Case No.39 of 2012 IN THE MATTER OF. Shri V. P. Raja, Chairman Shri Vijay L. Sonavane, Member ORDER

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel. No /65/69 Fax Website: / Case No.39 of 2012 IN THE MATTER OF Petition of Wardha Power Company Limited under Section 86 (1) (b) and 86 (1) (f) of the Electricity Act, 2003 in the matter of dispute between a Generating Company and the Distribution Licensee as a result of deliberate and wilful failure of the distribution licensee to make payments on account of change in law as per the terms of Power Purchase Agreement dated Shri V. P. Raja, Chairman Shri Vijay L. Sonavane, Member ORDER Dated: 13 August, 2013 Wardha Power Company Limited Vs Reliance Infrastructure Limited Petitioner Respondent Wardha Power Company Limited (WPCL) submitted a Petition under affidavit on 23 April, 2012 under Section 86 (1) (b) and 86 (1) (f) of the Electricity Act, 2003 in the matter of dispute between a Generating Company and the Distribution Licensee as a result of deliberate and wilful failure of the distribution licensee to make payments on account of change in law as per the terms of Power Purchase Agreement dated The Prayers of the Petitioner are as under: Order Case No.39 of 2012 Page 1 of 22

2 a) Direct the Respondent to adopt Change in Law in terms of Clause 10.4 and Clause 10.5 of the PPA dated in terms of the Petitioner s notice dated (being Annexure P-4 hereto), and quash / set aside the Respondent s letter dated (being Annexure P-5 hereto) refusing to accept and make payment of an amount of Rs 20,80,69,407/- (Rupees Twenty Crores Eighty Lakhs Sixty Nine Thousand Four Hundred and Seven only) being amount accrued until on account of Change in Law in terms of the PPA dated b) Direct the Respondent to make payment of Rs 27,63,26,212/- (Rupees Twenty Seven Crores Sixty Three Lakhs Twenty Six Thousand Two Hundred and Twelve only), which amount has accrued until on account of Change in Law in terms of Article 10 of the PPA dated c) To pass such other and further order or orders as this Hon ble Commission deems appropriate under the facts and circumstances of the present case. 3. The Petitioner, Wardha Power Company Limited, has a total installed capacity of 540 MW (4 X 135 MW) and has declared a net available capacity of 480 MW after allowing for auxiliary consumption. The Petitioner and Respondent have entered into a Medium Term Power Purchase Agreement (PPA) on 4 June, 2010, for supply of 260 MW of power for a period of 3 years. This quantity is out of the declared net capacity of 480 MW. Respondent is scheduling power from Units I & II of the Petitioner s plant located at Warora, District Chandrapur, Maharashtra, with effect from 20 April, Out of the net declared capacity of 480 MW, the Petitioner has arrangement for supplying Captive Power to the extent of 225 MW within state of Maharashtra from units III & IV and has been granted Intra State Open Access in January 2012 for the purpose. 4. Submissions by the Petitioner 4.1. The Petitioner submitted that as per provisions contained in the PPA, Article 10 pertaining to Change in Law provides remedies in the event of occurrence of any event of Change in Law. Article Change in Law means the occurrence of any of the following events after the date, which is 7 days prior to Bid Dead Line resulting into any additional recurring / non recurring expenditure by seller or any income to seller : The enactment, coming into effect, adoption, promulgation, amendment, modification or repeal. Of any Law, Order Case No.39 of 2012 Page 2 of 22

3 including Rules and Regulations framed pursuant to such Law. any change in tax or introduction of any tax made applicable for supply of Power by seller as the terms of this Agreement. Article 10.4 Notification in Change of Law : 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 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 Seller has not provided such notices, the Procurer shall have the right to issue such notices to the Seller : Any notice served pursuant to this Article shall provide, amongst other things, precise details of: a) the change in law b) the effects on the seller Article 10.5 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) The date of adoption, promulgation,amendment,re enactment,or repeal of the law or change in law; or (ii) The date of order / judgement of Competent Court or tribunal of Indian Governmental Instrumentality, if Change in Law is on account of a change in interpretation of Law : The payment for Change in Law shall be through a supplementary Bill as mentioned in Article 8.8. However, in case of Order Case No.39 of 2012 Page 3 of 22

4 any change in Tariff by reason of Change in Law, as determined in accordance with this Agreement, the monthly invoice to be raised by this Seller after such change in Tariff shall appropriately reflect the changed Tariff The Petitioner submitted that subsequent to signing of PPA, following notifications were issued by GoI, which amounts to change in Law. : a) Central Government vide Notification # 1/2011 introduced Excise plus Education Cess of 2% on Excise Duty and Secondary & Higher Education Cess of 1% on Excise Duty (vide Finance Bill, 2011 for Coal, Lignite, Peat, Coke, Tar, etc falling under Chapter 27 w.e.f March 1, b) Central Government vide Notification # 1/2010 introduced Clean Energy Cess of Rs 50 per MT of Coal w.e.f March 1, c) State Government amended the Maharashtra Value Added Tax Regulation, 2002 by issuing a notification # Part IV-B # 53 dated April 27, 2011, changing the Value Added Tax (VAT) from 4% to 5% on procurement of Coal/ Consumption of spares. d) The Central Government vide Notification # 91/2010 levied Customs basic rate at 4 paise per kwh plus Education 2% on Customs Duty and Secondary and Higher Education 1% on Customs Duty. w.e.f September 6, 2010.( This is levied on Removal of Electrical Energy from Power Plants located in Special Economic Zones and supplying Power to Domestic Tariff Area /or non processing area of SEZ.) 4.3. The Petitioner also referred to their claim in account of Excise Duty introduced by the Central Government vide notification # 2/2008 relating to excise duty on LDO and HFO w.e.f However the Petitioner, subsequently, came to know that the said cost has already been factored in the Tariff and as such, stated that it should not be included under change of law. Order Case No.39 of 2012 Page 4 of 22

5 4.4. Petitioner contended that on the basis of above notification, the Petitioner has suffered large financial impact. As required in Article 10.4, a notice was issued to Respondent on November 9, 2011,detailing the notifications and submitted factual matrix of calculations on account of Change in Law, needed to be reimbursed by Respondent up to billing ending September 30, The total impact on the Petitioner up to March 31, 2012, is Rs 27, 63, 26,212/=. Petitioner stated that Respondent was acting contrary to terms of PPA, by not adopting the Change in Law, caused through actions of the Govt of India and those of Govt of Maharashtra, and holding huge sum payable to Petitioner. Petitioner has further stated that the Commission has already upheld the claim of another generator due to Change in Law in Case No. 67 of 2011 (JSW v/s MSEDCL) Impact Table on Account of Change in law (ref : letter dated September 30, 2011) Government Notifications Impact on Petitioner a) Central Government vide Notification # 1/2011 introduced Excise plus Education Cess of 2% on Excise Duty and Secondary & Higher Education Cess of 1% on Excise Duty (vide Finance Bill 2011 for Coal, Lignite, Peat, Coke, Tar etc falling under Chapter 27 w.e.f March 1, b) Central Government vide Notification # 1/2010 introduced Clean Energy Cess of Rs. 50 per MT of Coal w.e.f March 1, c) State Government amended the Maharashtra Value Added Tax Regulation,2002 by issuing a notification # Part IV-B # 53 dated April 27, 2011, changing the Value Added Tax (VAT) from 4% to 5% on procurement of Coal/ Consumption of spares. Excise Duty on Coal amounting to Rs 125 per ton on the settled energy which works out to Rs.97,201,431/- Clean Energy Cess@ Rs.50/= per ton on the settled energy, which works out to Rs.39,030,524/- Increase in Value Added Tax on the procurement of Coal, Light Diesel Oil, Heavy Furnace Oil, and Spares valuing Rs. 22,240,887/- d) The Central Govt vide Notification # 91/2010 levied Customs basic rate at 4 paise Levy of Customs Rs per Order Case No.39 of 2012 Page 5 of 22

6 Government Notifications per kwh plus Education 2% on Customs Duty and Secondary and Higher Education 1% on Customs Duty. Wef September 6, Impact on Petitioner kwh (including Education Cess and Secondary Higher Education Cess), on the settled energy, which works out to Rs. 38,808,083/- e) Excise Duty on LDO and HFO. 1. Excise Duty on LDO for Start-up Rs. 6302/- KL, on the settled energy, which works out to Rs. 2,841,402 /-. 2. Excise Duty on Furnace Oil for Start-up Rs.4950/- KL, on the settled energy, which works out to Rs. 9,947,080/ Petitioner submitted that Respondent vide letter dated December 9, 2011, refused to accept that Rs 20, 80, 69,407/- had accrued till Sept 30, During the hearing held on 16 May, 2012, the Petitioner submitted that this matter pertains to adoption of Clause No and 10.5 of the PPA regarding change in Law and requested that the Respondent may be directed to release the payment on account of change in law. 5. In this matter, the Commission directed both the parties to sit together and verify the Petitioner s claim During the hearing held on 4 July, 2012, the Petitioner submitted that, vide letter dated 16 June, 2012, he has requested the Respondent to verify and check the documents to ascertain the claims of the Petitioner on account of the change in law. The Respondent submitted that they require some more data for accounts reconciliation to which, the Commission directed the Petitioner to submit all the necessary documents and arrive at a settlement of the dispute. Order Case No.39 of 2012 Page 6 of 22

7 5.2. During the hearing held on 8 August, 2012, Petitioner submitted that the matter may not be referred to Arbitration, as the Commission is empowered to settle disputes as per Article 10.3 and Article of the PPA. The Commission directed the Respondent to pay the undisputed amount and both parties may negotiate mutually & settle the disputed claims The Petitioner requested Respondent vide letter dated October 6, 2012 to release his payment and stated that Respondent did not act on the directives of the Commission viz. a) To pay the undisputed amount and b) To have a meeting for amicable dispute settlement During the hearing held on October 25, 2012, the Commission was informed that payment against undisputed amount was yet to be released. Petitioner stated that a meeting was held just two days prior to this hearing but without any conclusion as Respondent requested for further additional data from Petitioner to analyze claims. Petitioner submitted that they shall provide additional data as requested by Respondent. Respondent informed that a meeting, to settle disputed amounts, will be convened soon. The Commission directed that the time limit should be fixed to resolve the issues Petitioner submitted that an amount of approximately Rs. 67 Crore has become due as on date of hearing and requested the Commission to direct Respondent to make adhoc payment to mitigate the financial hardship faced by them. Respondent agreed to pay Rs. 10 Crore (as ad-hoc payment) by 31 October, 2012 pending final settlement of claims Respondent vide letter dated 21 November, 2012 submitted its reply under affidavit. The submissions stated that Bid and PPA both were based on use of domestic coal only; hence Customs duty on electricity generation using imported coal is not applicable. The changes due to additional taxes on secondary fuel are not to be reimbursed as these were notified in 2008 itself (as per Petitioner). Further Respondent submitted that he is not liable to reimburse extra expenditure on account of additional taxes on fuel/coal at rates other than those considered in the bid/ppa (existing 7 days prior to bid date). Hence submission concluded that Respondent s Liability on account of Excise Duty, Clean Energy Cess and VAT remains limited to Rs Crore. Order Case No.39 of 2012 Page 7 of 22

8 5.7. During hearing held on December 10, 2012 Petitioner referred to the provisions of PPA with regard to Change in Law and pleaded that their economic position should be restored as it existed 7 days prior to bidding. The Respondent stated that they have agreed to compensate effect of Change in Law on the same base as used for bidding. Respondent added that the Petitioner desires to be compensated for the effects of Change in Law on new base, which is not acceptable Petitioner stated that though their bid was based on domestic coal and accordingly FSA with CIL was signed, the CIL, as a matter of Govt. Policy, has decided to give 15% as imported coal. While, being in SEZ area, they will not have to bear customs duty, they will have to bear additional excise duty in electricity generated and sold to domestic users from SEZ.Respondent did not agree to this contention on the ground that Petitioner has quoted for non escalable bid Respondent, in their, counter affidavit dated November 21, 2012 submitted that a) Petitioner has made claims on Statutory Variations based on Auditor s Report for FY While as per Article 10, the Change in Law is defined as occurrence of event after the date which is 7 days prior to bid deadline causing recurring/ non recurring expenditure. The party is to be compensated accordingly so that he reaches same economic position as if Change in Law had not occurred. b) The said provisions ensure that supplier is not put to expenses which he did not contemplate at the time of bidding. Any expenditure, not included in , is not liable to be reimbursed, over and above the agreed tariff as per the PPA. c) Perusal of Format 4.1 and Schedule 8 clearly show that Capacity Charges, Energy Charges and Inland Transport Charges were quoted as non escalable and accepted by Purchaser and incorporated in the PPA. The Bidder had submitted supporting documents that he had domestic fuel linkage from Western Coalfields Limited (WCL) of 2.13 Million tons to meet the Generation requirements. Hence Petitioner s claim of additional cost on account of payment of duty and taxes due to higher cost of Order Case No.39 of 2012 Page 8 of 22

9 imported coal used by him to sustain generation does not survive. The Price risk on fuel is entirely to the account of Supplier. d) Therefore, the claim made by Petitioner in respect of Custom Duty on proportionate generation using imported coal is not acceptable. Import of coal was never stated in any document in entire bid process. e) Petitioner has claimed proportionate VAT on LDO and HFO (secondary Fuels) consumed amounting to Rs.3,23,429/=and Rs.9,95,504 respectively. The RFP clearly stated that The Quoted Escalable Capacity Charges and quoted Non Escalable Capacity Charges for each contract year shall be based on Normative Availability and shall include cost of secondary fuel. Further reference is drawn to schedule 4 of clause of the PPA, where it is stated that no separate reimbursement shall be allowed for the Cost of secondary fuel. Hence the Respondent stated that Petitioner is not entitled for any reimbursement and his claim is rejected. f) He accepts the liability of Petitioner towards claims for Excise Duty, Clean Energy Cess and VAT. By using the parameters provided at the time of bidding, it works out to be Rs Crore. Similarly Respondent has no dispute on the spares consumed Petitioner submitted a rejoinder dated December 4, 2012 and submitted that: a) At the time of bid, although domestic fuel was indicated, the condition of supply of domestic fuel incorporates supply of imported coal. This was evident from relevant clause in LOA and MOU with Coal supplier. The claim is limited to additional customs duty on energy generated and supplied by using imported coal and not the additional cost on account of imported coal. b) That the PPA permits compensation on account of Change in Law, through tariff payment mechanism in Rs./kWh. The Respondent cannot make Lump sum payment based on the unilateral assessment of impact in Change in Law and interpretation of Clause of the PPA. c) Regarding amount payable due to increase in VAT on LDO, Petitioner is entitled to recover the extra expenditure on account of Change in Law Order Case No.39 of 2012 Page 9 of 22

10 even though there no separate head for reimbursement /independent payment. Article 10 has to be interpreted as complete code. d) The Commission has to enquire and ascertain that,after the appointed date, any additional recurring/ non recurring expenditure, by the seller, is due to occurrence /event specified in Article Once it is established that such an event has occurred and is not included in second part of , it will trigger action as specified in Article 10 Change in Law of the PPA. e) Interpretation on account of Change in Law has to be made in a manner that new outgoings recurring or non recurring expenditure, which did not exist on appointed date, will be reimbursed. The delay in reimbursement from the Respondent is inconsistent with the provision of PPA. f) Citing GERC Order in Case No of 2010, the Respondent stated that GERC was pleased to grant the prayers in Change in Law and Ordered reimbursement through supplementary bill after due verification Respondent made a submission on March 28, 2013 and reiterated that: a) As per bid dated September 10, 2009,the Petitioner submitted documents relating to domestic coal from WCL and computed quantity was 2.13 Million Tonnes /Annum b) PPA was executed on June 4, 2010.The relevant clauses of the PPA are as follows: 1.1 Definitions "Tariff Payment" means the payments under Monthly Bills as referred to in Schedule 4and the relevant Supplementary Bills 1.2 Interpretation Agreement" shall be construed as including a reference to its Schedules, Appendices and Annexures; 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 recurring/ non recurring expenditure by seller or any income to seller. Order Case No.39 of 2012 Page 10 of 22

11 a. 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 b. a change in interpretation or application of any Law by any Indian Governmental Instrumentality having legal power to interpret or apply such law, or any Competent Court of Law. c. the imposition of a requirement for obtaining any Consents, Clearances and Permits which was not required earlier; d. a change in 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 seller; e. Any change in tax or introduction of any tax made applicable for supply of power by the seller as per terms of his 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, 10.2 Application and Principles for computing impact of Change in Law While determining the consequence of Change in Law under this Article 9, 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 9, the affected Party to the same economic position as if such Change in Law has not occurred During Operation Period The compensation for any decrease in revenues/ increase in expenses to the Seller shall be payable only if decrease in revenues/ increase in expenses of the Seller is in excess of an amount equivalent to 1% of the value of Letter of Credit in aggregate for 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 impact of such Change in Law The decision of Appropriate Commission, with regard 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 to appeal provided under applicable Law Notification of Change in Law Order Case No.39 of 2012 Page 11 of 22

12 If the Seller is affected by a Change in Law in accordance with Article 10 and 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 Procurers 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 Procurers contained herein shall be material. Provided that in case the Seller has not provided such notice, the Procurers 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 10.5 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) the date of adoption, promulgation, amendment, reenactment 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. SCHEDULE 4: TARIFF 4.1 General (i) ii) The Tariff shall be paid in two parts comprising of Capacity and Energy Charge as mentioned in Schedule 8 of this Agreement iii) For the purpose of payments, the Tariff will be Quoted Tariff, as provided in Schedule 8, duly escalated as provided in Schedule 6, for the applicable Contract Year. 4.9 Settlement of Bills Notwithstanding anything contained in this agreement, no separate reimbursement shall be allowed for the cost of the secondary fuel. Order Case No.39 of 2012 Page 12 of 22

13 SCHEDULE 5 : Details of Generation Source and Supply of Power (A).. (B) Details of primary fuel ( to be reproduced exactly as in Format 4.13 of the Selected Bid of the Seller) S.No Particulars 1 Primary Fuel[Insert as applicable: Domestic Coal/Imported Coal/Domestic(Pipeline ) Gas/ Imported gas/rlng] 2 Fuel Source(Insert as applicable: Coal India Limited (CIL) coal linkage/domestic captive coal mine/imported coal/domestic(pipeline) gas/imported gas(r-lng) 3 Fuel grade (Applicable only in case of coal) 4 Name of the CIL subsidiary from which coal is proposed to be sourced or name and location of the captive coal mine (as applicable) 5 Distance from Source of Domestic Coal to the Power Station (to be used for escalation of the Quoted Escalable Inland Transportation Charges for evaluation and payment purposes) Details(to be furnished by the Bidder) Domestic Coal Coal India Limited (CIL) coal linkage Grade E Western Limited Coalfields Approximately 200 kms. Schedule 8 gave the Quoted Tariff which specifically stated that the same was from Format 4.10 of RFP of the Selected Bid Respondent submitted that as per Article and 10.2, the Petitioner is entitled to any additional recurring / non recurring expenses, for supply of Electricity,imposed due to introduction of taxes/ duties by Government, not applicable at the time of bidding, to bring him to same economic situation existing 7 days prior to bidding date. Hence for expenses which are not forming part of , Respondent is not liable to reimburse Respondent submitted that Schedule 8 of PPA, extracted from Format 4.10 of RFP clearly shows that Petitioner quoted non escalable Capacity Charges, Energy Charges, and Inland Transportation Charges, which is basis of quoted tariff.therfore, Petitioner s claim for additional cost of taxes/ duties paid in Order Case No.39 of 2012 Page 13 of 22

14 procurement of fuel/coal at the rate other than considered in the bid is not tenable Respondent drew the attention of the Commission to the Order dated 21 May 2011 in case #11 of 2011, (on the matter of termination of PPA) wherein Petitioner contended that risk of fuel is completely borne by him. In the appeal #115 of 2011, filed by the Respondent against above MERC Order, APTEL in its Order held that...as a matter of fact, the PPA does not provide for any mandate for FSA need to be signed only with Western Coal Fields. This is clear that the FSA can be executed with any person who is willing to supply the Fuel Supply to Wardha Power Respondent submitted that it takes the liability of claim of Petitioner on account of Excise Duty, Clean Energy Cess on Domestic Coal requirement for supply made and VAT on Spares consumed and accordingly made payments up to Sept All the technical parameters submitted by Petitioner (Station Heat Rate, Gross Calorific Value and Quoted Non Escalable Energy Charges) at the Bid stage have been used to arrive at the liability of the Respondent Respondent further submitted that as per Articles and of the PPA, additional expenditure so computed, on account of Change in Law, shall be allowed through monthly bills. Respondent stated that the relief to Petitioner appears at Article to 10.5 relating to entitlement during operation period. The details of claim have to be provided to the Commission along with documentary evidence. The Commission shall examine such claim and shall give a ruling accordingly, subject to appeal as per provisions of EA, 2003.The claim once accepted by the Commission shall be reimbursed through supplementary bills The claim of Petitioner in respect of Custom duty on proportionate generation using imported coal is not acceptable to Respondent as is evident from Schedule 5 of the PPA, where fuel source has been stated as Domestic Coal. Petitioner refers to WCL s LOA about imported coal. Clause 1.1 of the LOA shows that if the incremental coal supply is available at WCL, after meeting its commitments and same is less incremental coal demand, Order Case No.39 of 2012 Page 14 of 22

15 same shall be distributed on pro rata basis and balance requirement shall be met through imports, which also shall be distributed on pro rata basis. This provision is situation specific, where balance requirement of coal is met by imports by WCL.Thus the Petitioner does not have right to import coal of its own and claim duty difference on enhanced cost from Respondent.Refence to new National Coal Distribution Policy in present case is not relevant as the matter pertains to GoM/Ministry of coal circular dated 18 October, Respondent has contested the claim of Petitioner about proportionate VAT on LDO and HFO consumed on account of Change in Law in respect of Secondary Fuel.RFP stated that : The Quoted Escalable capacity Charges and Quoted Non-Escalable Capacity Charges for each contract year shall be based on Normative availability and shall include the cost of secondary fuel. Article of the PPA provided that no separate reimbursement shall be allowed for the Cost of Secondary Fuel Petitioner vide his submission dated 11 July, 2013, responded to issues raised during the hearing held on 03 May, He submitted that: a) The petitioner is importing high GCV coal and blending the same with domestic Coal to get better efficiencies of the Power plant, and to optimise generation in the interest of consumers of Maharashtra. b) The Petitioner imports coal on CIF (Cost including Freight and Insurance at Port of destination) basis. Since the WPCL plant is set up under a Special Economic Zone (SEZ), it imports Coal without payment of Customs and Countervailing Duty. c) The Petitioner pays following Taxes and Duties on Domestic Coal: 1) Royalty 14% 2) Stowing Excise Duty@ Rs10/ MT 3) MPGATSAV@5% of the basic price /MT 4) Central Excise 5) Clean Energy 50/MT d) Petitioner signed MOU with WCL on 21 July, 2011 and FSA on 03 April, FSA has a condition precedent that Petitioner should have executed a PPA with a distribution licensee for sale of power not less than 50% of the installed Capacity of Power Plant. FSA does not Order Case No.39 of 2012 Page 15 of 22

16 restrict the Petitioner to use coal procured through the linkage, only for the purpose of generation meant for supply to the Respondent. Thus he is liable to pay any cost on account of additional statutory levies due to Change in Law. e) In compliance to Article of the PPA, which defines Change in Law means, among other things, 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. The WCL had a MOU with Petitioner for supply 2.26 MTPA of coal, whereas it signed FSA only for MTPA, thereby forcing the Petitioner to import Coal. The Ratio of domestic and imported coal used by Petitioner is 72: FACTS OF THE CASE: 6.1. The Petitioner, Wardha Power Company Limited, has a total installed capacity of 540 MW (4 X 135 MW) and has declared a net available capacity of 480 MW after allowing for auxiliary consumption. The Petitioner and Respondent have entered into a Medium Term Power Purchase Agreement (PPA) on 4 June, 2010, for supply of a total of 260 MW of power for 3 years, out of the declared net capacity of 480 MW. Respondent is scheduling power from Units I & II of the Petitioner s plant located at Warora, District Chandrapur, Maharashtra, from 20 April, 2011 onwards. Out of the net declared capacity of 480 MW, the Petitioner has arrangement for supplying Captive Power to the extent of 225 MW within Maharashtra from units III & IV and has been granted Intra State Open Access in January 2012 for the purpose 6.2. Commission notes that subsequent to signing of PPA following notifications were issued which amounted to change in Law. : a) Central Govt vide Notification # 1/2011 introduced Excise plus Education Cess of 2% on Excise Duty and Secondary & Higher Education Cess of 1% on Excise Duty (vide Finance Bill 2011 for Coal, Lignite, Peat, Coke, Tar etc falling under Chapter 27 wef March 1, b) Central Government vide Notification # 1/2010 introduced Clean Energy Cess of Rs 50 per MT of Coal w.e.f March 1, c) Government of Maharashtra amended the Maharashtra Value Added Tax Regulation, 2002 by issuing a notification # Part IV-B # 53 dated April Order Case No.39 of 2012 Page 16 of 22

17 27, 2011, changing the Value Added Tax (VAT) from 4% to 5% on procurement of Coal/Consumption of spares. d) The Central Govt. vide Notification # 91/2010 levied Customs basic rate at 4 paise per kwh plus Education on Customs Duty and Secondary and Higher Education on Customs Duty. Wef September 6, 2010.( This is levied on Removal of Electrical Energy from Power Plants located in Special Economic Zones and supplying Power to Domestic Tariff Area /or non processing area of SEZ.) e) The Petitioner also referred to their claim in account of Excise Duty introduced by the Central Govt vide notification # 2/2008 relating to excise duty on LDO and HFO w.e.f The Petitioner, subsequently, came to know that the said cost has already been factored in the Tariff and as such, stated that it should not be included under change of law Petitioner contends that on the basis of above notification, the Petitioner has suffered large financial impact. As required in Article 10.4, it gave a notice to Respondent on November 9, 2011, detailing the notifications and submitted factual matrix of calculations on account of Change in Law, needed to be reimbursed by Respondent up to billing ending September 30, The total impact on the Petitioner up to March 31, 2012, is Rs 27, 63, 26,212/ Impact Table on Account of Change in Law (ref letter: dated September 30, 2011) Order Case No.39 of 2012 Page 17 of 22

18 Government Notifications a) Central Govt vide Notification # 1/2011 introduced Excise plus Education Cess of 2% on Excise Duty and Secondary & Higher Education Cess of 1% on Excise Duty (vide Finance Bill 2011 for Coal, Lignite, Peat, Coke, Tar etc falling under Chapter 27 wef March 1, b) Central Govt vide Notification # 1/2010 introduced Clean Energy Cess of Rs 50 per MT of Coal wef March 1, c) State Govt (of Maharashtra) amended the Maharashtra Value added Tax Regulation,2002 by issuing a notification # Part IV-B # 53 dated April 27,2011, changing the Value Added Tax (VAT) from 4% to 5% on procurement of Coal/ Consumption of spares. d) The Central Govt vide Notification # 91/2010 levied Customs basic rate at 4 paise per kwh plus Education on Customs Duty and Secondary and Higher Education on Customs Duty. Wef September 6, Impact on Petitioner Excise Duty on Coal amounting to Rs 125 per ton on the settled energy which works out to Rs.97,201,431/= Clean Energy Cess@Rs50/= per ton on the settled energy, which works out to Rs.39,030,524/= Increase in Value Added Tax on the procurement of Coal, Light Diesel Oil, Heavy Furnace Oil, and Spares valuing Rs22,240,887/= Levy of Customs per kwh ( including Education Cess and Secondary Higher Education Cess), on the settled energy, which works out to Rs38,808,083/= Order Case No.39 of 2012 Page 18 of 22

19 6.5. The Commission notes that Bid and PPA both were based on use of domestic coal only, hence Customs duty on electricity generation using imported coal from SEZ is not applicable. The changes due to additional taxes on secondary fuel are not to be reimbursed as these were notified in 2008 itself (as per Petitioner). The Respondent agrees to compensate effect of Change in Law on the same base as used for bidding to maintain Petitioner s economic position as it existed 7 days prior to bidding Petitioner has made claims on Statutory Variations based on Auditor s Report for FY These are effective from date of notification by the GoI. The party is to be compensated accordingly so that he reaches same economic position as if Change in Law had not occurred Perusal of Format 4.1 and Schedule 8 clearly show that Capacity Charges, Energy Charges and Inland Transport Charges were quoted as non escalable and accepted by Purchaser and incorporated in the PPA.The Bidder had submitted supporting documents that he had domestic fuel linkage from Western Coalfields Limited (WCL) of 2.13 Million tons to meet the Generation requirements. The Price risk on fuel is entirely to the account of Supplier Petitioner has claimed proportionate VAT on LDO and HFO (secondary Fuels) consumed amounting to Rs. 3,23,429/- and Rs.9,95,504/- respectively. while excise duty claim on secondary fuel is withdrawn, the VAT imposition remains. Regarding amount payable due to increase in VAT on LDO, Petitioner is entitled to recover the extra expenditure on account of Change in Law Respondent agrees with the liability on account of Excise Duty, Clean Energy Cess on Domestic Coal requirement for supply made and VAT on Spares consumed, and accordingly made payments up to Sept All the technical parameters submitted by Petitioner (Station Heat Rate, Gross Calorific Value and Quoted Non Escalable Energy Charges) at the Bid stage have been used to arrive at the liability of the Respondent Schedule 5 of the PPA shows fuel source as Domestic Coal. Petitioner refers to WCL LOA about imported coal.this provision is situation specific, Order Case No.39 of 2012 Page 19 of 22

20 where balance requirement of coal is met by imports by WCL and does not apply in present case as the Coal in not imported by WCL.Further Reference to new National Coal Distribution Policy, in present case is not relevant as the matter pertains to GoM/Min of coal circular dated 18 October Petitioner signed MOU with WCL on 21 July 2011 and FSA on 03 April FSA has a condition precedent that Petitioner should have executed a PPA with a distribution licensee for sale of power not less than 50% of the installed Capacity of Power Plant.FSA does not restrict the Petitioner to use coal procured through the linkage, only for the purpose of generation meant for supply to the Respondent The petitioner is importing high GCV coal and blending the same with domestic Coal to get better efficiencies of the Power plant, and to optimise generation in the interest of consumers of Maharashtra. 7. ANALYSIS & DIRECTIONS 7.1. Commission notes that subsequent to signing of PPA following notifications were issued. a) Central Govt. vide Notification # 1/2011 introduced Excise 5% plus Education Cess of 2% on Excise Duty and Secondary & Higher Education Cess of 1% on Excise Duty (vide Finance Bill 2011 for Coal, Lignite, Peat, Coke, Tar etc falling under Chapter 27 w.e.f March 1, b) Central Govt. vide Notification # 1/2010 introduced Clean Energy Cess of Rs 50 per MT of Coal w.e.f March 1, c) State Govt (of Maharashtra) amended the Maharashtra Value Added Tax Regulation, 2002 by issuing a notification # Part IV-B # 53 dated April 27, 2011, changing the Value Added Tax (VAT) from 4% to 5% on procurement of Coal/ Consumption of spares. d) The Central Govt. vide Notification # 91/2010 levied Customs basic rate at 4 paise per kwh plus Education on Customs Duty and Secondary and Higher Education on Customs Duty. W.e.f September 6, 2010.( This is levied on Removal of Electrical Energy from Power Plants located in Special Economic Zones and supplying Power to Domestic Tariff Area /or non processing area of SEZ.) Order Case No.39 of 2012 Page 20 of 22

21 The clause relating to Change in Law appears in Article which has been extracted in the foregoing portions of this order. Nobody has disputed that the Central Government s notification on excise duty, education cess on excise duty and secondary and higher education cess on excise duty, clean energy cess, amendment to the Maharashtra Vat Regulation, Central Government notification on Customs Duty, are not within the meaning of Change in Law. The Commission is of the view that all these notifications which have been issued by Central Government and the State Government are within the meaning and scope of Law including Rules and Regulations pursuant to such law as also these notifications either change the tax or introduces a new tax, to be borne by the seller. As such, these notifications are within the scope of Article 10.1 of the Power Purchase Agreement Article of the PPA provides that compensation for any decrease in revenue/increase in expenses to the Seller shall be payable only if decrease in revenue/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 relevant Contract Year. The Commission has examined the documents and accordingly comes to the finding that 1% of Letter of Credit in aggregate for the Contract Year ( July 2011 onwards) is Rs Crore and the increase in expenses of the Seller is to the tune of an amount of Rs Crore (up to March 2012, as per the Petition). The Commission notes that the RFP dated 30 July 2009, issued by Respondent was accepted by Petitioner and subsequently the PPA was signed on 4 June, The Commission further noted that the Central government Notifications and Amendment to Maharashtra VAT Regulations, etc, are all issued between September 2010 to 2011, which are much beyond the bid deadline and the date of PPA.Therefore,the Commission is of the view that Change in Law has occurred subsequent to Bid Deadline date and as per provisions of the Bid Documents, the economic position of the bidder should be restored as of 7 days prior to bidding date The compensation shall be calculated with the same base as used for the bid and will be effective from the date of Government Circular/Ordinance. The claim shall be made on prorate basis based on total energy supplied during the billing period to Respondent The Order Case No.39 of 2012 Page 21 of 22

22 calculations shall be cross verified by both parties and payment shall be claimed through supplementary bills complete with back up documentary evidence. Respondent shall settle the bills promptly post verification. The entire process from bill submission to settlement shall be completed in 60 days The bid was based on domestic coal and PPA was accordingly signed. The responsibility of fuel was entirely with the bidder. The Bidder was to arrange fuel and meet the supply obligations. Here the Bidder chose to import the expensive high GCV Coal to increase efficiency of the plant at his own volition. Therefore, Commission does not find any merit in his demand for reimbursement of cost of extra duties, borne by it on a separate base rate (of imported coal) and hence its claim on this account is rejected On the issue of extra VAT on secondary fuel, the Commission notes that VAT rate has undergone revision from 4% to 5%. The Commission also observes that this 1% increase is acceptable to Respondent in case of spares but not in case of secondary fuel.accordingly, this inconsistency shall be corrected and the contention of Petitioner is accepted. Respondent shall reimburse additional VAT incurred by Petitioner in secondary fuel subject to, however, verification of documents The Petition is accordingly disposed off. Sd/- (Vijay L. Sonavane) Member Sd/- (V P Raja) Chairman Order Case No.39 of 2012 Page 22 of 22