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The Central Electricity Regulatory Commission (CERC) has reiterated that solar power developers are entitled to compensation due to higher costs incurred after the implementation of the Goods and Services Tax (GST).
The compensation will qualify under the event of change of law and apply even if GST is enacted after the date of commercial operation of the project.
Azure Power, Azure Power Uranus, and Tata Power Renewable Energy have filed separate petitions seeking compensation to offset the financial impact of the GST implementation.
The committee noted that the introduction of the GST law as a legislative change event has been examined several times.
Background
The petitioner is a solar project developer selected as the successful bidder to execute the project under the National Solar Mission Program at NTPC, NTPC Vidyut Vyapar Nigam (NVVN), and Solar Energy Corporation of India (SECI).
The petitioner has signed power purchase agreements (PPA) with DISCOMs to develop solar power projects in Delhi, Andhra Pradesh, Karnataka, and Maharashtra.
On July 1, 2017, the GST law was introduced, which removed many remaining indirect taxes. The manufacturer has filed a petition seeking compensation due to additional expenses incurred on account of GST.
NVVN and SECI said that Article 12 of the PPAs on the provision of change of law does not deal with the relationship between manufacturers and their contractors, especially contractors who provide operations and maintenance (O&M) services.
They added that the petitioner did not provide any details about the O&M agreement or the invoice for the claim.
The generator claimed additional cost due to GST on O&M services.
Analysis of the committee
The commission allows compensation to developers for additional costs related to O&M activities, even if the services are outsourced.
It directed the petitioner to pay the O&M related compensation by reconciling the bills raised by the builder.
Further, CERC has directed the DISCOMs to pay the implementing agencies against the developer’s recovery claims.
However, the commission said that the implementing agency is responsible for clearing the developer’s expenses without making it conflict with receiving funds from the DISCOMs.
A number of tax-related changes have been introduced under the Reform Act in the past few years, including modular safeguards, GST rate hikes, and basic excise duties.
Under the terms of the change in law in PPAs, the developer has the right to recover additional costs due to changes in policy that occur between the time of bidding and project award.
However, many petitions for changes in the law are pending disposal as DISCOMs have been litigating for years. Unresolved claims restrict cash flow and make loans more expensive.
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Arjun Joshi A staff reporter at Mercom India. Before joining Mercom, he worked as a technical writer for enterprise resource software companies in India and abroad. He holds a BA in Journalism, Psychology, and English with an optional degree from Garden City University, Bangalore. More articles from Arjun Joshi.
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