Appellate Tribunal for Electricity sets aside Punjab ERC’s Orders and allows TSPL to recover the incremental cost incurred in procurement of alternate/imported coal for supplying power to PSPCL along with Deemed Capacity Charges.
JSA successfully represented Talwandi Sabo Power Ltd (TSPL) before the Appellate Tribunal for Electricity (APTEL) challenging Punjab State Electricity Regulatory Commission’s (PSERC) Orders denying the incremental cost incurred by TSPL in procurement of alternate/imported coal on behalf of Punjab State Power Corporation Limited (PSPCL) during September 2016 to July 2018 for supplying power to PSPCL and Deemed Capacity Charges for the said period.
TSPL was represented by JSA Team comprising Joint Managing Partner – Amit Kapur; Partner – Akshat Jain and Senior Associate – Pratyush Singh.
In a judgment passed by APTEL on 19.07.2021 in Talwandi Sabo Power Ltd. v. Punjab State Electricity Regulatory Commission & Anr, APTEL has allowed the incremental cost incurred by TSPL in procuring alternate/imported coal for supplying power to PSPCL and Deemed Capacity Charges along with Late Payment Surcharge (LPS) while setting aside PSERC’s Orders. APTEL held that signing of Fuel Supply Agreement (FSA) and arrangement of coal for the Project and payment of coal charges is the obligation of PSPCL. TSPL was constrained to procure alternate coal on behalf of PSPCL due to PSPCL’s failure to arrange the assured quantity and quality of coal for operating the Project. Hence, such cost incurred by TSPL are prudent and have been allowed alongwith LPS.
- In terms of the bidding documents and Power Purchase Agreement (PPA) dated 01.09.2008 executed between PSPCL and TSPL and as upheld by APTEL Judgment dated 07.04.2016, it is the obligation of PSPCL to supply adequate quality and quantity of coal for generation of power from TSPL’s 1980 MW Thermal Power Plant (TPP). However, PSPCL has not fulfilled its obligation till date. In terms of the directions issued by APTEL in Order dated 18.04.2013 and without prejudice to its rights and contentions, TSPL on 04.09.2013 entered into FSA with Mahanadi Coalfields Limited (MCL) for supply of Annual Contracted Quantity (ACQ) of 7.72 MTPA coal, which is not sufficient to operate the Power Plant at 100% capacity.
- PSPCL had directed TSPL to make suitable arrangement of coal, well in advance to ensure Plant availability at 100%. Since, the coal assured and supplied under the FSA was not adequate in terms of quantity and quality, TSPL was constrained to procure coal from alternate sources through competitive bidding to cater to the demands of PSPCL and to meet its obligations under the PPA. However, PSPCL after availing power supplied by TSPL using such alternate/imported coal denied payment of the incremental cost incurred by TSPL in procuring such alternate coal.
- TSPL filed Petition No. 43 of 2017 and Petition No. 03 of 2018 before PSERC claiming the incremental cost incurred by TSPL in procurement of such alternate/imported coal (on behalf of PSPCL) during the period September 2016 to July 2018 for supplying power to PSPCL.
- PSERC by Orders dated 11.04.2019 and 30.08.2019 disallowed the incremental cost incurred by TSPL in procurement of such alternate/imported coal for supplying power to PSPCL during the period September 2016 to July 2018 and inter-alia held that TSPL has not been requisitioning/procuring full quantum of coal from MCL as per the ACQ under the FSA, which has led to shortfall in availability of domestic coal thereby necessitating the usage of imported coal. Aggrieved by PSERC’s Order, TSPL filed Appeal Nos. 220 & 317 of 2019 before APTEL.
APTEL’s judgment dated 19.07.2021
APTEL by its Judgment passed on 19.07.2021 has allowed the Appeals filed by TSPL and set-aside PSERC’s Orders dated 11.04.2019 and 30.08.2019 and, inter alia, held that:-
- Risk of the Procurer under Case 2 bidding is higher owing to the enlarged responsibility for providing/arranging land, fuel, and facilitation of initial clearances for the development of the Project. This mechanism envisages unilateral obligation on the procurer to provide for fuel linkage at a pre-identified site/location to the bidder prior to the publication of the RFQ.
- Provisions of the Competitive Bidding Guidelines (CBG) shall be binding on the parties. Under Case 2 bidding, even after assignment of FSA to the generating company, any penalty for not procuring the minimum guaranteed fuel shall be borne by the procurer, if the availability of the generating plant has been more than the minimum off take guaranteed by the procurer.
- In terms of APTEL Judgment dated 07.04.2016 passed in Appeal Nos. 56 & 84 of 2013, PSPCL is under an obligation to sign the FSA with fuel supplier, namely Mahanadi Coalfields Limited and arrange for adequate quality and quantity of coal for TSPL’s Project. PSPCL cannot be absolved of its obligation to supply fuel to TSPL for generating the power to be supplied to PSPCL.
- In terms of the FSA, MCL supplies only 6.43 lakh MT coal per month to TSPL (77.2 lakh MT coal per annum) whereas TSPL requires approximately 11 lakh MT coal of GCV 2957 kCal/kg every month to run the plant at full capacity which comes to 121.70 lakh MT coal annually. Hence, the coal supplied to TSPL under the FSA was inadequate to operate the plant at 100% capacity.
- Usage of lesser GCV coal with high ash percentage increases the quantum of coal required for the same amount of generation.
- Fire in Coal Handling System (CHS) of the power plant is an event of Force Majeure, which prevented TSPL from requisitioning linkage coal from MCL during 17.04.2017 to 10.06.2017. TSPL acted prudently to mitigate the loss on account of the fire incident and hence TSPL shall not be penalised on this account.
- During the period September 2016 to September 2018, TSPL had requisitioned 141.02 lakh ton of coal against the ACQ of 166.66 lakh ton. The short requisitioning of 21.79 lakh ton coal by TSPL is on account of reasons beyond its control such as fire accident, non-approval by PSPCL for procurement of RCR mode coal and adjustment of coal provided for commissioning of 3rd unit of the power plant. Even if TSPL would have requisitioned 21.79 lakh ton of coal it would still have to procure alternate/imported coal to meet the demand of PSPCL.
- Coal requirement of a Thermal Power Plant (TPP) has to be worked out well in advance to make the plant fully available at 100% or normative 85% capacity and not based on the Schedule issued by the Procurer, which is on day ahead basis. Naturally, the endeavour of the generating company is to declare maximum Availability. Hence, if there is inherent shortfall in supply of linkage coal, the generating company is entitled to arrange alternate/imported coal well in advance so as to declare maximum Availability.
- TSPL is entitled to recover the entire cost incurred by it procuring alternate/imported coal for supplying power to PSPCL, since:-
- The power generated by TSPL using such alternate/imported coal has been consumed by PSPCL.
- PSPCL has given an undertaking before the Hon’ble Supreme Court that it will pay energy charges to TSPL, which includes fuel charges.
- Principles of economic justice and business efficacy requires that the expenditure incurred by the generating company towards running the project including expenditure incurred in obtaining coal from open market has to be taken into consideration and must be paid.
- TSPL’s obligation to operate the Power Plant at its full capacity is interdependent and linked to PSPCL’s obligation to supply adequate quantity and quality of coal. Fulfilment of obligation depends upon the mutual compliance of reciprocal commitments. Therefore, failure of PSPCL to discharge its obligation adversely affects TSPL i.e., TSPL was forced to declare lower operational Availability of its Power Plant even though it was technically Available to generate at much higher capacity. Hence, TSPL is entitled to deemed capacity charges for such period.
- It is PSPCL’s obligation to sign the FSA. However, till date FSA has not been signed by PSPCL. If there is any dispute between PSPCL and coal supplier with respect to signing of FSA, TSPL cannot be held responsible for the consequences arising out of such non-execution of FSA.
- Bidding documents and the PPA expressly state that it is PSPCL’s obligation to sign the FSA and arrange adequate quantity and quality of coal for TSPL’s Project. Therefore, anything contrary cannot be implied under the schedule of PPA. When express inclusions are specified, anything not mentioned expressly is excluded.
- The judgment settles the risk and obligations of the Procurer under PPAs executed pursuant to Case 2 Scenario 4 of the CBG. APTEL has settled the position that a generating company cannot be penalised (on any account) for breach of its obligations under the PPA or FSA when fulfilment of such obligations depends upon mutual compliance of reciprocal commitments by the Procurer. APTEL has also deliberated upon the methodology with respect to computation of coal requirement of a Thermal Power Plant.
- The judgment passed by APTEL is significant for the entire power sector since this is the first instance wherein APTEL has allowed a generating company established under Case 2 Scenario 4 of the CBG to recover:-
- The entire cost incurred in procurement/usage of alternate/imported coal due to shortfall in supply of linkage coal under the FSA dehors the Change in Law provision under the PPA and based on principles of economic justice, business efficacy and Section 70 of the Contract Act.
- Deemed Capacity Charges from the Procurer for the period when such generating company is forced to declare lower operational Availability of its Power Plant even though it is technically Available to generate at much higher capacity.
- The judgment will be of significant impact for Thermal Power Plants with PPAs executed under Case 2 Scenario 4 of the CBG facing adverse impact due to shortfall in supply of linkage coal under the FSA. As a result of the Judgment, TPPs facing similar issues will be able to recover actual input cost of supplying electricity and will also be safeguarded against levy of contractual penalty by the Procurers for average Availability of the Power Plant falling below the specified percentage in a contract year.