introduction of any tax made applicable for supply of power by the Seller as per the terms of this Agreement, but shall not include (i) any change in any 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 or (iii) any change on account of regulatory measures by the Appropriate Commission including calculation of Availability The contention regarding tax on supply of power is redundant in respect of the 1320 MW PPA as it has no such provision: "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 or Indian Governmental Instrumentality provided such Court of law, tribunal or Indian Governmental Instrumentality is final authority under law for such interpretation but shall not include (i) any change in any 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 The Commission has approved various Change in Law events under the same PPAs, which are similar in nature to those now claimed, vide Orders dated and in Case Nos. 163 and 2 of 2014, respectively It is, therefore, evident that the PPAs provide for payment of compensation for all Change in Law events, including taxes on supply of power, which result in recurring or non-recurring expenditure to APML. I. CHANGE IN CHHATTISGARH ENVIRONMENT AND DEVELOPMENT CESS RATES The Notification of change in the rate of Chhattisgarh Environment and Development MERC Order Case No. 38 of 2016 Page 41 of 103

42 Cess has the force of law, as has been demonstrated in the Petition. It is denied that the Notification of the Chhattisgarh State Government would not fall under Change in Law as the APML Project is not located in Chhattisgarh, and hence that State Government is not covered under the definition of Indian Governmental Instrumentality. The relevant part of Art of the PPA for 1320 MW which MSEDCL has relied upon in its Reply is extracted below: 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 or Indian Governmental Instrumentality provided such Court of Law, tribunal of Indian Governmental Instrumentality is final authority under law for such interpretation... But shall not include (i) any change in any 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. In order to understand the ambit of the Change in Law provision, it is essential to understand the meaning of the term Law, which is defined as follows: 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 ; Government of Chhattisgarh is excluded, in the definition, only in respect of any interpretation of any of them, but any Statute, Ordinance, etc. made by it is not excluded from the definition of law. Revision in rates of Environment and Development Cess are pursuant to the powers vested under the Chhattisgarh Cess Act of Therefore, it clearly falls under the definition of Law Further, the definition of Law has four parts, and includes the following: (i) (ii) all laws including Electricity Laws in force in India and any statute, ordinance, regulation, Notification or code, rule any interpretation of any of these by an Indian Governmental Instrumentality and having the force of law. MERC Order Case No. 38 of 2016 Page 42 of 103

43 (iii) (iv) all applicable rules, regulations, orders, Notifications by an Indian Governmental Instrumentality pursuant to or under any of the above all rules, regulations, decisions and orders of the CERC and the MERC From the above, it is evident that the scope of Indian Governmental Instrumentality is limited only for interpretation of any statute, ordinance, regulation, notification or code, rule. It is not necessary for an event to be notified by an Indian Governmental Instrumentality for it to be a law. Further, under the definition of law, the portion all laws including Electricity Laws in force in India and any statute, ordinance, regulation, Notification or code, rule, is without any qualification and, therefore, includes all the State Governments/ Authorities. It further provides for changes in Law specified at Para 9.16 (iii) & (iv) above, which are in addition to and do not restrict those in the Para 16 (i) & (ii).the definition of Law under the PPAs starts with "all laws" before the word "including". The definition is in two parts, means and includes. The first part which says Law means all laws is wide and comprehensive enough to cover laws made by any Government. Hence, without going into the second part of the definition, which is the inclusive part, the definition is applicable to and covers laws made by the Govt. of Chhattisgarh The above argument is further substantiated by Article (ii) of the 1320 MW PPA and the 2 nd Bullet of Article of the 1200 MW PPA as the term Indian Governmental Instrumentality has only been referred to in those provisions and not in the preceding provisions: 10. ARTICLE 10: CHANGE IN LAW 10.1 Definitions In this Article 10, 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 resulting into any additional recurring/ non-recurring expenditure by the Seller or any income to the Seller: the enactment, coming into effect, adoption, promulgation, amendment, modification or repeal (without re-enactment or consolidation) in India, of any Law, including rules and regulations framed pursuant to such Law; a change in the interpretation or application of any Law by any Indian Governmental Instrumentality having the legal power to interpret or apply such Law, or any Competent Court of Law;... MERC Order Case No. 38 of 2016 Page 43 of 103

44 9.19. In the present case, a change in interpretation of law is not in question. MSEDCL submission w.r.t project site, being in Maharashtra and the occurrence of the Change in Law event is in Chhattisgarh is without any basis as that definition is not required to be referred to Also, the basic principle of including the provision of Law by any Indian Governmental to restore the party affected to the same economic position as if such Change in Law has not occurred by compensating it through monthly tariff payments. If any such expenditure from other States is not reimbursed, this principle would not be adhered to. II. NMET AND DMF LEVY ON ROYALTY MSEDCL s contention to apply the compensation threshold of 1% of the LC separately for this Change in Law event has been addressed by APML in earlier paras. III. LEVY OF SWACHH BHARAT CESS ON SERVICE TAX FOR RAIL TRANSPORTATION As above. IV. PORT CONGESTION SURCHARGE MSEDCL has misinterpreted Article 19 (Supply from Alternate Sources ) of the 1320 MW PPA while rejecting the claim of APML. Moreover, its erroneous contentions based on this Article 19 do not apply to the other PPAs which have no such provision. Article 19 of the 1320 MW PPA reads as follows: Article 19 : SUPPLY FROM ALTERNATE SOURCES 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 As evident from the highlighted portion above, the Change in Law provision shall be applicable if the supply was made from the identified Units notwithstanding anything contained in the PPA. Thus, the only requirement for APML to be entitled for claiming Change in Law compensation is that the supply be from identified Units, which means that such compensation is payable if the supply is from the identified Units even by using alternate fuel. MERC Order Case No. 38 of 2016 Page 44 of 103

45 9.25. MSEDCL has also concealed that there is no such provision relating to the other three PPAs On basis of the above, the Commission may ignore the submissions of MSEDCL with respect to Levy of Port Congestion Surcharge, allow it as Change in Law and direct MSEDCL to pay compensation appropriate adjustment in tariff. V. AMENDMENTSTO ENVIRONMENT (PROTECTION) RULES APML seeks in-principle approval of the amendment to the Environment (Protection) Rules, 1996 as a Change in Law event. The resulting impact is under assessment and shall be provided to MSEDCL as and when it is carried out MSEDCL s contention to apply the compensation threshold of 1% of the LC separately for this Change in Law event has been addressed by APML in earlier paras. VI. SWACHH BHARAT CESS ON SERVICE TAX (OPERATION PERIOD) SBC, being a levy on Service Tax, is in-principle a Change in Law event by virtue of the Commission Order dated , as rightly submitted by MSEDCL MSEDCL-principle a Change in Law event by virtue of the Commission s Order dated , as rightly submitted by MSEDCL MSEDCL s contention to apply the compensation threshold of 1% of the LC separately for this Change in Law event has been addressed by APML in earlier paras. Interlocutory Application VII. LEVY OF KKC ONSERVICE TAX (OPERATION PERIOD),AND ON SERVICE TAX FOR RAIL TRANSPORTATION This levy is over the Service Tax component, which itself is a Change in Law event pursuant to this Commission s Order dated APML has provided the indicative impact as sought by MSEDCL MSEDCL s contention to apply the compensation threshold of 1% of the LC separately for this Change in Law event has already been addressed in earlier paras. Date of applicability of Change in Law compensation approved as per MERC Orders dated and It is denied that the power supplied prior to March, 2014 is infirm power supplied during the construction period. MERC Order Case No. 38 of 2016 Page 45 of 103

46 9.35. In respect of the PPA dated , the COD of Unit-2 was achieved on and firm power supply to MSEDCL commenced from COD of Unit-3 was achieved on , and supply from both units commenced from the said date. The Change in Law claim of APML for the period from to was not admitted by MSEDCL. APML has actually incurred costs and been affected by the "Change in Law" events from under the PPA dated , MSEDCL is required to pay the Change in Law compensation for the period from to since MSEDCL has received firm power supply during that period as well. If compensation for the period of actual supply is not allowed, it would defeat the purpose of the Change in Law provision of restoring the affected party to the same economic condition. It is not proper of MSEDCL to raise such hyper-technical contentions to avoid payment of such legitimate claims. MSEDCL may be directed to pay compensation for that period also after ascertaining the actual impact based on documentary evidence Under the 1200 MW PPA, as per mutual agreement, the supply date was pre-poned and actual supply commenced from while the scheduled date was Vide letter dated , MSEDCL accepted to pre-ponement of supply of firm power. However, it has not paid the Change in Law compensation for the period from to Vide letter dated , MSEDCL has stated that this period from does not fall under the Operating Period and, therefore, compensation is not payable. APML has actually supplied power to MSEDCL from by incurring costs and was affected from that date The Commission has also, based on the relevant provisions of the PPAs, held that the impact of Change in Law should be computed from the date that it affects the Seller and that the objective of the "Change in Law" provision is to restore the economic position of an affected party which has been altered due to such Change. Hence, the Change in Law claims for the period from to under the PPA dated and for the period from to under the PPA dated are strictly in accordance with the PPA provisions APML had, vide letter dated clarified that MSEDCL had accepted supply of firm power under the PPA dated and had accepted to pay tariff in accordance with Clause 4.6 of Schedule 4 of PPA; and that, once tariff is paid as per PPA provisions, the associated costs, which include Change in Law compensation, are also required to be reimbursed. Further, as per Article , adjustment in monthly tariff payment on account of Change in Law shall be effective from the date of adoption, promulgation, amendment, re-enactment or repeal of the relevant law The Commission has approved compensation for the impact of shortfall in domestic coal availability from the date of commencement of supply under the 1200 MW PPA, i.e., Therefore, the argument of MSEDCL is misplaced and ought to be MERC Order Case No. 38 of 2016 Page 46 of 103

47 rejected It is denied that the supply of power was done through alternate source during the Operating Period The impact of the Change in Law events which have led to increase/ decrease in cost/ revenue in the present Petition is in excess of 1% of the LC amount MSEDCL s submissions with reference to Case No.102 of 2016 filed by APML before this Commission and other matters pending before the ATE are irrelevant because those cases relate to issues with respect to 800 MW capacity out of 1320 MW capacity (PPA dated ) for which a separate Petition is preferred. In the present petition, no claim has been made by APML with regard to this contracted capacity of 800 MW. Any Order passed by Commission in this petition shall not prejudice the Order to be passed in Case No. 102 of 2016 and matters pending before the ATE The Change in Law claims in Case No. 102 of 2016 are independent of the proceedings underway before the ATE, which relate to deciding whether the withdrawal of Lohara Coal Block is a Force Majeure or Change in Law event or not. The claims of APML for Change in Law are to be compensated irrespective of the outcome of the ATE Case. Further, no issue of duplication of relief for cancellation of Lohara Coal Block and for the Change in Law claims made in this petition would arise as the final relief in both cases is to be approved by the Commission In case there is any duplication in the reliefs granted, MSEDCL will have the opportunity to point it out at any time. Therefore, it is not appropriate for MSEDCL to deny APML from payment of legitimate Change in Law compensation by raising such objections which are based on assumptions. The relief claimed herein is justified, as APML has been supplying power to MSEDCL since COD without getting compensated for the additional expenditure which it ought to be paid on time. The Generator has to be compensated for legitimate claims made in accordance with PPA provisions. This is in line with the provisions enshrined in the EA, 2003, and the Tariff Policy. Immediate relief is of utmost importance, as the burden on APML has increased drastically under successive Change in Law events The SCOD of the PPA dated for 440 MW is However, vide this Petition, APML has sought in-principle approval of the Change in Law events which have occurred after 7 days prior to the Bid Deadline. Although the supply of power pursuant to this PPA has not started, the Commission is empowered to approve events to be Change in Law events as per the PPA. The reasons for seeking in-principle approval of events to be Change in Law events are: MERC Order Case No. 38 of 2016 Page 47 of 103

48 (a) (b) (c) It would eliminate multiplicity of proceedings: If Change in Law events are not approved for this PPA at this stage, APML will have to approach the Commission for their approval after the commencement of supply with similar pleadings. This would only lead to multiplicity of proceedings. No restriction on Change in Law approval before commencement of supply: As per the terms of PPAs, a party is obliged to notify the other party about the occurrence of any Change in Law event at the earliest, which was duly complied by APML. It is nowhere mentioned in the PPA that only those events which have occurred after SCOD shall constitute Change in Law events. Saving of Carrying Cost: If APML is constrained to approach the Commission for the 440 MW PPA subsequent to the commencement of power supply, there would be considerable delay in compensation payment for want of approval of the Commission. APML has to incur the costs due to Change in Lawevents from the date the events came into force. The costs being incurred would get reimbursed only once the causal events are approved to be Change in Law events by the Commission. Since APML would already be incurring these costs, it is burdened with additional working capital interest till their reimbursement. On the other hand, the Procurers would stand to benefit as the cash outflow to them is deferred till that time and there will be a saving in interest cost to that extent. Thus, APML ought to be allowed carrying cost for the costs incurred due to the Change in Law events. This is not in the nature of penalty on MSEDCL but only a form of reimbursement of cost incurred in the form of working capital The components claimed as Change in Law vide the present petition have not been claimed before any other forum. The claims of APML are strictly in line with the provisions of the PPA for the events having been triggered on the criteria specified under Articles 10 and 13 of respective PPAs There is no provision in the 1200 MW PPA similar to Article 19 of the 1320 MW PPA regarding supply from alternate sources and applicability of Change in Law compensation for the same. 10. In its Reply dated to APML s Application regarding additional MSEDCL stated as follows: The Application is claiming Change in Law 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 as Change in Law under Article 13 and other provisions of the PPA. A perusal of the applicable provisions of the PPA would reveal that the claim of APML that there is occurrence of Change in Law and that the increased expenses ought to be reimbursed to APML is untenable. MERC Order Case No. 38 of 2016 Page 48 of 103

49 I. Without prejudice submissions: Levy of Coal and Coke Terminal Surcharge w.e.f Ministry of Railways has issued a Corrigendum dated levying Coal and Coke Terminal Surcharge on the coal freight falling under class 145A for a distance beyond 100 kms. As per the PPA provisions, the coal for 800 MW was envisaged to be obtained from Lohara Coal Block. The Change in Law, if accepted, would have been applicable for the rail transport distance between Lohara and Tiroda. Hence, the distance for which the captioned Change in Law is being sought should be restricted to the rail travel envisaged for the coal sourced from Lohara Coal Block. The relief, 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 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. II. Without Prejudice Submissions: Amendment in Fly Ash Notification dated It is the social responsibility of the Generator to dispose of the Fly Ash for protection of environment, to conserve the top soil, and to prevent its dumping on land The ATE, in its Order in Appeal Nos. 108 of 2013, 149 of 2015, 171 of 2014 and 172 of 2014, has held that corporate social responsibility (CSR) expenses meant for the welfare of the public by providing education, health camps and other social activities, charities, etc. cannot be included in the Aggregate Revenue Requirement (ARR) to be passed on to the consumers. 11. Vide its Rejoinder dated to the above Reply, APML stated as under: The submissions made by MSEDCL to the present Application primarily are that:- a) The Commission should examine the individual impact of each Change in Law event claimed by APML to ascertain whether it has individually led to increase in cost of generation of APML in excess of 1% of the LC in aggregate for a contract year. MERC Order Case No. 38 of 2016 Page 49 of 103

50 b) The Commission must first carry out prudence check with regard to various efficiency parameters of the Generation Plant. c) The distance for which the Levy of Coal and Coke Terminal Surcharge is claimed as a Change in Law event should be restricted to the rail travel distance between Lohara Coal Block and APML s TPS. d) The amendment in the Notification on utilization of Fly Ash generated from Coal and Lignite-based TPP should not be allowed as a Change in Law event since the expenditure incurred due to the activities as per the Notification are part of CSR and cannot be passed on to consumers at large APML s response is as follows: A. Individual impact of each Change in Law event which is in excess of 1% of the LC in aggregate 11.3 As regards the applicability of the threshold of 1% of the LC to the individual impact of each Change in Law event, the total impact due to occurrence of all Change in Law events is to be considered in aggregate. instead of considering the impact of each Change in Law event individually which is clear from the term used i.e., in aggregate in the Change in Law provision of the PPA[the proviso to Art. 13.2(b) of the PPAs quoted earlier in this Order]. Thus, the impact should be in its entirety in excess of 1% of the LC and not individually. This interpretation has been relied upon by CERC in its Order dated 19 February, 2016 in Petition No. 153/MP/2015 [referred to by APML in its Rejoinder to MSEDCL s main Reply]. The CERC has summarized its decisions as follows: 36. The summary of our decision with regard to the petitioner s claims on increase in Royalty on coal, clean energy Cess on coal and excise duty on coal during financial years , and is as under: (Rs. in Crore) Events of Change in Law (till August 2015) Total Royalty on coal Clean Energy Cess on coal Excise duty on coal Grand Total The Commission in para 51 of the order dated had decided about the mechanism for computation of the impact of change in law during Operating Period as under: MERC Order Case No. 38 of 2016 Page 50 of 103

51 51. The above provision [Article 13(2)(b) of the PPA] enjoins on the Commission to decide the effective date from which the compensation for increase/decrease revenues or cost shall be admissible to the petitioner. Moreover, the compensation shall be payable only if the increase/ decrease in revenues or cost to the seller in excess of an amount equivalent to 1% of the letter of credit in aggregate for contract year. In our view, the effect of Change in Law as approved in this order shall come into force from the actual date when the expenditure on account of the Change in Law has been incurred or the date of commercial operation of the concerned unit/units of the generating stations whichever is later. The compensation for any increase/decrease in revenue or cost to the seller shall be calculated for the entire contract year based on the audited balance sheet and shall be submitted alongwith the details of letter of credit maintained in accordance with law for the contract year with copy to the procurers through an application made in accordance with law. The impact of the Change in Law during operating period would be admissible if the increase or decrease in the revenue or cost is in excess of 1% of the LC in aggregate in a contract year. 48. In terms of the above decision, the petitioner is directed to calculate the threshold limit for each contract year for claiming impact of change in law allowed in this order. The payment of compensation under Change in Law shall commence with effect from (i.e. date of commercial operation of first unit of the generating station) and the compensation during a contract year shall be in due consideration of the date of commercial operation of the units of the generating station. 49. In the present case, the compensation of Rs crore, Rs crore and Rs crore have been allowed in the years , and (upto August 2015) respectively. If the compensation allowed is higher than the threshold limit as may be worked out in accordance with Article 13.2 (b) of the PPA, the petitioner shall claim the compensation from the beneficiaries in proportion to their respective contracted capacity in the Project. While determining the compensation in the above matter, the CERC has considered the aggregate impact of all allowed Change in Law events while examining whether the total impact is of an amount more than the specified threshold limit of 1% of LC The aggregate impact due to Change in Law events which were already approved by this Commission vide Order dated in Case No. 2 of 2014 and Order dated in Case No. 163 of 2014 is above 1% of LC under the PPA. Therefore, the aggregate impact due to Change in Law events claimed by APML herein, as well as the events approved earlier by this Commission in the above Cases, are ipso facto for an amount more than 1% of LC. B. Efficiency parameters MERC Order Case No. 38 of 2016 Page 51 of 103

52 11.4. There is no inefficiency in generation as assumed by MSEDCL in its Reply. MSEDCL has been making payments against the Change in Law events already approved by this Commission. This allegation is nothing but an afterthought devoid of any merits. The methodology adopted by APML is transparent and MSEDCL is well aware of it. C. Coal and Coke Terminal Surcharge restricted to railway travel distance between Lohara Coal Block and Power Station In the present Petition, APML has claimed the impact due to Change in Law with respect to the 520 MW portion only out of the 1320 MW PPA. MSEDCL has misconstrued that the relief has been sought for the remaining 800 MW portion also. As such, the ground raised by MSEDCL with regard to the rail travel distance between Lohara Coal Block and APML s TPS is misplaced. Change in Law compensation is payable for the actual expenditure which is supported with documentary evidence. Therefore, coal sourced from anywhere and utilized for power generation and supply under the PPA is entitled for Change in Law compensation as per PPA provisions. There cannot be any restriction in the distances as sought to be imposed by MSEDCL. APML has been claiming similar Change in Law events already approved by this Commission connected with railway charges, and these are being paid by MSEDCL after prudence check. Similarly, for the current Change in Law events as well, APML would submit relevant proof while claiming compensation In any event, as per Article 19 of the PPA, the provision of Change in Law is applicable to the Unit identified in the RfP and not to the identified source of fuel. This is evident from the fact that the last sentence of Article 19 starts with the nonobstante clause notwithstanding anything contained in the PPA document Hence, it is not correct that the Change in Law would be applicable only for the rail distance between the originally identified source of fuel, i.e., Lohara Coal Block, and Tiroda TPS, even for the 800 MW Lohara Coal Block portion. The indicative per unit impact of the Change in Law event of Coal and Coke Terminal Surcharge is as below: Sr. No. Particulars UoM Amount 1 Total impact of Coal and Coke Terminal Surcharge Rs. / Tonne Gross Station Heat Rate kcal / kwh Auxiliary Consumption % 6.5% 4 Net Heat Rate kcal / kwh GCV of Linkage Coal kcal / kg SCC for energy sent out kg / kwh Per unit impact Rs. / kwh 0.07 The indicative impact from to is approximately Rs. 26 crore. MERC Order Case No. 38 of 2016 Page 52 of 103

53 D. Amendment of Notification on utilization of Fly Ash from Coal and Lignite based TPP MSEDCL has unilaterally decided that the supply of Fly Ash is a CSR of the Power Plants. Neither the statute nor the Notifications there under stipulate that such an activity is a part of CSR It is not denied that it is the responsibility of a Generator to take into consideration the social, environmental and economic implications during the process of generation of electricity. At the same time, the provisions of the EA, 2003, Notifications, PPAs and interests of the parties to the PPA are also to be taken into consideration. MSEDCL cannot argue that the introduction or change in regulations which has the force of law and which would result in additional recurring/ non-recurring expenditure to APML is an activity to be considered under CSR. As far as the Orders referred to by MSEDCL are concerned, the Generator therein had claimed reimbursement of expenditure incurred while carrying out CSR activities, whereas APML is undertaking other activities separately as part of CSR. No interpretation was sought while examining whether the activities carried out were part of CSR or not. Thus, the ATE Judgment relied upon by MSEDCL does not apply in the facts of the present case Without prejudice, even the PPAs under consideration does not restrict the claim of any event if it fulfils all the criteria of Change in Law but is also a part of CSR. The indicative impact due to this Change in Law event is approximately Rs. 2.8 crore for the PPAs under consideration for the period from till date MSEDCL has not provided any reason in support of its denial of such events as Change in Law. 12. At the hearing on 27 December, 2016, APML set out the chronology and stated the events of Change in Law and the relevant Notifications issued. Change in Law events had occurred on account of the following: a) The Chhattisgarh Government has amended the Chhattisgarh Cess Act, 2005 on , and notice of change of the Environment and Development Cess from Rs. 5/MT to Rs. 7.50/MT is applicable for all SECL coal despatches from b) The MMDR Amendment Act, 2015 dated 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 Tax during the Operation Period. d) Port Congestion Surcharge on Railways Base Freight Rates MERC Order Case No. 38 of 2016 Page 53 of 103

54 e) Capital investment required, if any, in compliance of the Environment (Protection) Amendment Rules, 2015 dated and consequent operation costs on account of increase in Auxiliary Consumption f) Krishi Kalyan Cess g) Coal and Coke Terminal Surcharge h) Amendment of Notification on Fly Ash utilisation Chhattisgarh Govt. Environment and Development Cess APML stated that it had submitted the challan billed by SECL for levy of Environment and Development Cess of Rs. 7.50/MT on coal by the Chhattisgarh Govt. arising from amendment of the Chhattisgarh Act of 2005 on and passed on by SECL. The Cess was earlier Rs. 5/MT, which was factored in the 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 Cess, and its incidence is passed on to APML. To the Commission s query as to the position if SECL were 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- Auctions also, bidding is on the Base Price, and any tax 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 WCL, for instance, instead of from SECL, there would not have been any 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. MMDR Amendment Act levies As regards the levies on Royalty now payable by the 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 against these levies but stated that it should be subject to prudence check, and APML has computed MERC Order Case No. 38 of 2016 Page 54 of 103

55 the per-unit impact. Swachh Bharat Cess on Service Tax for rail transportation, and on Service Taxin Operation 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 Indian 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 alternate 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 Bid Document and included in the PPA because, at that time, the required Case 1 Document 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 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 (para (k), page 39-40), 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 discusses 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. 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. Its impact has not yet been assessed by APML. However, once the Commission approves it in principle as a Change in Law, the financial impact would be worked out and MERC Order Case No. 38 of 2016 Page 55 of 103

56 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. 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. Krishi Kalyan Cess (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 Block (which was cancelled by GoI). Since coal was now being obtained from a different source, relief should only be to the extent of the difference in the rail distance between the original (Lohara) source and the new. 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 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 is to be as per the PPA. The Commission may give specific directions not to withhold the due Change in Law payment. 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% of the LC amount. However, Art does not deal at all with when the Change MERC Order Case No. 38 of 2016 Page 56 of 103

57 in Law is applicable. Besides, the floor of 1% is in aggregate and not event-wise As regards the 800 MW portion, APML stated that MSEDCL has taken the plea that APML s appeal is pending in ATE for invoking Force Majeure. However, these matters are independent of each other: the Lohara appeal is not concerned with Change in Law but other issues of compensatory tariff (set aside by the ATE) 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 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 stated 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, which needs to be restored. Thus, every Change in Law is 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 ATE compensatory tariff Judgment dated 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 the other PPAs, Article 10 sets out the applicability of tariff adjustment on account of Change in Law MSEDCL also referred to other Clauses of the Change in Law Article, and also to the definition of law and Indian Governmental Instrumentality. The latter includes MERC, CERC, GoI and 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 mine. Para. 185 of the ATE 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. MERC Order Case No. 38 of 2016 Page 57 of 103

58 13. At the hearing held on 3 January, 2017: MSEDCL stated that Articles 10 and 13 of the respective PPAs contemplate alteration of the economic position of the 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 stated that the impact on economic position has to be quantified at the time of filing the Petition, and the present 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 the event constitutes a Change in Law or not. As regards the impact of the amendment to the Environment (Protection) Rules, MSEDCL stated that some Generators have approached CERC, which has asked CEA to quantify its impact 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 contended 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 with 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 Indian Governmental Instrumentality expressly covers only the GoI and GoM, thereby excluding other State Govts. Therefore, changes in the Chhattisgarh Cess Act do not qualify as Change in Law. Moreover, APML has not demonstrated how its economic position is affected. Further, the Chhattisgarh Cess is levied on a 3 rd party, i.e., SECL, and not on APML The Commission asked how an increase in costs arising from a Change in Law event would be distinguished from a change in 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 of the EA, 2003 and are not based on cost-plus, the inherent risk has to be borne by the Bidder To another query, MSEDCL responded that no precedent has been laid down by other SERCs or CERC in similar matters as the Chhattisgarh Cess Act amendment has taken place only in Moreover, payments to the DMF of the District in which the MERC Order Case No. 38 of 2016 Page 58 of 103

59 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 contended 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 Notification of MoEF 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 radius, which had been 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 also 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, 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 and unloading of coal and coke was based only on Circulars of the Railways Ministry, and the incidence was on the agencies concerned contractors, etc. 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. MERC Order Case No. 38 of 2016 Page 59 of 103

60 Referring to Article 13 (Art. 10 in the other PPAs), APML stated that definitions have 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 law. 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 Cess as a Change in Law, since it has been imposed by that 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 sections of the PPA. 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 the 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 provides that, in such cases, increases in costs to the Seller would require compensation to be decided by the Commission APML stated 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 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 bidding, it is APML s responsibility to arrange the fuel, so a change in fuel source is allowed. Tariff adjustment or change in the 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, MERC Order Case No. 38 of 2016 Page 60 of 103

61 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 also stated 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 GoI sanction: such sanction is under Section 30 of the Railways Act. APML cited the Judgment of the Calcutta High Court (AIR 2015, 288 (2), para 21) in 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 TPPs were 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 its 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 any specific response APML stated that the issue of carrying cost had also been raised on the previous occasion. In case the final Order in Case No. 102 of 2016 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 responded that the claim for carrying cost had already been rejected by the Commission in Case No. 163 of Interim relief is also not warranted. 14. In its additional written submission dated , APML has stated as follows: Issue 1: Whether the increase in Environment and Development Cess in Chhattisgarh amounts to Change in Law as per the PPAs, and whether APML is entitled to the reliefs sought on that account In its Reply dated , MSEDCL has asserted that the MERC Order Case No. 38 of 2016 Page 61 of 103

62 Notification namely Adhosarachna Vikas Evam Paryavaran issued by the Chhattisgarh State Government would not fall under the Change in Law as the Project is not located in the State of Chhattisgarh while it is located in the State of Maharashtra and the definition and consequently the PPA dated states the Government Instrumentality while defining it. A similar argument was raised by MSEDCL during the hearing. i.e., that the definition of Law contained in the PPAs is linked to or qualified by the term Indian Governmental Instrumentality and, since the definition of that term does not include the State of Chhattisgarh, the Notifications issued under the Chhattisgarh Cess Act do not meet the test of Law as defined in the PPA. Therefore, no relief for Change in Law could be granted to APML under Articles 10 and 13 of the respective PPAs. MSEDCL s contentions are erroneous and based on a flawed understanding and interpretation of the provisions of the PPAs, for the following reasons: Even before the definition of Law, it is the substantive provisions (i.e., Articles 13 and 10 of the PPAs) that are the starting point for adjudication of the claims of APML under Change in Law. Article of the 2008 PPA defines Change in Law to mean the occurrence of any of the following events after 7 days prior to the Bid Deadline: (i) (ii) the enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any Law or a change in interpretation of any Law by a Competent Court of law, tribunal, or Indian Governmental Instrumentality provided such Court of law, tribunal or Indian Governmental Instrumentality is final authority under law for such interpretation Thus, Article (i) refers to the enactment, adoption or promulgation of any Law. It does not refer to the place of enactment of the Law or the body/authority enacting the Law. Further, the definition of Law in Article 1.1 of the 2008 PPA has two parts: the first part being all laws including Electricity Laws in force in India and any statute, ordinance, regulation, Notification or code, rule... and the second part being..any interpretation of any of them by an Indian Governmental Instrumentality and having force of law It is clear that the first part deals with all laws in force in India, including any statute, ordinance, regulation, Notification, etc. This part of the definition of Law thus deals with laws as enacted or legislated and does not address or deal with interpretation of laws or the authority involved in such interpretation. It is only the MERC Order Case No. 38 of 2016 Page 62 of 103

63 second part of the definition of Law which deals with interpretation of any of the laws mentioned in the first part by an Indian Governmental Instrumentality. Therefore, the first part of the definition of Law is of the widest amplitude and includes all laws in force in India and not only the laws made or enacted by an Indian Governmental Instrumentality. Hence, the Notifications issued under the Chhattisgarh Cess Act qualifies as Law under the definition in Article 1.1 of the 2008 PPA. Since the Notifications increasing the rates of Environment and Development Cess became applicable from (i.e., after the cut-of date of for the 1320 MW PPA, being seven days prior to the Bid Deadline), these Notifications also meet the test of Change in Law under Article of the 2008 PPA. Therefore, APML is entitled to relief in accordance with Article 13.2 read with Article 13.4 of that PPA The above interpretation of Law is further affirmed by Article of the 1320 MW PPA, whose sub-clause (i) deals with the enactment of Laws and sub-clause (ii) deals with the interpretation of Laws. It is only in sub-clause (ii) that the term Indian Governmental Instrumentality has been used in the context of interpretation of Laws. Article of the PPA also supports this interpretation since sub-clause (i) deals with tariff adjustment from the date of enactment or modification of any Law or Change in Law, and sub-clause (ii) deals with tariff adjustment from the date of order or judgment of the competent court or tribunal or Indian Governmental Instrumentality, if the Change in Law is on account of a change in the interpretation of Law. The segregation between enactment of Law and interpretation of Law is thus amply clear from the various provisions of Article 13 of the 2008 PPA. Therefore, there is no merit in MSEDCL s contention that the meaning of Law is limited or restricted by the definition of Indian Governmental Instrumentality. A definition is only an aid to interpretation of a substantive provision; it cannot limit or override the scope of the substantive provisions In relation to Change in Law claims under the other three PPAs, there is no difference in the definition of Law between the 2008 PPA and these PPAs. There are minor differences in the definition of Change in Law contained in Article 10 of the 2010 PPAs and the 2013 PPA. However, these minor differences do not affect either the interpretation of Change in Law or the reliefs APML is entitled to for the events set out in the Petition and the Miscellaneous Applications. At the hearing, MSEDCL had referred to Bullet #5 of Article of the 2010 PPAs to argue that every Change in Law event is not covered in the PPAs and does not entitle APML to any relief. However, the definition of Change in Law under Article requires satisfaction of any of the events listed in that Article and, therefore, if APML s case falls under Bullet #1 of Article of the 2010 PPA, reference to any other provision is unnecessary. Further, as regards Bullet #5, the words tax on supply of power in the Change in Law Article includes all the taxes that are payable for the raw materials or the inputs required for generation of power that are being supplied to the Distribution Licensee since these costs are imperative for MERC Order Case No. 38 of 2016 Page 63 of 103

64 Supply of Power. Any other interpretation would render Article 10 of the 2010 PPAs otiose, which was not the intent and purpose of the parties. This principle has already been upheld by the ATE at paragraph 25 of its Order dated in Appeal No. 288 of 2013 [quoted earlier in this Order while summarising APML s initial Rejoinder], wherein the PPA had an identical Change in Law provision MSEDCL has wrongly interpreted the term taxes on supply of power. If its argument is accepted, then the Change in Law provision would be applicable only from the period when the supply of power commences. In other words, the provision would not be applicable prior to commencement of supply of power or prior to commissioning of the Generating Units. However, such an interpretation is in contrast to the provision of the PPA which expressly provides relief for Change in Law even during the construction period. Therefore, from a bare perusal of the Change in Law provision in the PPA, it is clear that the argument of MSEDCL is incorrect and misleading Further, that sub-clause does not preclude APML from claiming relief in the form of tariff adjustment for any tax, duty or levy that becomes applicable to the operation of the Project after the cut-off date. This is also evident from the fact that the exclusions from Change in Law claims are expressly provided in Article of the 2010 PPA itself. Other than (i) change in withholding tax on income or dividends, (ii) change in UI charges or (iii) any change on account of regulatory measures by the Commission, there is no other exclusion provided in Article of the PPA. Article , especially the other Bullets of Article , are not restricted to taxes or supply of power and cover all events. MSEDCL s erroneous interpretation of taxes on supply of power does not hold good for the 2008 PPA since there is no such provision under Article 13 of that PPA. Therefore, MSEDCL s contention that the intent of the parties to the PPA was not to cover Change in Law claims such as the Chhattisgarh Environment and Development Cess is baseless and unsupported by any provisions of the four PPAs While referring to the intention of the parties in order to support its contentions, at MSEDCL had also referred at the hearing to Article 12 (Force Majeure) of the 2008 PPA to argue that the Force Majeure events affecting contractors are expressly covered under Article 12 as a force majeure affecting the Seller under the PPA. However, this is not the case with regard to Articles 10 or 13 (Change in Law) of the PPAs. Therefore, any Change in Law event which in the first instance applies to the fuel supplier or other contactors of the Seller is not covered under Article 13 of the PPAs. This is a most disingenuous argument on the part of MSEDCL. MSEDCL had itself submitted that Article 10 (in the 2010 and 2013 PPAs) and Article 13 (in the 2008 PPA) provides a complete code for dealing with the Change in Law claims of APML. Admittedly, Articles 10 and 13 of the respective PPAs provide a complete code for Change in Law claims and, therefore, any inclusion or exclusion contained in Article 12 of the 2008 PPA which only deals with force majeure events MERC Order Case No. 38 of 2016 Page 64 of 103

65 can have no bearing on the interpretation of Articles 10 or 13 of the respective PPAs. Further, both Articles of the 2010 PPAs and Article of the 2008 PPA contain express provisions as to the type of Change in Law claims which are excluded from their purview. Therefore, it is futile on the part of MSEDCL to draw support from Article 12 of the PPAs to give a completely unsustainable interpretation to Article 10 or Article 13 of the respective PPAs MSEDCL has also referred to certain observations made by the ATE in its Judgment dated in Appeal No. 100 of 2013 (Uttar Haryana Bijli Vitaran Nigam v. CERC) to buttress its claim that Change in Law provisions in the PPAs need to be interpreted in the light of the intention of the parties. However, MSEDCL has not shown how any contrary intention is expressed in Article 13 of the 2008 PPA or Article 10 of the 2010/2013 PPAs which would disentitle APML from relief for the claimed Change in Law events. Firstly, the ATE was dealing with whether the word Law as defined in the relevant PPA included foreign laws, and it held in the negative. Secondly, the ATE held that the intention of the parties has to be gathered from the import of the words used in the PPA: the intention cannot be gathered from subsequent conduct of the parties. MSEDCL has failed to show how the words used in the APML PPAs express an intention to exclude from the purview of Change in Law the increase in the Chhattisgarh Environment Cess and Development Cess After being notified of the Change in Law event of increase in Environment and Development Cess in Chhattisgarh vide letters dated , MSEDCL did not ever refute or contest it. Therefore, MSEDCL is now estopped from denying APML s claim for Change in Law relief on this account. Issue 2:Whether APML is entitled to Change in Law relief on account of imposition of (i) additional Royalties towards the NMET and the DMF, (ii) SBC and KKC on Service Tax for rail transportation, and (iii) on Service Tax for the Operation Period. MSEDCL has not disputed the imposition of additional royalties towards NMET and the DMF under the provisions of the MMDRA, 2015 as amounting to Change in Law events. MSEDCL s contention that the contractors of the Seller are not covered under Articles 13 and 10 of the respective PPAs has already been addressed earlier. In its Reply dated , MSEDCL has averred that the methodology to estimate the additional charges due to Change in Law needs to be approved by the Commission after prudence check with regard to efficiency parameters like coal consumption, SHR, Auxiliary Consumption, etc. of the Generation Plant. As per the PPAs, the compensation for Change in Law is to be made based on actuals to restore the affected party to the same economic position as if such Change in Law had not occurred. The PPA provisions do not restrict the compensation payable based on any operational parameters. However, based on a mutually agreed methodology, APML has been claiming compensation by considering SHR, Auxiliary Consumption and MERC Order Case No. 38 of 2016 Page 65 of 103

66 GCV as submitted to the Commission for the Change in Law events already approved in earlier Orders. APML has submitted the per unit impact of Change in Law events claimed by it (at pages of the Petition) on the basis of such mutually agreed normative performance parameters and, therefore, there is no question of re-judging or re-evaluating them. APML has been raising claims on the basis of the mutually agreed methodology, MSEDCL has been processing them, and this may be continued With respect to SBC on Service Tax for rail transportation, MSEDCL has admitted in its Reply dated that it ought to be allowed as a pass through after prudence check. With respect to KKC on Service Tax for rail transportation, MSEDCL has not disputed that it amounts to Change in Law under the PPAs but has contended that APML has not submitted its financial impact. In fact, APML has submitted the per unit impact of SBC at pages of its Petition, and the indicative impact is at Annexure R1 to its Rejoinder dated With respect to levy of SBC and KKC on Service Tax for the Operation Period, MSEDCL has admitted the levy in its Reply but sought a prudence check. The Commission has already approved the change in Service Tax rate as a Change in Law event in its earlier Order dated The exact cost incurred by APML on this account during the Operation Period will be reflected in the Supplementary Bills raised by APML from time to time MSEDCL has asked the Commission to carry out prudence check on each component of compensation keeping in mind that the Change in Law relief is available to APML when its claim exceeds 1% of the LC amount in aggregate in any Contract Year. The proviso to Article 13.2(b) of the 2008 PPA states that the compensation during Operation Period is payable if the increase/decrease in revenues or cost to the Seller is in excess of 1% of the LC in aggregate for a Contract Year. Nowhere does this provision require that each compensation claim of the Seller must exceed 1% of the LC amount. Thus, so long as any or all the Change in Law claims in any Contract Year exceed 1% of the LC amount, APML is entitled to be compensated. APML s Change in Law are in excess of this threshold. It may be noted that no such contention was raised by MSEDCL during adjudication of the Change in Law claims in Case No. 163 of Issue 3:Whether APML is entitled to Change in Law compensation for Port Congestion Surcharge and Coal & Coke Terminal Surcharge by Ministry of Railways, GoI MSEDCL has opposed Change in Law compensation on account of these Surcharges on the specious plea that APML s Plant was set up with coal from local source and not based on imported coal and that, therefore, the claim does not fall within the ambit of Change in Law. MSEDCL is mistaken, since the Change in Law provisions in the PPAs are not linked to or dependent on any particular coal source identified by APML for its Plant. MERC Order Case No. 38 of 2016 Page 66 of 103

67 14.6. MSEDCL has taken the defence of Article 19 of the 2008 PPA on the ground that APML has been providing supply from an alternate source of supply and Change in Law relief is not applicable for the power from such alternate source. However, the first sentence of Article 19 of the 2008 PPA allows APML to or procure coal from alternate sources and supply power to MSEDCL from an alternate Unit (other than the Unit identified in the RfP). The second sentence of Article 19 states that...in such cases..., i.e., in cases of coal from alternate sources and supply of power from an alternate Unit, no tariff adjustment or change in the quoted transmission charge/transmission loss is allowed. The word tariff is defined in Article 1.1 of the 2008 PPA to mean 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. Thus, the prohibition on tariff adjustment contained in the second sentence of Article 19 relates to the bar on any change in the Quoted Tariff (in Schedule 10 of the 2008 PPA) if APML has chosen to procure coal from alternate sources and supply power from an alternate Unit On its plain reading, the second sentence of Article 19 does not bar any Change in Law relief to APML so long as the ingredients of Article 13 are met. Further, Article 19 contains a third sentence which states that 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 last sentence of Article 19 is a non-obstante clause which overrides and prevails over all other provisions of the PPA, including the first two sentences of Article 19. Further, it does not contain any restriction on or reference to the source of fuel; it simply states that relief for Change in Law and force majeure shall continue to be applicable for the Unit identified in the RfP. The non-obstante part of Article 19, therefore, reiterates the position contained in Article 13 of the PPA, namely that the relief for Change in Law is not contingent or dependent on any particular source of fuel utilised by the Seller. Therefore, MSEDCL s submission that APML may have used imported coal for the Plant and for that reason the Change in Law claim may not be granted is a red herring. The only enquiry which is relevant for determining whether Article 19 is attracted or not is to ask if the Seller has supplied power from a Unit other than that identified in the RfP. If the answer is no, there is no application of Article 19 whatsoever. Therefore, there is no merit in the contention of MSEDCL Moreover, MSEDCL s baseless contention regarding Article 19 of the 2008 PPA to oppose relief for levy of Port Congestion Surcharge and Coal &Coke Terminal MERC Order Case No. 38 of 2016 Page 67 of 103

68 Surcharge is limited to the 2008 PPA. It has not pointed out that there is no provision equivalent to Article 19 (Supply from Alternate Sources) in the 2010 and 2013 PPAs The Circulars imposing Port Congestion Surcharge & Coal and Coke Terminal Surcharge have been issued by Ministry of Railways under Sections 30, 31 & 32 of the Railways Act, Under Section 30(1), the Central Government is empowered to fix, by general or special order, rates for carriage of passengers and goods. Under Section 30(2), the Central Government is empowered to fix, by a like order, the rates of any other charges incidental to or connected with such carriage, including demurrage and wharfage, for the whole or any part of the railway. Law as defined in Article 1.1 of the PPAs includes rate circulars of the Ministry of Railways pursuant to powers under the Railways Act. Since the rate circulars are orders issued by the Ministry of Railways and have the required binding effect, these qualify as Law as defined under the PPAs. While examining the legal nature of rate circulars issued by the Railways, the Calcutta High Court in Rashmi Metaliks Limited v. Union of India &Ors., [2015 AIR CC 2882] (cited by APML at the hearing) has held the following: The Rates Circular issued by the Railway Board are of a different genre, which creates duties and obligations on the part of the consignor or consignee. Though termed as Circulars, these are actually Orders, as would be evident from section 30 of the 1989 Act. These circulars have the force of law Thus, the rate circulars of the Ministry of Railways have the force of law and fall within the ambit of Law as defined in the PPAs. APML is, therefore, entitled to relief for such Change in Law. It may be noted that the Commission has already allowed Change in Law relief for similar claims in Case No.163 of 2014, i.e., Development Surcharge and Busy Season Surcharge on coal transportation: The Commission observes as follows: a) Busy Season Surcharge on Coal Transportation has been imposed by the Ministry of Railways, GoI in exercise of powers conferred by Section 30, 31 and 32 of the Railways Act, Rate Circulars issued by Ministry of Railways are akin to the Orders issued pursuant to the Act, i.e. the Railways Act, 1989 by an Indian Governmental Instrumentality, i.e. Indian Railways. (b) Thus, the introduction of Busy Season Surcharge on Coal Transportation within the definition of Law and Article of the PPA Considering the above, the Commission is of the view that imposition and further increase in Busy Season Surcharge on Coal Transportation are Change in Law events as per Article (i) of the PPA and meet the requirements set out at Paras.12.6 and 12.8 above. In relation to Coal and Coke Terminal Surcharge, MSEDCL in its reply dated has not disputed that it would qualify as Change in Law. MERC Order Case No. 38 of 2016 Page 68 of 103

69 MSEDCL has, however, asserted that, since the coal for 800 MW capacity under the 2008 PPA was to be obtained from Lohara coal block, the Change in Law impact of Coal and Coke Terminal Surcharge can only be allowed for the distance between Lohara and Tiroda. MSEDCL s contention is misplaced. As explained above, the relief for Change in Law pursuant to Article 13 of the 2008 PPA and Article 10 of the 2010 and 2013 PPAs is not limited to or dependent on a particular coal source feeding the Power Plant. It is independent of the source from which coal is obtained and APML is to be reimbursed for the actual cost incurred based on documentary evidence. In any event, the Coal and Coke Terminal Surcharge applies to freight transportation beyond 100 kms, and the distance between Lohara and Tiroda is more than 100 kms. Hence, the Surcharge would apply even if coal were to be procured from Lohara coal block. Further, Lohara coal block has no relevance for the balance 520 MW capacity under the 2008 PPA and the entire contacted capacities under the 2010 and 2013 PPAs. Issue 4: Whether APML is entitled to compensation on account of MoEF Notification regarding utilisation of Fly Ash In its Reply dated 13 December, 2016, MSEDCL has stated that it is the social responsibility of APML to dispose of Fly Ash for protection of the environment and therefore, no Change in Law claim is admissible. MSEDCL stated further at the hearing it is the responsibility of every Thermal Power Generator, and every expense cannot be claimed as having brought about a change in the economic position of APML. MSEDCL also argued that the 1999 Notification of MoEF obligated the Generator to bear the entire cost of Fly Ash utilisation and the 2016 Notification does not alter this position. Therefore, the MoEF Notification dated does not qualify as a Change in Law In fact, there is no legal or factual basis to assert that the disposal of Fly Ash is the CSR of the Generator. In fact, at the hearing, MSEDCL contradict edits position by also stating that the 1999 MoEF Notification on Fly Ash disposal makes it mandatory for the Generator to bear its entire cost. If that is so, the disposal of Fly Ash cannot be termed as a social responsibility of the Generator. MSEDCL placed reliance on paragraph 2 (1) of the MoEF Notification dated to contend that the entire cost of Fly Ash disposal is to be borne by the Power Generator. Paragraph 2(1) of the Notification states as follows: All coal or lignite-based Thermal Power Plants shall utilise the ash generated in the power Plants as follows: (1) Every coal or lignite-based Thermal Power Plant shall make available ash, for at least ten years from the date of publication of this Notification, without any payment or any other consideration, for the purpose of manufacturing ash-based products such as cement, concrete blocks, MERC Order Case No. 38 of 2016 Page 69 of 103

70 bricks, panels or any other material or for construction of roads, embankments, dams, dykes or for any other construction activity. This paragraph only deals with the obligation of coal or lignite Thermal Power Plants to make available Fly Ash to the manufacturers of ash-based products such as bricks, cement, etc. without any payment or consideration. This only means that the Generators cannot sell or charge money for making the Fly Ash available to the manufacturers; it does not obligate the Generators to transport the Fly Ash to them Paragraph 2(10) of the 2016 MoEF Notification, however, has made it mandatory for the Generators to bear the cost of transportation of Fly Ash within a radius of 100 kms for manufacturing of ash-based products. The cost of transportation of Fly Ash beyond 100 kms and up to 300 kms is to be shared equally between the Generator and the Fly Ash user. Thus, by virtue of the 2016 MoEF Notification, the Generators have become legally obligated to bear the cost of transportation of Fly Ash (100% up to 100 kms and 50% beyond 100 kms and up to 300 kms) and this is a Change in Law from the position as on the date of 1999 Notification and as on the cut-off date (i.e., 7 days prior the Bid Deadline). The MoEF Notifications are binding since they are issued in exercise of powers under the Environment (Protection) Act, 1986 and Environment (Protection) Rules, Therefore, they fall within the ambit of Law as defined in the PPAs. Consequently, APML is entitled to relief in accordance with Article 13 and Article 10 of the relevant PPAs. Issue 5: Whether APML has established a change in its economic position so to be granted relief for the Change in Law events At the hearing, MSEDCL argued that APML needed to establish a change in its economic position to be entitled to claim relief for Change in Law. Article 13.2 of the 2008 PPA states that, while determining the consequence of Change in Law under Article 13, the parties shall have due regard to the principle that the purpose of compensating the party affected by Change in Law is to restore, through Monthly Tariff Payments, the affected party to the same economic position as if such Change in Law had not occurred. It lays down the rationale behind allowing compensation for Change in Law events after the cut-off date, i.e., to restore the affected party to the same economic position as if the claimed Change in Law had not occurred. Article 13.2 does not establish a threshold to be crossed by a claimant to make a Change in Law claim. The threshold for making a claim during the Operation Period is mentioned in Article 13.2 (b), which is 1% of the LC amount in aggregate during any Contract Year. Under the scheme of Article 13, APML needs to establish three things, namely, (i) there has occurred a Change in Law as defined in Article after the cut-off date (i.e., 7 days prior to the Bid Deadline), (ii) it has resulted in an increase/decrease in cost or revenues of APML, and (iii) the aggregate increase/decrease in the cost or revenues is in excess of 1% of the LC amount in aggregate during any Contract Year. APML has established through various legislations, notifications and circulars it has submitted that various Change in Law MERC Order Case No. 38 of 2016 Page 70 of 103

71 events have occurred after the cut-off date, that these events have increased the cost of Plant operations and that the aggregate impact is in excess of the threshold limit of 1% of the LC amount. The indicative aggregate impact of Change in Law claims for each of the PPAs is set out in paragraph 8 of its Rejoinder dated Thus, APML has satisfied all the ingredients for Change in Law relief under Article 13 and Article 10 of the respective PPAs. Issue 6: Whether there is any merit in MSEDCL s submissions regarding the date of applicability of compensation for Change in Law events In its Reply dated , MSEDCL has argued that the Change in Law approved by the Commission vide its Order dated cannot be made applicable for bills submitted up to March, MSEDCL has wrongly termed these as infirm power bills. In respect of the 2008 PPA (1320 MW), Unit 2 achieved COD on and firm power supply commenced from For the same PPA, Unit 3 achieved COD on and supply from both the units commenced from MSEDCL has refused to abide by the Change in Law relief allowed by the Commission for power supplied between to It has taken a specious plea that the Operating Period as defined in the PPA means the commencement of Aggregate Contracted Capacity and, therefore, until the supply of Aggregate Contracted Capacity has commenced, Change in Law compensation is not payable. No such plea was taken by MSEDCL before the Commission in Case No. 2 of 2014 and, therefore, it is now barred by the principle of res judicata. In this regard, the Commission in its Order dated in Case No. 163 of 2014 has ruled that Change in Law impact is to be computed from the date it affects the Seller: 16. APML may raise supplementary bill on MSEDCL for the impact of events which have been accepted by the Commission as Change in Law. As stipulated in Article of the PPA, the impact of such Change should be computed from the date that it affects the Seller. Along with its supplementary bill, APML should submit proof regarding the expenditure actually incurred by it on account of such Change in Law events In addition, the following may be noted in relation to MSEDCL s belated defence: (a) Article 1.1 of the 2008 PPA defines the Operating Period as follows: Operating Period in relation to the Unit means the period from its COD and in relation to the Power Station the date by which all the Units achieve COD, until the expiry or earlier termination of this Agreement in accordance with Article 2 of this Agreement. It may be noted that there is no definition of Delivery Date, as claimed by MSEDCL, in the 2008 PPA. Further, the date of applicability of Change in Law compensation is governed by Article of the 2008 PPA which expressly provides that the adjustment in Monthly Tariff Payments (on account of MERC Order Case No. 38 of 2016 Page 71 of 103

72 compensation for Change in Law) shall be effective from the date of enactment of the Law or Change in Law or the date of order or judgment of a competent court, tribunal or Indian Governmental Instrumentality. Therefore, there is no scope for doubt as to the date of applicability of compensation for Change in Law events. The Commission may direct MSEDCL to pay compensation for Change in Law already approved by it for the period from to since APML has supplied firm power from by achieving the CoD of Unit2. (b) In relation to the 2010 PPA for 1200 MW, the Delivery Date for supply of firm power was pre-poned by mutual agreement and this is recorded in MSEDCL s letter dated to APML: In view of above, MSEDCL hereby accept the firm power from unit-1 of Tiroda Project against PPA dated prior to the scheduled delivery date. As per Schedule 46 of the PPA, the tariff for the power from unit-1of Tiroda Project shall be quoted tariff of the first contract year with escalation for relevant period only for energy charge. This acceptance of power is subject to the transmission facility being made available by The PPA shall stand modified to this extent. MSEDCL cannot now resile from this acceptance and take the plea that the power supplied from to under the 1200 PPA was infirm power. MSEDCL s reliance on the definitions of Delivery Date, Operating Period and Clause 4.6 in the 2010 PPA (for 1200 MW) is misplaced. None of these govern or deal with any aspect of Change in Law claim under the PPA. At the hearing, MSEDCL fairly admitted that Article 10 of the 2010 PPA is a complete code on the issue of Change in Law and, therefore, it is only Article that governs the date of applicability of compensation for Change in Law. Article , similar to Article of the 2008 PPA, provides that the adjustment in monthly Tariff Payment shall be effective from the date of enactment of the Law or Change in Law or the date of order or judgment of a competent court, tribunal or Indian Governmental Instrumentality. It is not subject to Article 4.6 of the 2010 PPA and, in any event, Article 4.6 only deals with the flexibility granted to the Seller to supply power from alternate sources if it is unable to supply power up to the Aggregate Contracted Capacity from the Power Station. Power Station is defined to mean the power generation facility with an installed capacity of 3300 MW and, therefore, supply from Unit-1 of the Tiroda Project from cannot be treated as supply from an alternate source. Further, having accepted power supply from Unit-1 prior to the scheduled delivery date under the 2010 PPA and having agreed that the PPA will be amended to this effect, MSEDCL cannot contend that the power supplied prior to was infirm power. (c) MSEDCL appears to be relying on the heading of Article of the 2010 PPA in support of its contentions. However, as per Article (Interpretation) of the MERC Order Case No. 38 of 2016 Page 72 of 103

73 2010 PPA, heading or sub-headings are for ease of reference only and do not affect the interpretation of the PPA in any manner. Further, in its Reply dated in Case No. 102 of 2016, MSEDCL has admitted at paragraph 4.5 as follows: I say that as stipulated in Article of the PPAs, 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. For these reasons, the Commission may hold that MSEDCL has illegally and arbitrarily withheld payment of Change in Law compensation for the power supplied by APML prior to March, 2014 and that MSEDCL must pay such compensation to APML within one month together with late payment surcharge. The Commission has considered the actual date of delivery of power for applicability of compensatory fuel charge vide Order dated in Case No. 159 of In that Order, the Commission reviewed its Order dated in Case No. 140 of 2014, wherein it had allowed applicability of compensatory fuel charge from the date which is later of (i) the advice from the Ministry of Power, (ii) SCOD and (iii) actual delivery date. However, that ruling was changed to the date which is later of (i) the advice from the Ministry of Power and (ii) actual delivery date by its Order dated : 8.2. As regards the date from which the compensatory fuel charge would be applicable, the Commission s intention was to allow the benefit of the compensatory charge only after the date of the MoP advice, i.e. 31 July, The fact of commissioning of a Unit subsequent to the MoP advice but prior to the SCOD was not taken into account. Hence, the Commission has reviewed para 67 of its Order dated in Case No. 140 of 2014, and revised it to read as follows: 67. i. The compensatory fuel charge shall be applicable from the date which is later of (a) the date of MoP Advice (31 July, 2013); and (b) the Actual Date of Delivery. ii. For the PPA dated having Scheduled Delivery Date in February, 2017, the methodology for compensatory fuel charge will remain the same as approved above. However, the Petitioner shall approach the Commission at the time of Scheduled Delivery Date for approval. Issue 7: Whether APML is entitled to carrying cost for delay in payment of compensation for Change in Law With respect to the entitlement of carrying cost and late payment surcharge, non-grant of carrying cost is contrary to Article 13 and 10 of the respective PPAs, which MERC Order Case No. 38 of 2016 Page 73 of 103

74 mandate that APML is to be restored to the same economic position as if the Change in Law had not taken place APML had to incur costs due to Change in Law events from the date on which they came into force resulting in cash outflow. These costs would be reimbursed once the causal events are accepted as Change in Law events by the Commission. Since APML is already incurring these costs, it is burdened with additional working capital interest till reimbursement by MSEDCL. On the other hand, MSEDCL would benefit from delayed reimbursement as its own cash outflow is deferred till then and there will be saving in interest cost to that extent. Thus, APML is entitled to the carrying cost for the costs incurred due to the Change in Law events from the date on which they became effective. APML is also entitled to carrying cost for the alternate arrangements made to pay the additional costs due to Change in Law till they are reimbursed by MSEDCL. Recovery of carrying cost/interest is an established principle of regulatory jurisprudence. In this regard, the following judgments are to be noted: (a) Supreme Court in SECL v. State of M.P.(2003) 8 SCC 648: 21. Interest is also payable in equity in certain circumstances. The rule in equity is that interest is payable even in the absence of any agreement or custom to that effect though subject, of course, to a contrary agreement (see Chitty on Contracts, 1999 Edn., Vol. II, Para at p. 712). Interest in equity has been held to be payable on the market rate even though the deed contains no mention of interest. Applicability of the rule to award interest in equity is attracted on the existence of a state of circumstances being established which justify the exercise of such equitable jurisdiction and such circumstances can be many. 22. We may refer to the decision of this Court in Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj [(2001) 2 SCC 721] wherein the controversy relating to the power of an arbitrator (under the Arbitration Act, 1940) to award interest for pre-reference period has been settled at rest by the Constitution Bench. The majority speaking through Doraiswamy Raju, J., has opined that the basic proposition of law that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation by whatever name it may be called viz. interest, compensation or damages and this proposition is unmistakable and valid; the efficacy and binding nature of such law cannot be either diminished or whittled down. 24. We are, therefore, of the opinion that in the absence of there being a prohibition either in law or in the contract entered into between the two parties, there is no reason why the Coalfields should not be compensated by payment of interest. (b) ATE Judgement dated in SLS Power Ltd v. Andhra Pradesh Electricity Regulatory Commission: MERC Order Case No. 38 of 2016 Page 74 of 103

75 34.4The principle of carrying cost has been well established in various decisions of the Tribunal. 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. Therefore, 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 this judgment. We do not accept the contention of the licensees that they should not be penalized with interest. The carrying cost is not a penal charge if the interest rate is fixed according to commercial principles. It is only compensation for money denied at the appropriate time. (c) ATE Judgement in North Delhi Power Ltd. v. DERC(2010 ELR (ATE) 0891 [@ Pages ] (d) ATE Judgment in Tata Power Company Ltd. v. MERC(2011 ELR (ATE) 336 [@ para 38] Had the intention been to compensate the affected party only to the extent of actual expenditure, Article 13.2 (b) of the 2008 PPA and 10.2 (b) of the 2010 and 2013 PPAs would have provided as much. This Article is not a provisional mathematical approximation of the monetary impact. It is a widely worded beneficial provision which allows all measures necessary to restore the affected party to the same economic position. The principle of awarding carrying costs is well-recognized in electricity jurisprudence. Even Regulation 8 (13) of the CERC Tariff Regulations, 2014 allows for recovery of simple interest on the amount overpaid/underpaid. The claims of APML are premised on the PPA provisions that it is to be restored to the same economic position as if change law events had not taken place. The carrying cost is, therefore, inherent in the adjustment in tariff due to Change in Law. If the carrying cost is not allowed, the basis of reliefs under Change in Law would be vitiated and the purpose defeated In its Order in Case No. 163 of 2014, taking into consideration the submissions of APML, the Commission did not reject the principle of carrying cost. It only pointed out that the interest actually incurred has to be shown and cannot be based on notional workings. Therefore, APML has now approached this Commission with supporting documents and proof regarding the actual interest incurred by it. Certification shall be provided for carrying cost for the past period for approved Change in Law events within a month of the Commission s Order. 14. In its additional submission dated , MSEDCL stated as follows: Busy Season Surcharge does not constitute Change in Law since, at the time of bidding, APML was expected to have considered Railway Freight as a cost component in its entirety. It is in the public realm that Railway Freight Charges are MERC Order Case No. 38 of 2016 Page 75 of 103

76 subject to seasonal variations. It is, therefore, a normal business risk. Inflation impacting prices and thereby resulting in an increase in cost does not amount to Change in Law In this regard, Clause of the RfP reads as under: The Bidder shall make independent enquiry and satisfy itself with respect to all the required information, inputs, conditions and circumstances and factors that may have any effect on its Bid. Once the Bidder has submitted the Bid, the Bidder shall be deemed to have examined the laws and regulations in force in India, the grid conditions, and fixed its price taking into account all such relevant conditions and also the risks, contingencies and other circumstances which may influence or affect the supply of power. Accordingly, the Bidder acknowledges that, on being selected as Successful Bidder, it shall not be relieved from any of its obligations under the RFP Documents nor shall be entitled to any extension of time for commencement of supply or financial compensation for any reason whatsoever Changes in prices / rates of services, in the present case regarding Railways freight, cannot therefore be covered under Change in Law. Section 30 of Railways Act, 1989 read as under: 30. Power to fix rates:- (1) The Central Government may, from time to time, by general or special order fix, for the carriage of passengers and goods, rates for the whole or any part of the railway and different rates may be fixed for different classes of goods and specify in such order the conditions subject to which such rates shall apply. (2) The Central Government may, be a like order, fix the rates of any other charges incidental to or connected with such carriage including demurrage and wharfage for the whole or any part of the railway and specify in the order the conditions subject to which such rates shall apply This provision was known to APML on the cut-off date. Therefore, when APML submitted its bid, it would have, as a prudent business entity, factored in the elements of prices / rates as contemplated under Section 30 of the Railways Act, There has been no change, modification or alteration in this position The decision of the CERC in EMCO/GMK Warora vs. MSEDCL in Petition No. 8/MP/2014 may be referred to in support of MSEDCL s contentions with regard to i) Development Surcharge ii) Port Congestion Surcharge iii) Coal and Coke Terminal Surcharge The nomenclature used in the Petition will not in any manner alter the ratio decidendi of the decision relating to Railway Freight. MERC Order Case No. 38 of 2016 Page 76 of 103

77 14.6. The summary of the CERC decision in its Order dated in Petition 8/MP/2014is as follows: S. No Parameter CERC Decision 1 Excise Duty on Coal subject to the observation Regarding Excisable value in Para 69 Allowed 2 Change in Royalty Allowed 3 Clean Energy Cess Allowed 4 Busy Season Surcharge Not Allowed 5 Development Surcharge Not Allowed 6 Service tax on Coal Transportation Allowed 7 Swachh Bharat Cess Allowed 8 Sizing Charges Not Allowed 9 Surface Transportation Charges Not Allowed 10 Niryat Kar Tax Not allowed but liberty granted 11 Shortfall in Linkage Coal Not allowed but liberty granted 12 Shift from UHV based pricing to GCV Not allowed 13 Increase in working capital requirement Not allowed 14 Change in Minimum Alternate Tax rate Not Allowed 15 MOEF Notification on coal quality Not Allowed CERC disallowed the Busy Season Surcharge and Development Surcharge. The CERC has examined in Petition Nos. 79/MP/2013 and8/mp/2014 whether changes in the rates of Busy Season Surcharge and Development Surcharge levied by the Railway Board qualify as Change in Law as follows: "60. In our view, increase in the railway freight charges on account of development surcharge and busy season surcharge are in the nature of change in rates of freight charges levied by the Railway Board in exercise of its power under sections 30 to 32 of the Railways Act, The Petitioners were expected to take into account the possible revision in these charges while quoting the bid. As already stated, the Petitioners/PTC were expected in terms of para of the RfP to include in quoted tariff all costs involved in procuring the inputs. Since freight charges are a cost involved for procuring coal which is an input for generating power for supply to Haryana Discoms under the Haryana PPA, the Petitioners cannot claim any relief under change in law on account of revision in freight charges, Accordingly, the claim of the Petitioner on this account is disallowed." Hence, the increase in the Railway freight charges on account of Development Surcharge and Busy Season Surcharge are in the nature of change in freight rates levied by the Railway Board under sections 30 to 32 of the Railways Act, MERC Order Case No. 38 of 2016 Page 77 of 103

78 APML was expected to take into account the possible revision in these charges while quoting its bid and, in terms of para. 2.6 of the RFP, to include in its quoted tariff all costs involved in procuring the inputs. Since freight charges are a cost involved in procuring coal, which is an input for generating power, APML cannot claim any relief under Change in Law on account of revision in freight charges. The claim of APML on this account should be disallowed and the already paid Change in Law amount may be directed to be refunded. Increase in Sizing Charge and Surface Transportation Charge In its Order in Petition No 8/MP/2014, the CERC has examined whether changes in the rates of increase in Sizing Charge and Surface Transportation Charge qualify as Change in Law, and decided as follows: "A perusal of the Fuel Supply Agreement dated between the petitioner and SECL shows that under Para 9.0the delivery price of coal for coal supply pursuant to the Fuel Supply Agreement has been shown as the sum of basic price, other charges and statutory charges as applicable at the time of delivery of coal. Base price has been defined in relation to a declared grade of coal produced by the seller, the pit head price notified from time to time by CIL. Under Para 9.2 of the FSA, other charges include transportation charges, Sizing/crushing charges rapid loading charges and any other charges as notified by CIL from time to time. Sizing/crushing charges and transportation charges have been defined as under: Transportation Charges: Where the coal is transported by the seller beyond the distance of 3(three) kms from Pithead to the Delivery point, the Purchaser shall pay the transportation charges as notified by CIL/seller from time to time Sizing/Crushing Charges Where coal is crushed / sized for limiting the top-size to 250 mm or any other lower size, the purchaser shall pay sizing/crushing charges, as applicable and notified by CIL/seller from time to time. Therefore, the revision in sizing charges of coal and transportation charges by Coal India Limited from time to time is the result of contractual arrangement between the Petitioner and SECL in terms of the FSA dated and is not pursuant to any law as defined in the PPAs and therefore cannot be covered under Change in Law." MSEDCL response to APML s Additional Submission on NMET and DMF APML has gone beyond its original Petition and has raised this issue in its additional submissions dated 8 February, APML has stated that the contentions of MSEDCL that the contractors of the Sellers are not covered under the PPAs is not MERC Order Case No. 38 of 2016 Page 78 of 103

79 correct. As per the CERC Order in Petition 8/MP/2017, the revision in sizing charges of coal and transportation charges by Coal India Limited from time to time is the result of contractual arrangement between the Petitioner and SECL in terms of the FSA dated and is not pursuant to any law as defined in the PPAs and therefore cannot be covered under Change in Law." Hence, the Seller has to take care of its contractual agreement with SECL/ WCL or any other party and changes in taxes. Any increase or decrease in prices from time to time by entities supplying coal or providing transportation services are a part of the contractual price and are not the result of any Change in Law APML has stated that its claims are calculated as per mutually agreed normative performance parameters and there is no question of re-judging or re-evaluating these parameters. As per the PPAs, the Commission has to devise a mechanism/ methodology for compensation in Change in Law. Approaching the Commission for such compensation results in a time lag between the costs paid by the Seller and its reimbursement by the Procurer. Therefore, a provisional mechanism, subject to final reconciliation, was adopted for payment of compensation. Hence, MSEDCL is making payments towards Change in Law on a purely provisional basis subject to annual reconciliation to avoid the financial burden on it as well as APML. The calculation of Change in Law is in progress as per the data submitted by APML recently in February, 2017.The final picture would emerge upon completion of final reconciliation. MSEDCL may approach the Commission in future in relation to these aspects. Port Congestion Surcharge and Coal and Coke Terminal Surcharge by Ministry of Railways MSEDCL reiterates its submission in relation to the Busy Season Surcharge in support of its contention that the Port Congestion Surcharge and Coal and Coke Terminal Surcharge levied by Ministry of Railways under Sections 30 to 32 of the Railways Act, 1989 do not fall within the ambit of Change in Law. The CERC Order in Petition No 8/MP/14 may also be referred to in this regard. MoEF Notification regarding utilization of Fly Ash Details of the MoEF Notifications are set out below: (a) On ,the Central Government, under the EP Act and Rules,issued a Notification regarding the utilization of Fly Ash from coal or lignite-based Thermal Power Plants. There was no condition on sharing of transportation cost with users of Fly Ash. MERC Order Case No. 38 of 2016 Page 79 of 103

80 (b) Amendments to this Notification were issued in August, 2003 and November, In the August, 2003 amendment, the marginal heading was changed to Responsibilities of Thermal Power Plant. Hence, it was the responsibility of the Plant to ensure the availability and utilization of Fly Ash. (c) As per the November, 2009 amendment, Plants commissioned before the notification had to achieve100% Fly Ash utilization. These Notifications also required mandatory use of ash and ash based products by building construction agencies, road embankment construction agencies and low lying area work within 100 kms. of any Plant. (d) The cut-off date for the present transaction under the Bid is , after the above amendments. On , the MoEF further amended the Fly Ash Notification and stipulated as follows:- 1. The cost of transportation of ash for road construction Projects or for manufacturing of ash based products or use as soil conditioner in agriculture activity within 100 Km of any coal-based power Plant shall be borne by such Plant, and the cost of transportationbeyond100 Km and up to 300 Km shall be shared equally between the user and the Plant. 2. Within 300 kms., the Plants shall bear the entire cost of transportation of ash to the site of road construction Projects under Pradhan Mantri Gramin Sadak Yojna (PMGSY) and asset creation programmes of the Government involving construction of buildings, road, dams and embankments. Certain other activities for Fly Ash utilisation are also permissible. 3. The Plants shall comply with the above provisions in addition to 100%utilizationof Fly Ash generated by them before APML was well aware before the cut-off date that the utilization of Fly Ash was entirely its responsibility. The amendment dated does not alter this responsibility Moreover, the amendment dated grants cost of transportation to APML to the extent of 50% from the end user of Fly Ash. It follows that APML ought to grant relief to the common consumer of MSEDCL The income of sale of Fly Ash and coal rejects has been factored in by Generators like APML as non-tariff income. MSEDCL understands that the same could be the position in this case. The Petition is bereft of details of amounts realized by APML from sale of Fly Ash / coal rejects. MERC Order Case No. 38 of 2016 Page 80 of 103

81 Claims for Change in Law for the amendment in the Fly Ash Notification, or for that matter any claim of Change in Law, cannot be urged on principles of force majeure. Change in Law is based on events which have to be correlated to facts and figures which give rights to the same The CERC decision in EMCO / GMR Warora on various items in respect of a claim of Change in Law may be referred to In response to the additional submission of APML, MSEDCL reiterates that the Change in Law for infirm power bills is for the power supplied during the construction period and not during the Operating Period, and the impact of Change in Law approved by the Commission vide Order dated cannot be made applicable for such infirm power bills The bills upto March, 2014 cannot be covered under Operating Period and, therefore, the compensation cannot be payable. The PPAs define the term Operating Period as The period commencing from the delivery date, until the expiry date or date of earlier termination of this Agreement. Further, as per PPAs, Delivery Date means the date on which the Seller commences supply of the Aggregate Contracted Capacity to the Procurer There is no provision in the PPA to allow carrying cost on the amount covered under Change in Law till its determination by the Commission. Further, the CERC has rejected in Case No. 157/MP/2015 the claim for carrying cost: In our view, there is no provision in the PPA to allow carrying cost on the amount covered under Change in law till its determination by the Commission. The issue has been decided in ordered dtd in review petition No. 1/RP/2016 in petition No. 402/MP/2015. Accordingly, the claim of the petition is rejected. 15. In its further submission dated on APML s Change in Law claims with regard to NMET and DMF levies, MSEDCL has contended that, following the creation of the NMET and DMF under the MMDR Amendment Act, SECL is obliged to contribute funds towards them. However, such contributions are within the contractual arrangement between APML and SECL in terms of the Fuel Supply Agreements and not pursuant to any law as defined in the PPAs and, therefore, cannot be covered under Change in Law. Commission s Analysis and Rulings 16. In order to adjudicate on the present Petition and subsequent Applications of APML, the Commission has analysed and given its findings and rulings on the MERC Order Case No. 38 of 2016 Page 81 of 103

82 following aspects accordingly: A. Context of APML s Change in Law claims B. Scope and meaning of Change in Law as per the PPAs C. Scope and meaning of the term Indian Governmental Instrumentality as per the PPAs D. Evaluation of events claimed by APML as Change in Law E. Carrying Cost F. Billing, and date of applicability 17. A. CONTEXT OF APML S CHANGE IN LAW CLAIMS The four PPAs have been entered into between APML, a Generating Company, and MSEDCL, a Distribution Licensee, and hence the matter falls squarely within the Commission s jurisdiction under Section 86 (1) (b) and (f) of the EA, The PPAs were entered into following a Competitive Bidding process under Section 63 of the EA, 2003 and have been approved by the Commission. Article 13.2 (b) of the PPA dated (1320 MW), which applies to Change in Law events during the Operation Period of the contracted Generating Unit, provides as follows: 13.2(b) 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 the rights of appeal provided under applicable law and effective from date specified in Similarly, Article 10.3 of the other three PPAs dated (1200 MW), (125 MW) and (440 MW) also provides that The decision of the Appropriate Commission, with regards to the determination of the compensation mentioned above in Articles and , and the date from which such compensation shall become effective, shall be final and binding on both the Parties subject to right of appeal provided under applicable law APML has filed this Petition accordingly after notifying MSEDCL of the claimed Change in Law events. 18. B. SCOPE AND MEANING OF CHANGE IN LAW While some specifics of the PPAs differ, it will be seen from the extracts of the PPAs set out below that they provide an exhaustive code qua events of Change in Law. MERC Order Case No. 38 of 2016 Page 82 of 103

83 18.1. Each event is to be evaluated to determine whether or not it qualifies as a Change in Law in terms of the PPAs, the earlier Orders of this Commission, and the Judgments of the ATE and the Supreme Court. Under the PPAs, the key characteristics for an event to qualify as Change in Law are as follows: a) The definition of Law in the PPAs is an inclusive and illustrative definition and contemplates all laws applicable in India in various forms. To be considered a Change in Law, the event must be caused by an Indian Governmental Instrumentality; b) "Change in Law" means the occurrence of any of the events described in the relevant Articles subsequent to seven days prior to the Bid Deadline; c) There should be an actual increase or decrease in revenue or cost which should financially impact APML; d) The object of the Change in Law provision is to ensure compensation to the Party affected (APML in this case) so as to restore it, through monthly tariff payments, to the same economic position as if such Change in Law had not occurred; e) During the Operation Period (which is relevant to the present Case), the relief on account of Change in Law events is circumscribed in all the PPAs by the following provision: (I) PPA dated 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. The PPA dated provides as follows with regard to Change in Law events: 1.1 Definitions... Change in Law shall have the meaning ascribed thereto in Article of this Agreement 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 MERC Order Case No. 38 of 2016 Page 83 of 103

84 Governmental Instrumentality pursuant to or under any of them and shall include all rules, regulations, decisions and orders of the CERC and the 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, or Indian Governmental Instrumentality provided such court of law, tribunal, or 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 shareholder of the seller, or (ii) change in respect of UI charges or frequency interval 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 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 Tariffs 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. b) Operation Period: 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 MERC Order Case No. 38 of 2016 Page 84 of 103

85 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 for 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. Analysis of Article (i) read with other provisions of Article 13 MERC Order Case No. 38 of 2016 Page 85 of 103

86 18.2. Article (i) contemplates a change in the application or interpretation of law in India, thereby meaning that APML is entitled to relief if there is a change or alteration in expense by force of law subsequent to The definition of Law in the PPA is of the widest meaning. Hence, any change in the applicable laws after having the characteristics set out earlier in this Section above would qualify as a Change in Law event in terms of Article (i) of the PPA. (II) PPAs dated , and The other three PPAs provide as follows with regard to Change in Law events: 1.1 Definitions -... Change in Law shall have the meaning ascribed thereto in Article of this Agreement Law shall mean 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 without limitation all applicable rules, regulations, orders, Notifications by an Indian Governmental Instrumentality pursuant to or under any of them and shall include without limitation all rules, regulations, decisions and orders of the Appropriate Commission; 10 ARTICLE 10: CHANGE IN LAW 10.1 Definitions - In this Article 10, 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 resulting into any additional recurring/ non-recurring expenditure by the Seller or any income to the Seller: the enactment, coming into effect, adoption, promulgation, amendment, modification or repeal (without re-enactment or consolidation) in India, of any Law, including rules and regulations framed pursuant to such Law; a change in the interpretation or application of any law by any Indian Governmental Instrumentality having the legal power to interpret or apply such law, or any Competent Court of Law; the imposition of a requirement for obtaining any Consents, Clearances and Permits which was not required earlier; MERC Order Case No. 38 of 2016 Page 86 of 103

87 a change in the terms and conditions prescribed for obtaining any Consents, Clearances and Permits or the inclusion of any new terms or conditions for obtaining such Consents, Clearances and Permits; except due to any default of the Seller; any change in tax or introduction of any tax made applicable for supply of power by the Seller as per the terms of this Agreement. but shall not include (i) any change in any 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 or (iii) any change on account of regulatory measures by the Appropriate Commission including calculation of Availability Application and Principles for computing Impact of Change in Law While determining the consequence of Change in Law under this Article 10, 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 Payment, to the extent contemplated in this Article 10, the Affected Party to the same economic position as if such Change in Law has not occurred Relief for Change in Law During Operating Period 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 For any claims made under Articles and above, the seller shall provide to the Procurer and the Appropriate Commission documentary proof of such increase/ decrease in cost of the Power Station or revenue/ expense for establishing the impact of such Change in Law The decision of the Appropriate Commission, with regards to the determination of the compensation mentioned above in Articles and , and the date from which such compensation shall become effective, shall be final and binding on both the Parties subject to right of appeal provided under applicable law. Analysis of Article , 1 st Bullet read with other provisions of Article The 1 st Bullet of Article of the PPAs contemplates a change in application or interpretation of law in India, thereby meaning that APML is entitled to relief if there is an increase in expenses by a force of law subsequent to Hence, any change in the applicable laws after containing the MERC Order Case No. 38 of 2016 Page 87 of 103

88 characteristics summarised earlier in this Order read with Article , 1 st Bullet shall qualify as an event of Change in Law. Analysis of Article , 5 th Bullet read with other provisions of Article The 5 th Bullet of Article contemplates any change in tax or introduction of any tax made applicable for supply of power by APML, thereby meaning that any change in tax or introduction of law after (7 days before Bid deadline) 2009 and having the effect as enumerated at Para 18.4 above would qualify as a Change in Law event. The wording of the 5 th Bullet of Article read with other provisions of Article 10 indicates that any amendment or introduction of a tax which was not present as on would be covered under the concept of Change in Law under the PPAs as long as it results in additional recurring or non-recurring expenditure or reduction in income to APML These fundamentals of the PPAs provide the guiding principles for evaluating whether an event is a Change in Law event or not. 19. C. SCOPE AND MEANING OF THE TERM INDIAN GOVERNMENTAL INSTRUMENTALITY The PPA dated , defines the term Indian Governmental Instrumentality as follows: Indian Governmental Instrumentality mean 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; Thus, the term Indian Governmental Instrumentality covers GoI, GoM and any Ministry, Department, Board, Agency or Corporation under the direct or indirect control of GoI or GoM, and the CERC and this Commission. Hence, an event arising from the actions of such authority would be covered within the definition of Change in Law The Commission notes MSEDCL s contention that relief for Change in Law relating to some event which has an impact on coal cost and transportation expenses should not be allowed since these may already be included in the CERC Escalation Index, and that relief through the Change in Law provision would therefore lead to a double benefit to APML. The Commission observes that, in the PPA dated , APML has quoted a non-escalable rate for supply of power. Thus, the benefits of the CERC Escalation Index are not available to APML for the supply of power under that PPA. However, this would not entitle MERC Order Case No. 38 of 2016 Page 88 of 103

89 APML to the benefit of the Change in Law provision for events covered in the CERC Escalation Index since that would be contradictory to the non-escalable rate quoted in the PPAs. If the claimed Change in Law event relates to a simple escalation of the components qua generation, it cannot be granted through the Change in Law provisions. APML has consciously opted for a non-escalable tariff, thereby waiving its right to tariff revision linked to the CERC Escalation Index. This principle has to be kept in mind The other three PPAs define Indian Governmental Instrumentality as follows: Indian Governmental Instrumentality shall mean the Government of India, Governments of State(s) of Maharashtra, and any ministry, department, board, authority, agency, corporation, commission under the direct or indirect control of Government of India or any of the above State Government(s) or both, any political sub-division of any of them including any court or Appropriate Commission (s) or tribunal or judicial or quasijudicial body in India but excluding the Seller and the Procurer:... This definition is more elaborate but essentially similar to the definition in the PPA dated quoted earlier. Thus, an event arising from the actions of an authority covered within this definition of Indian Governmental Instrumentality would be covered within the definition of Change in Law. 20. D. EVALUATION OF EVENTS CLAIMED BY APML AS CHANGE IN LAW I. Increase in Chhattisgarh Development and Environment Cess rates The Chhattisgarh Cess Act, 2005 promulgated by the Chhattisgarh State Government provides for levy of Cesses on land for raising funds for 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. As per Schedules I and II of the Act, the Development and Environment Cess rates were each fixed at Rs. 5 per tonne of annual dispatch on lands under coal and iron ore mining leases at the time of submission of bids by APML Thereafter, the Chhattisgarh Government, vide Notification No. 340 dated , revised these Cess rates as follows by amending the Schedules to the Chhattisgarh Cess Act: MERC Order Case No. 38 of 2016 Page 89 of 103

90 Cess Original Rates Revised Rates (w.e.f ) Environment Cess Rs. 5 / Tonne Rs / Tonne Infrastructure Development Cess Rs. 5 / Tonne Rs / Tonne Through its Notice dated , SECL made this revision of the Cess rates applicable to all dispatches and lifting of coal from As MSEDCL has contended, the Chhattisgarh State Govt. is admittedly not a Governmental Instrumentality as defined in the PPAs since neither MSEDCL (the Procurer, which is in Maharashtra) nor the contracted Plant of APML (the Seller, also in Maharashtra) are located in Chhattisgarh. Hence, considering the definition of law, the revision of Cess rates by the Chhattisgarh Govt. is not a Change in Law event. On the other hand, APML has argued that the definition of law in the PPAs is not restricted to statutes enacted by an Indian Governmental Instrumentality. Article of the PPA dated 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: (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, or Indian Governmental Instrumentality provided such Court of law, tribunal, or Indian Governmental Instrumentality is final authority under law for such interpretation The corresponding Article and its first 2 Bullets of the other three PPAs are not materially different from (i) and (ii) above. It will be seen that a distinction has been made between the promulgation or amendment of a law, which does not refer 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 The PPA dated defines the term law as follows: 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 MERC Order Case No. 38 of 2016 Page 90 of 103

91 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 The definition in the other PPAs is similar. On this basis, 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 Cess Act. However, that is not the meaning of law that emerges from its definition when read as a whole In the Commission s view, the definition of law underlying the Change in Law provisions in the PPAs has to be read as a whole and not as purportedly consisting of distinct, separate and independent parts as contended by APML. If APML s argument were to be accepted, there is no reason why the term Indian Governmental Instrumentality was at all required to be introduced 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 CERC and 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. This is also not tenable APML has also referred in this context to the provision in some PPAs relating Change in Law to taxes on the supply of power without referring to Indian Governmental Instrumentalities. The Commission is of the view that this provision has to be read in its literal sense and cannot be stretched to mean levies on the cost of raw materials required to generate electricity. Mention of Indian Governmental Instrumentality was not required in this provision since the tax on the supply of power would be in the State in which the Procurer is located (if not the GoI). Royalty on coal and other such levies (such as contributions to NMET and DMF in the present Case) by an Indian Governmental Instrumentality which would increase the cost of coal to the Generator have already been allowed by this Commission, the CERC and the ATE even without this provision. Para. 25 of the ATE Judgment in Appeal No. 228 of 2013 cited by APML does not say otherwise. MERC Order Case No. 38 of 2016 Page 91 of 103

92 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 since neither MSEDCL or APML s Plant are located in Chhattisgarh. As such, the increase in the Cess rates under the Chhattisgarh Cess Act does not constitute a Change in Law event. II. DMF and NMET Levy on Royalty On , GoI promulgated the MMDR Amendment Ordinance, That Ordinance added Sections 9B and Section 9Cin the MMDR Act, Section 9B provided that the holder of a mining lease or a prospecting license-cum-mining lease shall, in addition to Royalty, pay to the DMF of the District in which the mining operations are carried on an amount equivalent to a percentage, as may be prescribed by GoI, not exceeding one-third of the Royalty. Section 9C provided that the holder also pay to the NMET a sum equivalent to 2% two percent of the Royalty. This Ordinance was replaced by the MMDR Amendment Act, 2015 which was notified on Vide Notification No. 507 dated , in exercise of its power under Sections 9C(2), (3) and (4) and Section 13 of the amended MMDR Act, GoI brought into force the requirement of payment to the NMET.On , GoI 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 on or after , and (b) 30% of the Royalty paid in respect of mining leases granted before The DMF and NMET levies were reflected by SECL in its Notice dated 13/ The notification by GoI of levies 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 in pursuance of the amendments to the MMDR Act, is a Change in Law event under Article (i) and Article st Bullet of the respective PPAs and satisfies the requirements discussed earlier in this Order Incidentally, these contributions payable to the MMDR Amendment Act are linked to the rate of Royalty on coal. The Commission notes in passing that changes in the rate of Royalty itself have been earlier held by this Commission to MERC Order Case No. 38 of 2016 Page 92 of 103

93 constitute Change in Law events, and have also been treated similarly by the ATE and CERC in various Orders. MSEDCL had also not objected, in earlier proceedings before the Commission, to changes in Royalty rates being Change in Law events. III. Swachh Bharat Cess on Rail Transportation In respect of all the PPAs, no SBC was applicable 7 days prior to the Bid Deadline. Vide its 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 Vide its Notification No. TCR/1078/2015/5 dated , the Ministry of Railways notified the levy of Service Tax on transportation of goods by rail from This Notification modified the earlier Rates Circular No. 29 of 2012 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 of 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 Since the levy of SBC on rail transportation arises from the GoI Notification dated consequent to the introduction of SBC through the Finance Act, 2015, it constitutes a Change in Law event under Article (i) and Article th Bullet of the respective PPAs, and satisfies the requirements explained earlier in this Order As far as the rail transportation of imported coal is concerned, the extent to which the compensation is to be given would be subject to the observations regarding import of coal at para below relating to Port Congestion Surcharge. IV. 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 on dated ,has levied Port Congestion Surcharge on 10% of the Base Freight Rate on goods traffic originating from Ports from The Commission observes as follows: MERC Order Case No. 38 of 2016 Page 93 of 103

94 (a) Port Congestion Surcharge has been imposed by the Railway Board in exercise of powers conferred by Section 30, 31 and 32 of the Railways Act, Rate Circulars issued by the Railway Board are orders issued pursuant to Act, namely the Railways Act, 1989 by an Indian Governmental Instrumentality, namely the Railway Board of the Ministry of Railways. (b) The Railway Board issued a Notification dated introducing a Port Congestion Surcharge of 10% on the Base Freight Rate. The Surcharge is leviable on all goods traffic, including containers, originating from Ports from Considering the above, the Commission is of the prima facie view that the imposition of a Port Congestion Surcharge, which flows from the sanction of the GoI under the Railways Act, is a Change in Law event under Article (i)and Article th Bullet of the respective PPAs and that it meets the requirements explained 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 with regard to a similar levy of Busy Season Surcharge, also by the Railway Board, namely that it is not a Change in Law. The Commission notes that Appeal No. 111 of 2017 has been filed before the ATE by GMR Warora Energy Ltd. against that CERC Order. Depending on the ATE decision on this point, the parties are at liberty to approach this Commission for its final decision on the levy of Port Congestion Surcharge as a Change in Law event The Port Congestion Surcharge is relevant to the rail transportation of imported coal. MSEDCL has argued that no compensation is payable for the introduction of Port Congestion Surcharge since APML s PPAs are based on domestic coal and not on imported coal. The Commission notes that, while three of the PPAs define fuel to be domestic coal, the PPA dated (1320 MW) defines fuel as including captive, linkage as well as imported coal. Moreover, Schedule 5 of the other three PPAs ( Details of Generation Source and Supply of Power ), which reflects the details provided in the Bids, contains the following details against the row relating to duration of FSAs: Captive Coal Block (800 MW) [i.e., originally the Lohara Coal Block, which was subsequently de-allocated] Long Term Coal Linkage with SECL/WCL (1180 MW) Imported Coal supply FSA for five years and Long Term Coal Linkage (1320 MW). MERC Order Case No. 38 of 2016 Page 94 of 103

95 If the Port Congestion Surcharge is ultimately determined to be a Change in Law event, the extent to which its financial impact is to be compensated would be limited to these provisions and to the PPAs which include imported coal as fuel. V. Amendments to Environment (Protection) Rules, Vide Notification dated , the MoEF, GoI has amended the Environment (Protection) Rules, 1986 so as to revise various environmental standards and introduce new norms, which APML has contended would require additional capital investment on the necessary equipment The revised and newly-introduced environmental standards and norms are summarized below: 1. Addition of new Regulation 5A Current Norm As on cut-off date N/A (vide Notification dated ) Existing CT-based Plants must reduce specific water consumption up to a maximum of 3.5m 3 /MWh within 2 years. 2. Amendment to Regulation 25 urrent Norms (Notification dated days prior to Bid Deadline For TPPs (Units) installed after up to Parameter Standard Parameter Standard Particulate Matter Emission: - Generation 150 capacity of mg/nm MW or more - Generation capacity less than 210 MW. Sulphur (SO2) Dioxide 350 mg/nm 3 N/A Particulate Matter(Thermal Power Plants) SO2 50 mg/nm mg/nm 3 (Units below 500 MW 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. 38 of 2016 Page 95 of 103

96 However, as the financial impact on account of the amended Environment (Protection) Rules, 1986 has not been assessed and no firm underlying basis has been provided by APML, its claim is highly premature. No capital expenditure has been incurred and detailed estimation of the likely capital cost and its underlying basis have not been provided. Therefore, no dispensation can be given on this account at this stage and there is no question of its blanket inprinciple approval as a Change in Law event The Commission also notes that, in its Order dated in Petition No. 72/MP/2016, the CERC has directed the Petitioner to refer a similar matter to the CEA 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 APML may approach the Commission thereafter with the full details. APML should also inform whether it has approached the MoEF for extending the period for its compliance of these requirements since the deadline is only a short time away and no effective steps appear to have been taken by it so far, and the outcome. VI. Swachh Bharat Cess on Service Tax As stated earlier, in respect of all the PPAs, no SBC was applicable 7 days prior to the Bid Deadline. Vide its 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 Since the levy of SBC on Service Tax arises from the GoI Notifications dated consequent to the introduction of SBC through the Finance Act, 2015, it constitutes a Change in Law event under Article (i)and Article th Bullet of the respective PPAs,and satisfies the requirements set out earlier in this MERC Order Case No. 38 of 2016 Page 96 of 103

97 Order. VII. Krishi Kalyan Cess on Service Tax Upto 7 days prior to the Bid Deadline in respect of all the PPAs, 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 The levy of KKC was introduced after the cut-off date, which is for the PPA dated and for the other three PPAs. The levy of KKC at 0.5% on all taxable services, having been introduced through the Finance Act, 2016, is a Change in Law event under Article (i) and Article th Bullet of the respective PPAs and satisfies the requirements set out earlier in this Order. VIII. Krishi Kalyan Cess on Rail Transportation As stated earlier, upto 7 days prior to the Bid Deadline in respect of all the PPAs, 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% and KKC at 0.5% to the Service Tax of 14% In view of the above, the levy of KKC at 0.5% on the transportation of goods by rail is a Change in Law event under Article (i) and Article th Bullet of the respective PPAs and satisfies the requirements set out earlier in this Order However, as far as the rail transportation of imported coal is concerned, the extent to which the compensation is to be given would be subject to the observations relating to import of coal at para above relating to Port Congestion Surcharge. IX. Coal and Coke Terminal Surcharge Vide Corrigendum No. 14 dated to the Rates 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 MERC Order Case No. 38 of 2016 Page 97 of 103

98 , another Corrigendum No. 15 was notified by the Railway Board providing as follows: a. The Freight Rate Table was replaced by another Freight Rate 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. b. Coal Terminal Surcharge (CTS) 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 7 days prior to the Bid Deadline in respect of all four PPAs, no such Surcharge was applicable to APML. With the issue of the above Rate Circulars, the Surcharge became applicable from Coal and 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 Hence, the introduction of Coal and Coke Terminal Surchargeis a Change in Law event under Article (i) and Article th Bullet of the respective PPAs and satisfies the requirements set out earlier in this Order. 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. X. Amendment of Notification on utilization of Fly Ash 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 Thermal Power Plants, vide Notification dated That Notification was amended on and Vide Notification dated , MoEF has further amended the dispensation for Fly Ash utilization, which is now as follows: (i) The cost of transportation of Fly Ash for road construction projects or for manufacturing Ash-based products or for use as soil conditioner in MERC Order Case No. 38 of 2016 Page 98 of 103

99 agriculture within 100 kms. from a coal-based Plant shall be borne by that Plant. The cost of transportation beyond 100 kms. and up to 300 kms. Shall be shared equally between the user and the Plant. (ii) 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 Ash. (iii) Plants in the vicinity of cities shall promote, support and assist in setting up of Ash-based product manufacturing units to meet the requirement of bricks and other building construction material and reduce its transportation. (iv) The Plants shall bear the entire cost of Ash transportation within 300 kms. to the sites of road construction projects under the Pradhan Mantri Gramin Sadak Yojna and asset creation programmes of the Government involving construction of buildings, road, dams and embankments. (v) The Plants shall bear the entire cost of transportation of 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 These provisions have to be complied with by According to the MoEF Notification, the coal or lignite-based Thermal Power Plants shall comply with these provisions in addition to 100% utilisation of Fly Ash generated by them before APML has not provided or assessed the financial impact of this Notification, and several issues have to be addressed to assess its nature and financial impact, some of which may become evident only at the time of actual implementation by the Generator. 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 Ash in various ways. The cost involved 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 obviously have been subsumed by APML in MERC Order Case No. 38 of 2016 Page 99 of 103

100 its Bids. 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 Ash generated from the Plant and the proportion, manner and cost at which it is being currently disposed of. (iv) Assessment of the financial implications of the supply of Ash to various user sites, along with its underlying basis. (v) The Notification also requires that the Plant promote, adopt and set up (financial and other associated infrastructure) for Ash-based product manufacturing facilities within or in the vicinity of its premises so as to reduce Ash 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. 21. E. CARRYING COST APML has sought that the payments arising on account of the Change in Law events be made with interest from the date on which they became effective. In a similar context, the Commission had stated as follows in an earlier Order in Case No. 2 of 2014 concerning APML: APML has prayed for interest on the amounts due to it arising from Change in Law. The object of the Change in Law provision is to restore the economic position of an affected party which has been altered due to such Change. However, APML has not demonstrated the actual interest incurred, if any, and has simply claimed notional interest. In the absence of any supporting material, the Commission is not inclined to allow interest on the amounts due on account of Change in Law as that provision cannot be used to seek undue gain In its Orders in Case Nos. 163 of 2014 (concerning APML) and 173 of 2014 (concerning RattanIndia Power Ltd.), the Commission had reiterated this position 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 MERC Order Case No. 38 of 2016 Page 100 of 103

101 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. 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. 22. F. SUPPLEMENTARY BILLS FOR CHANGE IN LAW PAYMENTS, AND DATE OF APPLICABILITY In its Petition and during these proceedings, APML has presented its computations of the impacts of the Change in Law events considering all the PPAs. For each of the PPAs, it needs 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 in this and earlier Orders exceeds 1% of the LC amount in the relevant Contract Year, as required under the proviso to Article 13.2 (b) of the PPA dated and Article of the other three PPAs. The Commission does not agree with MSEDCL that the financial impact of each of the events accepted as Change in Law must individually exceed 1% of the LC amount. Considering the clear wording of the requirement in the PPAs (quoted earlier in this Order), the compensation is payable to APML if the total of the decrease in revenues or increase in costs arising from all of the events approved as Change in Law events taken together in a Contract Year exceeds 1% of the LC amount in respect of each PPA. This is clear from the express stipulation of in aggregate in the relevant provisions, and has been reiterated by the Commission in its recent Order dated in Case No. 117 of 2016 (relating to JSW Energy Ltd.) Under the PPAs, the Change in Law payments are to be claimed through Supplementary Bills. APML may raise Supplementary Bills under the respective PPAs for the financial impact of events which have been accepted by the Commission as Change in Law, subject to the relevant stipulations and findings in this Order and the caveats set out below As provided in Article of the PPA dated and Article of the other three PPAs, the impact of each such Change in Law event should be MERC Order Case No. 38 of 2016 Page 101 of 103

102 computed from the date of its coming into force as specified in the relevant notifications (in the present case, during the respective Operating Periods). With its Supplementary Bills, APML shall submit evidence regarding the expenditure actually incurred by it on account of such events. MSEDCL shall make payments within the due date stipulated in the PPAs, and shall be liable to pay a Late Payment Surcharge to the extent of any delay However, in the case of the PPA dated for 1320 MW, the financial impact of the Change in Law events shall be applicable only to 520 MW, as the Commission is separately addressing the Change in Law issues with regard to the remaining 800 MW capacity originally linked to the Lohara Coal Block (which was de-allocated) in Case No. 102 of The SDD in the PPA dated (1200 MW) is (i.e., 48 months from the Effective Date). However, as agreed subsequently between MSEDCL and APML, the supply of power to the extent of availability from Unit 1 actually commenced from , i.e., six months prior to the SDD.APML has contended that, therefore, the impact of the Change in Law events be made applicable from MSEDCL has contested this claim on the ground that, as per the PPA, the commencement of the Operating Period remains While it is not disputed that both parties had agreed to the pre-ponement of supply, APML has not placed on record anything to show that the SDD had been formally revised, or that the mutually agreed pre-ponement amounts to a Revised SDD of for Unit 1, six months earlier than the SDD shown in the PPA. As reflected in MSEDCL s letter dated , the tariff for the power from Unit 1 for this period of six months was agreed to be the quoted tariff of the first Contract Year with escalation for the relevant period for the Energy Charge. Thus, the Commission is of the view that the period of 6 months of early supply is not part of the Operating Period as envisaged in the PPA. Hence, the Change in Law events now claimed would not be applicable for that period of six months. 23. Just as APML has been diligent in identifying Change in Law events under the PPAs, MSEDCL should also conduct periodic reviews to identify whether any Change in Law events have occurred entitling it to make such claims so as to reduce the burden on its consumers. The first such review should be completed within 3 months and the consequential action, if required, pursued within the PPA provisions. Such reviews should be a continuous process. The Commission notes that it had given similar directions to MSEDCL in Case Nos. 173 of 2013 and 163 of 2014 with regard to its PPAs with RIPL and APML, but that no feedback has been received from (except for a Petition regarding a change in the basis of the Late Payment Surcharge rate). However, this does not absolve MERC Order Case No. 38 of 2016 Page 102 of 103

103 APML of its responsibility under the PPAs to also promptly notify such events to MSEDCL as and when they arise. This does not absolve APML of its responsibility under the PPAs to also promptly notify such events to MSEDCL as and when they arise. The Petition of Adani Power Maharashtra Limited in Case No. 38 of 2016 stands disposed of accordingly. Sd/- (Deepak Lad) Member Sd/- (Azeez M. Khan) Member MERC Order Case No. 38 of 2016 Page 103 of 103