The COVID-19 pandemic brought unforeseen issues that have affected every stage of the supply chain globally. The energy projects, and infrastructure industries were also no strangers to the same. Projects were halted for months, and all the stakeholders faced issues that had never been encountered before at such a large scale. This blog explores one such situation encountered in Uttar Pradesh, India. The Project revolves around the Force Majeure event brought about by the COVID-19 pandemic and the issues it created in a floating solar power project that was about to be commissioned in the Rihand Dam. This Project would have been the biggest in the Country. However, due to legal complications arising out of the COVID-19 crisis, the Project was discontinued. This blog analyzes the Uttar Pradesh Electricity Regulatory Commission (“UPERC”) order regarding the Force Majeure events, with a particular focus on the delay in adopting tariffs that arose between the Project’s various stakeholders.
In a recent order passed by the Uttar Pradesh Electricity Regulatory Commission (“UPERC”) in the matter ofReNew Solar Power and Ors. v. SECI and anr., the UPERC was faced with a peculiar situation about setting up a ‘Grid Connected Floating Solar Power Projects’ on the Rihand Dam situated in Sonbhadra District of Uttar Pradesh. Touted to be India’s biggest Project of such nature, the COVID-19 crisis caused significant hiccups in the project’s completion path. ReNew Solar Power Private Limited, Auxo Sunlight Private Limited, and ReNew Sun Power Limited are the Petitioners, whereas Solar Energy Corporation of India (“SECI”) and Uttar Pradesh Power Corporation Limited (“UPPCL”) are the Respondents.
The Competitive Bidding process was carried out by SECI, which acted as the intermediary agency.A Personal Service Agreement (“PSA”) was executed between SECI and UPPCL on 04.09.2019 to purchase the complete cumulative capacity, which was a total of 150 MW of solar power. SECI and ReNew Solar’s SPVs signed on 20.12.2019. On 28.01.2020, UPPCL filed a petition before UPERC regarding approval for power procurement under the PSA. However, the same was withdrawn with the liberty to file an amended/fresh petition.
However, due to various situations that developed both globally and nationally, various ministries, including the Ministry of New and Renewable Energy (“MNRE”), agencies involved in the implementation of renewable energy were instructed to treat the delays caused in supply chains as a result of COVID-19 as Force Majeure events. Subsequently, a nationwide lockdown was also imposed.
Starting in March 2020,ReNew Solar Power Ltd issued various Force Majeure notices to SECI requesting extensions of timelines regarding Financial Closure and the Scheduled Commercial Operation Date (“SCOD”). Furthermore, various other Office Memorandums (“OMs”) were also issued by the MNRE as late as 13.08.2020, which acknowledged the continual effects of Force Majeure and granted a further blanket extension of five months from 25.03.2020 to 24.08.2020.
SECI extendedSCOD from 03.09.2021 to 03.02.2022 and the Financial Closure from 04.12.2020 to 06.05.2021. On 08.10.2020, SECI and UPPCL filed for approval of power procurement under the PSA from the Central Electricity Regulatory Commission (“CERC”). However, there was no mention of the adoption of tariffs. Four months later, a petition was filed by SECI before the CERC seeking the adoption of a tariff. However, in its order passed on 15.04.2021, CERC ruled that the appropriate commission for the adoption of tariff and approval of PSA would be the UPERC as the Project involved intra-state generation/supply of electricity.
ReNew Solar sent further requests for an extension of timelines for SCOD, and Financial Closure as Project Lenders had communicated their inability to provide funds for the Project owing to the delay in power procurement approval and tariff adoption. These two conditions were ‘Condition Precedent’ that were mandatory to be fulfilled to obtain Financial Closure.
On 20.04.2021, UPERC heard the issue of the adoption of tariff and approval of PSA, and the matter was reserved for orders.
Thereafter, a letter was issued by ReNew Solar to SECI, which stated that all obligations of the Parties under the Power Purchase Agreements (“PPAs”) shall be suspended until the Force Majeure event discontinues and the above-mentioned timelines stood extended. Moreover, the effects of the second wave of COVID-19 were also apprised by the Petitioners to SECI. The Petitioners clearly explained how Tariff adoption and PSA approval were pending, resulting in the inability of Lenders to grant the loans. It also explained how tariff adoption and PSA approval were not in the developers’ control and how the delay affected their ability to fulfil their obligations under the PPAs. The Petitioners also apprised SECI of the new developments regarding lockdown/restrictions that were being imposed by various States across the nation. However, SECI completely disregarded the problematic situation as explained above and required the Petitioners to submit an Undertaking foregoing certain contractual rights under the PPA regarding availing extension of time.
While all the above developments happened, UPERC adopted the tariff as well as granted approval to the procurement process via an order dated 30.07.2021.
On 27.08.2021, the Petitioners communicated to SECI stating that they have been continuously apprising SECI about their inability to fulfil its obligations under PPA as a result of various Force Majeure events such as the second wave of COVID-19, delay in Tariff adoption, PSA approval, delay in execution of various lease agreements, delay in forest clearances for transmission lines, delay in Project Financing Agreements, delay in Purchase Orders, etc. The Petitioners stated that owing to the above reasons, the timelines would require to be extended by around 12 to 21 months, and a commensurate extension of the expiry date of the PPA was also requested. SECI responded (the first response by SECI to all communications made to date by the Petitioners), rejected all contentions, and requested submission of the Undertakings as mentioned above.
SECI also stated that since the Petitioners could not achieve the required conditions and Financial Closure, they were required to submit all the relevant documents as per the PPA within seven days. The communication also stated that non-compliance with the same would attract encashment of the Performance Bank Guarantees (“PBGs”).
Even after the continuous and bona fide attempts by ReNew Solar to try and make the project work despite the difficulties faced by it due to the delayed actions of the Respondents, the project was delayed to a point where it was becoming difficult for the Petitioners to carry out the project. Commercially speaking, the Petitioners could not find any benefits in continuing with the project. Hence, the Petitioners sought termination of the agreements and prayed to the UPERC to relieve the Parties of their obligations.
Not only this, it was clearly visible from the Respondents’ actions that they were unwilling to provide all the support that the Petitioners needed from them regarding tariffs, Financial Closure, and so on. Moreover, the Respondents were seeking compensation from the Petitioners and were moving towards encashment of the PBGs issued by the Petitioners. SECI was also unwilling to grant a further extension to the Petitioners despite the widespread effects of the COVID-19 virus, which had rattled economies and supply chains worldwide.
As far as the duration of the Force Majeure event was concerned, SECI was of the view that the duration was only 68 days. According to the Articles of the Agreements, it is mentioned that when a Force Majeure event would run beyond months, SECI was to provide relief to the Project Developer. According to the Petitioners and various Office Memorandums of MNRE, the effects of COVID-19 and its second wave lasted much more than 68 days. The OMs mentioned it to be a period of 5 months.
Due to these completely contrasting approaches to this issue, and the fact that attempts to resolve the matter amicably (on request of UPERC) had failed, the final decision in this matter was left to be given by UPERC.
Thedecision given by the UPERC can be categorized into the following sub-categories:
a. Force Majeure Duration:
Considering the effects of the first and second wave of COVID-19 and the cognizance of the effects of COVID-19 by MNRE, the UPERC decided in favour of the Petitioners and held that the Force Majeure event went well beyond 68 days as contended by the Respondents. The UPERC also stated that this Force Majeure event drastically affected the Petitioners’ ability to go ahead with the Project and develop the Project according to the timelines envisaged under the PPAs.
b. Adoption of Tariff:
The Respondents had contended that it was not their contractual obligation to ensure the adoption of the tariff and that any inconvenience caused to the Petitioners on account of the same was to be taken care of by the Petitioners. In this regard, the UPERC ruled that according to the terms of the PSA, the Respondents were obligated to ensure the adoption of the tariff, and according to the terms of the PSA, the PPA was an essential part of the PSA. Hence, it was a collective obligation of the Respondents to ensure the adoption of the tariff in a timely manner to streamline the completion of the process promptly.
c. Novation of Contract:
It was clearly established and communicated to the Respondents that the Lenders were averse to sanctioning loans to the Petitioners on account of the fact that the adoption of tariffs was not done in a timely manner. The Petitioners meticulously requested the Respondents to carry out the process. They also expressed their concerns and their inability to continue with the Project due to the denial of sanction of loans by the Lenders. However, SECI and UPPCL were oblivious to the same and took no action. Furthermore, SECI and UPPCL pushed for the imposition of terms and conditions, which were much beyond the scope of the PPAs and beyond what the parties had agreed on. Moreover, there was no regulatory approval for these conditions whatsoever. Therefore, the UPERC ruled that these actions amounted to novation of contract and could not be allowed. The UPERC also went on to further state that it was the Respondents’ duty to fulfil their obligations to remove these hurdles.
d. Liquidated Damages:
SECI and UPPCL had not fulfilled their reciprocal obligations as agreed upon in the PPA/PSA, they had no right to claim liquidated damages from the Petitioners for any reason.
e. Invocation of PBGs:
Following a detailed perusal of the relevant terms of the PPAs, the UPERC ruled that the Project in question was delayed and obstructed due to two primary uncontrollable reasons, i.e., (i) Effects of COVID-19 and (ii) Delay on behalf of the Respondents in obtaining approval of power procurement process and delay in the adoption of tariff. The Petitioners were not at fault for any of these reasons, and the delay caused due to the above-mentioned reasons eventually rendered the whole project impossible to implement and thus there was no occasion for the Respondents to encash the PBGs.
The situation that has unfolded regarding the Project is nothing but unfortunate and absolutely avoidable. Envisioned to be a massive project which would become the biggest floating solar power plant in India and one of the biggest in the world, it turned out into a failure even before it was commissioned. Going through the final order passed by the UPERC, it is clear as daylight that the Petitioners were incredibly diligent and careful in their communication to the Respondents, and not only that, they have shown it beyond doubt that their willingness and commitment to go ahead with the Project was unquestionable.
However, the issues and obstructions arose due to a lack of action and diligence on the part of Respondents, who were Government Corporations. Despite constant efforts on behalf of the Petitioners to keep the Respondents aware of the developments which caused a genuine delay in the various stages involved in the process of completing the project, the Respondents were often silent and did not come up with any reciprocal communications until things got much worse.
If one thinks from the point of view of the project developer, one would expect complete cooperation and support from the various government entities involved in the process of project development. At the very least, one expects such government entities to follow and acknowledge the various instructions, orders, communications, etc., issued by the relevant ministries/departments at both state and central levels. However, this has not been the case in the present scenario. The Respondents themselves, despite being government-owned entities, were not cognizant of the fact that a central ministry such as the MNRE itself was officially taking cognizance of the far-reaching effects of the two waves of COVID-19 that the nation went through. From the Petitioners’ perspective, such a commercial attitude taken by the Respondents would cause unneeded and undeserved ambiguity about the future of the Project.
The Respondents’ actions show a lack of accountability to honour their duties and obligations in the various agreements involved. Matters such as the adoption of the tariff are essential for a project’s financial and commercial aspects. Even though the Respondents were intimated of the fact that loans would not be sanctioned unless the adoption of tariffs would be completed, they were more focussed on trying to push the Petitioners to move on with the Project, knowing very well that it would not be commercially possible for the Petitioners to do so.
The Respondents put their efforts and time in the wrong direction. Instead of attempting to quicken the adoption of tariffs and providing solutions to the extraordinary situation created due to COVID-19, the Respondents tried to get the Petitioners to pay damages for their inability to do the Project due to the Force Majeure events. The priority should have been the completion of the Project. Unfortunately, the Respondents had their priorities set in the wrong places. Instead of trying to make the completion of the Project still viable, they were attempting to minimize their losses. The completion of such a milestone project which was touted to be a one-of-a-kind in India (in terms of size), should have been the utmost priority.
This brings another line of discussion in mind as to how it is necessary that in such situations where there is an involvement of government entities along with private enterprises, the government entities should extend assistance when it is clear that the private enterprise is doing everything it possibly can and is committed to the project. Government entities involved in crucial projects must be responsive to the needs of private enterprises and must be accountable for their shortcomings. Although it is understandable why the commercial aspect is often given priority over other aspects, all the stakeholders involved in such projects, especially government entities such as the Respondents in the present case, must understand that such projects are envisioned to serve the public in an ‘environmentally responsible manner.’
The analysis and interpretation of the various PPAs/PSAs by the UPERC in the present situation is very apt. The decision to rule such events, which were caused due to the inaction of the Respondents, as Force Majeure events is an appropriate and much-needed one. Such precedents will encourage government entities to be more proactive about crucial matters such as tariff adoption, which are essential to initiate such projects and be more cooperative and sensitive to the needs of the other stakeholders. The UPERC has accurately applied the various principles of interpretation of contracts by reading all the agreements broadly, inclusively and correctly taking cognizance of various factors, such as the recognition and extension of the Force Majeure period by the MNRE and other ministries. It also gave the Petitioners the deserved recognition of the fact that they were genuinely committed to the completion of the Project and did everything in their power to continue with it.
While the whole world is moving towards environmentally sustainable modes of energy production, India being such a large economy, should not fall behind merely due to a lack of efforts from stakeholders to make certain projects work. Projects involving multiple stakeholders are bound to have their fair share of disputes. However, the broader vision behind completing these essential projects must not fall into the shadows of the commercial interests of the stakeholders.
About the Author
Mr. Mahadev V Nair is a 4th Year B.Sc. LLB student from Gujrat National Law University, Gandhinagar.
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Preferred Method of Citation
Mahadev V Nair, “Delay in Adoption of Tariff Amounts – An Appropriate Force Majeure Event?” (IJPIEL, 25 January 2023)