Power company entitled to compensation for coal shortfall due to policy changes under PPA change in law provisions

SC held that the power company's bid was based on domestic coal and non-availability due to policy changes constituted change in law under the PPA. The state government failed to provide alternative coal sources despite MoU obligations. Changes in the National Coal Distribution Policy from 2007 to 2013, reducing coal allocation to 65-75% of requirements, qualified as change in law entitling compensation. The court directed state electricity boards to calculate and pay compensation for coal shortfall, with interest at applicable SBAR rates not exceeding 9% per annum compounded annually instead of monthly rest.

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1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Court in this judgment revolve around:

• Whether the bid submitted by Adani Power Rajasthan Limited (APRL) was based on domestic coal or imported coal.
• Whether the non-availability of domestic coal constitutes a change in law under Article 10 of the Power Purchase Agreement (PPA).
• The applicability of the National Coal Distribution Policy (NCDP) of 2007 and its subsequent amendment in 2013 as a change in law event.
• The entitlement of APRL to compensatory tariffs due to the change in law and the calculation of such compensation.
• The applicability of the SHAKTI Policy and its impact on the coal supply for APRL.
• The liability of Rajasthan DISCOMS for late payment surcharge and the appropriate rate of interest.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Basis of APRL's Bid - Domestic or Imported Coal

The Court examined the statutory guidelines under Section 63 of the Electricity Act, 2003, which required firm arrangements for fuel tie-up for domestic coal. The bid documents submitted by APRL indicated reliance on domestic coal, supported by a Memorandum of Understanding (MoU) with the Government of Rajasthan. The Court noted that the bid was evaluated on domestic coal tie-up, and the PPA recognized domestic coal as the primary fuel, with imported coal as a fallback arrangement. The Court found that the bid was premised on domestic coal, supported by concurrent findings of the Rajasthan Electricity Regulatory Commission (RERC) and the Appellate Tribunal for Electricity (APTEL).

Issue 2: Non-availability of Domestic Coal as Change in Law

The Court considered the definition of "Change in Law" under Article 10 of the PPA, which includes changes in law that result in additional expenditure or income to the seller. The Court found that the non-allocation of domestic coal linkage due to changes in the NCDP of 2013 constituted a change in law. The Court referenced the decision in Energy Watchdog v. Central Electricity Regulatory Commission, which recognized changes in domestic coal policy as a change in law event.

Issue 3: Applicability of NCDP 2007 and 2013 Amendment

The Court analyzed the NCDP of 2007, which assured 100% supply of domestic coal, and its amendment in 2013, which reduced the assured supply. The Court found that the amendment constituted a change in law, impacting APRL's ability to secure domestic coal. The Court held that APRL was entitled to compensation for the shortfall in domestic coal supply due to this change in law.

Issue 4: Compensation and Calculation under Change in Law

The Court emphasized the restitution principle under Article 10.2.1 of the PPA, which aims to restore the affected party to the economic position as if the change in law had not occurred. The Court directed Rajasthan DISCOMS to verify documents submitted by APRL and calculate compensation based on the shortfall in domestic coal supply.

Issue 5: SHAKTI Policy 2017

The Court noted that under the SHAKTI Policy, APRL was eligible for coal supply based on its PPA being premised on domestic coal. The policy allowed APRL to secure 100% of its normative coal requirements, reinforcing the Court's finding that the PPA was based on domestic coal.

Issue 6: Late Payment Surcharge and Interest

The Court addressed the liability of Rajasthan DISCOMS for late payment surcharge under Articles 8.3.5 and 8.8 of the PPA. The Court reduced the interest rate to the applicable State Bank Advance Rate (SBAR), not exceeding 9% per annum, compounded annually, instead of the 2% above SBAR as stipulated in the PPA, considering the totality of circumstances and to reduce the liability on Rajasthan DISCOMS.

3. SIGNIFICANT HOLDINGS

The Court held that APRL's bid was based on domestic coal, and the non-availability of domestic coal due to changes in the NCDP constituted a change in law. The Court affirmed APRL's entitlement to compensation for the shortfall in domestic coal supply and directed Rajasthan DISCOMS to calculate and pay the compensation. The Court also adjusted the late payment surcharge to a more reasonable rate.

The Court's significant legal reasoning included:

"The purpose of compensating the Party affected by such Change in Law, is to restore through monthly Tariff Payment, to the extent contemplated in this Article 10, the affected Party to the same economic position as if such Change in Law has not occurred."

The Court concluded that the concurrent findings of the RERC and APTEL were binding and did not warrant interference, affirming the applicability of the change in law provisions and the entitlement to compensation under the PPA.

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