AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1440
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.... Analysis and Conclusion ................................13 Terms of the PPA ............................................13 Factual Context and the Intention of parties to the contract .................................................17 1. This appeal arises from the judgment of the Appellate Tribunal for Electricity ["APTEL"] at New Delhi. APTEL dismissed an appeal against an order of the Central Electricity Regulatory Commission ["CERC"] dated 30 July 2013. [Appeal No. 261 of 2013] 2. The first respondent, an electricity transmission company called Ratnagiri Gas And Power Private Limited ["RGPPL"/first respondent], filed a petition under Section 79 of the Electricity Act, 2003 against the appellant, Maharashtra State Electricity Distribution Co. Ltd. ["MSEDCL"/appellant.], seeking the resolution of issues arising out of the non-availability of domestic gas; beneficiaries' reservations to allow the first respondent to enter into contracts for alternate fuel, the revision of the Normative Annual Plant Availability Factor ["NAPAF"] and directions to the beneficiaries to pay fixed charges due to the first respondent. 3. CERC, by its order dated 30 July 2013 held th....
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....t. The tariffs for the three blocks of the generating station were determined by CERC in accordance with the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 having regard to the capital cost and plant capacity of the generating station. 7. The first respondent was supposed to receive the contracted quantity of gas supply from RIL. It is stated on behalf of the first respondent that the supply was received accordingly until September 2011, after which, there was a progressive decline in the gas supply. The shortfall was attributed to the low- yielding KG-D6 gas fields. The issue of short supply was taken up with the Central Government and was placed before the Empowered Group of Ministers in its meeting held on 24 December 2012. 8. On account of the steady decline in the supply of domestic gas since September 2011, and in order to make up for the shortfall in the generation of power during 2011-2012, the first respondent entered into a Gas Supply Agreement/Gas Transportation Agreement ["GSA"/"GTA"] with GAIL for the supply of Recycled Liquid Natural Gas ["RLNG"] under spot cargo on a take-and-pay-contract basis. The first respondent....
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....oose to refuse the dispatch, they cannot repudiate the liability to pay fixed charges citing the transmission company's failure to obtain approval; (vi) such consent or approval is not necessary for declaring capacity based on the contractually designated primary fuels, including RLNG; (vii) the requirement of seeking the appellant's approval under Clause 5.9 is not a mandatory pre-requisite for making capacity declarations under Clause 4.3; (viii) the fixed tariffs are payable on declared capacity; (ix) since the first respondent was unable to obtain domestic gas due to a country-wide shortage, they made arrangements for RLNG; (x) the appellant's decision to not schedule the supply based on RLNG has a bearing on variable charges and not on the fixed charges; and (xi) the appellant was thus liable to pay the fixed charges based on capacity declarations made on RLNG by the first respondent. 12. APTEL upheld the above order in the following terms: a. The need to obtain the consent of the distribution licensee arises only when the power generation company makes arrangements based on liquid gas. In the present case, the only change in question is being made from....
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....present appeal is before us. 16. Following the issue of notice, the first respondent has entered appearance and filed a counter affidavit. 17. We have heard Senior Counsel for the appellants and respondents. SUBMISSIONS 18. The appellant urged the following submissions in its challenge to APTEL's judgment and final order: a. CERC has put Clause 4.3 and Clause 5.9 of the PPA in two separate buckets. According to the PPA (clauses 4.3, and 5.9 read conjointly), the first respondent was obligated to obtain prior approval from the appellant before entering into the GSA/GTA with GAIL. Failing this requirement, the first respondent has absolved the appellant of the obligation to pay for the declared capacity to the extent that such declared capacity is attributable to the RLNG which though, a primary source of fuel, could have been obtained by the first respondent only after prior consent of the appellant; b. The placement of the prior approval clause in clause 5.9 suggests that it applies to clause 5.2 capacity charges as well as clause 5.3 energy charges. The impugned decisions make an artificial distinction between the two sub-clauses and the two types....
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....SA, prior approval of the appellant was sought by the first respondent. As such, the intention as evinced by this past conduct, seems to be that the consent requirement was a mandatory pre-requisite for such GTA/GSA. Failing that, the liability of the appellant to pay does not arise; and g. The impugned decisions will impact the customers of the appellant. 19. As against the above, the first Respondent urged the following submissions: a. The generating station was established to meet the electricity demands of the appellant. After the failure of M/s Enron International, and M/s Dabhol Power Company, the generating station was revived and its assets were transferred to RGPPL, the first Respondent, by virtue of an order of the Bombay High Court dated 22.09.2005. NTPC Ltd and GAIL owned 23.5% shares each while the Appellant held 13.51% shares in the first respondent at the time of the take-over; and b. The capacity declaration using RLNG as well as demanding capacity charges based on such declared capacity are in accordance with Clauses 4.3 and 5.2 of the PPA. The PPA contained no clause for termination of the PPA, and was thus valid for 25 years from the....
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.... extracted below: 5.2 "Capacity Charge The Annual Capacity Charge (ACC) of Power Block for supply of power from the station worked out to Rs. 1446.451 Cr. per annum based on capacity charge of 96p/KWH finalized at the time of asset takeover by RGPPL. This Capacity Charge of 96p/KWH is increased to 98.5p/KWH pursuant to discussions under the aegis of Gd. This Capacity Charge of 98.5p/KWH is subject to further review and finalization by GoT and GOM pursuant to the ongoing restructuring exercise under consideration by GoI to ensure project viability based on above capacity charges on levelized basis of 98.5p/KWH, the total Annual Capacity Charges work out to Rs 1484.12 Cr. per annum. Full capacity charges shall be payable at 80% of 2150MW (i.e.1720MW) declared capacity lower than this shall be recovered on pro-rata basis after COD of Block(s)/Station. MSEDCL shall pay capacity charges in proportion to the allocation of power from RGPPL. ... 5.3 Energy Charges: The Energy Charge for supply of power from the Station shall be worked out based on the gross heat rate and auxiliary Power Consumption as given below: ... ....
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....illing is approved by CERC; and f. The total gas requirements are to be procured through GAIL, by way of a GSA/GTA under the directions of the GOI. Before entering into the GSA/GTA, RGPPL is supposed to obtain approval from MSEDCL on the terms of the contract and the price since such a GSA/GTA has 'commercial implications'. 27. The first respondent has consistently stated that the alternate arrangement in the form of GSA/GTA with GAIL and capacity declarations based on RLNG were necessitated on account of the unprecedented nationwide shortage of domestic fuel. But for such an alternate arrangement, the first respondent would have been unable to meet the target availability, which would have in turn affected their ability to recover fixed costs, and jeopardized the viability of the project. The appellant does not dispute the shortage of domestic fuel but merely objects to the "unilateral" decision to declare capacity based on RLNG, which the appellant states violated the mandatory approval requirement under clause 5.9 of the PPA, thereby exonerating it of the liability to pay fixed capacity charges. 28. In accordance with settled principles governing the inter....
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....rms of the PPA i.e. Clause 4.3. 34. Clause 2.2.2 of the PPA prescribes that even in case MSEDCL is unable to utilize the entire allocated capacity of RGPPL, or in case MSEDCL fails to comply with the payment obligations in accordance with the PPA, RGPPL shall be entitled to sell power to other parties, without prejudice to its claim for recovery of capacity charges from MSEDCL subject to the provisions of Clause 2.2.2. Clause 2.2.2 indicates the intention of the parties to the PPA to put the capacity charges beyond the realm of actual energy supplied. The appellant's reading implies that such a fixed charge can be avoided and made subject to the consent of the appellant. Such a reading goes against the apparent intention of the parties to treat capacity charges as fixed charges under the PPA. 35. A commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The appellant's arguments would entail reading in implied terms contrary to the contractual provisions which are otherwise cl....