JSA successfully represented Essar Power Transmission Company Limited in overturning CERC’s disallowances on capital costs and delays for its Gandhar – Hazira inter-State Transmission Line

On 11.12.2024, the Appellate Tribunal for Electricity (“APTEL”) delivered its judgment in Essar Power Transmission Company Ltd. v Central Electricity Regulatory Commission & Ors. (Appeal No 397 of 2018) (“Judgment”), permitting capitalization of costs incurred by Essar Power Transmission Co. Ltd. (“EPTCL” / “Appellant”) due to delays caused by factors beyond its control. This judgment reinforces the principle that infrastructure developers should not be penalized for delays caused in obtaining statutory clearances and events beyond their control.

Issues before APTEL

The following issues were before APTEL for consideration:

• Whether there was a (i) delay in grant of approval under Section 164 of the Electricity Act (“Act”); (ii) delay in grant of Forest Clearance; and (iii) delay on account of Right of Way (“RoW”) issues?
• Whether compensation paid on account of RoW issues should be allowed?
• Whether consequent allowance of Interest During Construction and Incidental Expenses During Construction should be allowed?

Findings of APTEL: 

 Re.  Delay in grant of approval under Section 164 of the Act: 

• Any Inter-State Transmission System line can be commissioned only after approval from beneficiaries, which is generally given during Regional Power Committee meetings.
• Approval under Section 164 of the Act is mandatory and any delay in obtaining the same is considered a force majeure event.
• Even though no timelines are prescribed for exercise of power under Section 164 of the Act, a reasonable period (two months) would invariably be taken in considering the application submitted by the Appellant, and in conferring on the Appellant the powers under Section 164 of the Act.
• Apart from the time taken between 14.07.2008 and 23.09.2008 for publication of the Scheme, an additional period of two months, from the date of submission of application till the conferment of power under Section 164 shall be taken as the reasonable period for conferment of such powers.
• Delay in granting approval under Section 164 of the Act beyond two months, shall be treated as the period of delay which cannot be attributed to the Appellant

Re.      Delay in grant of Forest Clearance: 

• An EPC contract is based on the final route approved for laying the transmission line and cannot be awarded before the Forest Clearance is granted and the final route is approved.
• The elements of the instant Scheme were identified only on 27.08.2007 i.e., 8 months after the Investment Approval Date, therefore, CERC’s finding that the Appellant should have applied for forest clearance within 6 months of Investment Approval is erroneous. Route alignment is required to be finalized before carrying out pre-commissioning activities.
• Applications for the grant of Forest Clearance can only begin once the transmission route has been identified and tentatively finalized.
• No significant work can be started by a private entity, such as the Appellant, before obtaining a Transmission Licence and any consideration of timeline can only begin after the grant of a transmission licence by the Commission.
• Assuming the Investment Approval date as the start date is erroneous.
• The Ministry of Environment, Forest and Climate Change (MoEF&CC) prescribes a time period of ten months for a grant of a Forest Clearance. However, the Appellant received its Forest Clearance only on 06.02.2013 i.e., after 47 months from making the application. This delay is completely beyond EPTCL’s reasonable control and therefore the delay in respect of the time period from March 2009 to February 2013 is condoned.

Re.    Compensation to be paid to landowners for Right of Way: 

• Once the route is finalized and approved by the Ministry of Power (“MoP”), there cannot be an artificial reduction of RoW cost on the ground that it should have been planned to avoid industrial/ urban areas (as done by the CERC in the present case). The purpose of discussions and finalization of route in consultation with the Central Electricity Authority, is to ensure least impact on the environment.
• The compensation payable by a licensee is specifically provided for in the RoW Guidelines dated 15.10.2015 and Maharashtra State Electricity Transmission Company Ltd.’s inputs for compensation payable are merely suggestions given to the MoP while framing the RoW Compensation Guidelines.
• The reasonableness of RoW costs cannot be judged against the norms specified by MoP, as the period under dispute is before the said notification of MoP.
• EPTCL’s Gandhar – Hazira transmission line being part of the inter-State Transmission System passes through the State of Gujarat and not Maharashtra. CERC’s decision in applying the rates/ methodology as suggested by MSETCL to MoP is flawed.
• CERC failed to consider the numerous court cases filed against EPTCL seeking enhancement of compensation. The fact that such cases were filed demonstrates that the payments made were not only prudent but also reasonable.
• The deduction of Rs. 30.8 Crores by CERC is unjustified and lacks reasoning. Payments made by EPTCL within the ‘Jantri Rates’ or as per orders of the State Authorities must be restituted.

Re.      Consequential disallowance of IDC and IEDC

• The IDC/IEDC has to be determined on the basis of time overrun and the increased compensation paid to the farm owners. CERC is directed to re-determine the IDC/IEDC subject to time overrun allowed and the actual compensation paid.

Conclusion

APTEL’s Judgment reinforces the principle that project developers should not be penalized for circumstances beyond their reasonable and foreseeable control, setting a benchmark for future cases. APTEL also recognized that increased compensation paid out due to Right of Way issues is beyond control of the licensee and hence the licensee ought to be restituted.

Our Disputes Team Comprised Lead Partner & Joint Managing Partner – Amit Kapur, Principal Associate – Malcolm Desai, Senior Associate – Samikrith Rao.