Projects and Infrastructure | October – December 2023

Regulatory Updates

CERC removes difficulties in implementation of GNA Regulations

By its order dated 1 October 2023, Central Electricity Regulatory Authority (“CERC”) has issued clarifications on a few issues for removal of difficulties in implementation of CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“GNA Regulations”). The clarifications inter alia, pertain to payment of transmission charges for temporary general network access under advance and exigency application category, treatment of bank guarantees, and extension of timeline for application for grant of general network access by state transmission utilities.

Clarifications in relation to scheme for one-time settlement of contractual disputes

The National Highways Authority of India, on 3 October 2023, issued a policy circular to effectively implement the clarifications issued by the Department of Expenditure, Ministry of Finance (“MoF“) regarding MOF’s one-time settlement scheme ‘Vivad se Vishwas II (Contractual Disputes)’ for settlement of pending disputes (“Scheme“).

Previously, as per the Scheme, the settlement amount that would be offered to contractors for arbitral awards passed on or before 31 January 2023, was 65% of the net amount awarded/ upheld by the court or 65% of the claim amount lodged by the contactor under the Scheme, whichever is lower. However, now the same has been corrected to 65% of the net amount awarded or 65% of the claim amount lodged by the contactor under the Scheme, whichever is lower. Further, the MoF has also clarified that for such arbitral awards or court orders passed on or before 30 April 2023, the stipulated interest will not only be paid on the pending settlement amount (85% or 65% of the award, as applicable) but also on the interest accumulated till the date of award (to the extent of 85% or 65%, as applicable).

Revision in fee collected by government authorities on national highways, bridge, tunnel or bypass

Ministry Of Road Transport and Highways vide a notification dated 6 October 2023 amended the National Highways Fee (Determination of Rates and Collection) Rules, 2008, which regulates, inter alia, the fee collected by government authorities after expiry of concession period. Prior to the amendment, the fee collected by the government authorities post concession period was to be reduced to 40% of the fee collected during the concession period. With the said amendment getting effective, the fee collected by the government authorities post concession period shall remain same as the fee collected on the date of transfer of such section of the national highway, bridge, tunnel or bypass.

Penalties for violation of DCR norms under Solar PV power projects

The Ministry of New and Renewable Energy (“MNRE“), on 16 October 2023, taking note of the apprehensions raised in respect of the supply of solar PV modules under MNRE’s schemes/ programs which are not fully compliant with the domestic content requirements (“DCR“) prescribed by MNRE in 2018, once again reiterated that such DCR provisions as mandated shall be strictly complied with and any violation of such provisions shall invite actions set out in the 2018 memorandum. These include filing of criminal cases under section 420 of the Indian Penal Code 1860 and related sections, blacklisting of a developer for period of 10 years etc.

Amendments to the CERC (Sharing of inter-State Transmission Charges and Losses) Regulations, 2023

The Central Electricity Regulatory Commission has vide notifications dated 20 October 2023 and 26 October 2023 amended the Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2023. Broadly, these amendments introduce the following principles:

Deemed COD:The concept of ‘Deemed Commercial Operation Date (“COD“)’ has been introduced, which represents the commercial operation date for a transmission system or its element.

Treatment of yearly transmission charges: New rules have been introduced for the treatment of yearly transmission charges for inter-state transmission systems or elements approved or declared as ‘Deemed COD’.

Extensions of directions to Imported Coal based plants under Section 11 of the Electricity Act, 2003

The Ministry of Power on 23 October 2023 extended the validity of directions issued to Imported Coal Based Plants under section 11 of the Electricity Act, 2003 up to 30 June 2024, mandating them to generate power to their full capacity and prescribing procedure to determine rates at which power is supplied. The extension has been issued in light of the surge in electricity demand, inadequate supply of domestic coal and reduced ability of hydrogeneration.

Directions to Thermal Generating Stations for blending of imported coal

The Ministry of Power has issued an advisory dated 25 October 2023 revising the advisory dated 1 September 2023 regarding blending of imported coal. The new advisory directs that blending of imported coal @ 6% (by weight) minimum may be continued till March 2024 in order to ensure uninterrupted power supply across the country. Thermal generating companies may also review their stock and opt for blending as per requirements if the shortfall in domestic coal supply exceeds 6%.

Centre declares imposition of charges by states on generation of electricity as unconstitutional

The Ministry of Power has issued a circular dated 25 October 2023 noting that some State Governments have imposed additional charges on generation of electricity from various sources under the guise of development fee/ charges/ fund.

Citing constitutional provisions including Articles 286, 287, 288 and Schedule VII, the circular specifies that levying of taxes/ duties by any State on generation or inter-State supply of electricity under the guise of additional charges/ fee on generation of electricity from any source, i.e., thermal, hydro, wind, solar, nuclear is illegal and unconstitutional.

Procedure for Implementation of Uniform Renewable Energy Tariff notified

The Ministry of Power has, on 25 October 2023, issued to Grid India, the approved procedure for implementation of a uniform tariff for renewable energy (“URET“). The procedure establishes a framework for the implementation of a URET, including the categorization of central pools, eligibility criteria for entities, data submission, tariff calculation, and compliance measures to promote renewable energy adoption. The key elements are below:

Implementing agency: Grid Controller of India Limited (“Grid India”), as the implementing agency, shall calculate and implement the URET, on a monthly basis for each category of central pool at which an intermediary procurer shall sell power to the end procurers.

Scope and Duration: The procedure applies to central pools for different renewable energy sources, such as solar power, wind power, hydro power etc. as specified by the Central Government. Each central pool is established for 5 years, with capacity added during this period. After 5 years, no new capacity can be added, but existing capacity remains in the pool until expiration of the respective agreements.

Eligibility criteria and registration: Eligibility criteria and registration requirements for the URET Central Pool participants including producers/generators, end producers and intermediary procurers has been detailed.

Legal Obligations: Contractual obligations and change in law provisions between parties are governed by respective agreements, separate from URET.

Indemnity: Grid India is to be indemnified against liabilities arising from actions taken under the procedures.

Method for Calculation: Tariff calculation is based on scheduled energy to end procurer from the central pool.

Battery Waste Management (Amendment) Rules, 2023

On 25 October 2023, the Ministry of Environment, Forest and Climate Change notified the Battery Waste Management (Amendment) Rules, 2023 to amend the Battery Waste Management Rules, 2022. The key amendments include:

Definition of battery: Earlier, the definition of ‘Battery’ included new or refurbished cell/batter and its components. Battery components have now been excluded.

Responsibility of Producers: The Extended Producer Responsibility (“EPR”) of the producers is expanded to include batteries that the producers put to self-use, in addition to batteries introduced by them in the market. Further, the producers are required to file annual returns in respect of pre-consumer waste battery generated in the preceding financial year, and an annual return regarding batteries manufactured, assembled, or imported in the preceding financial year.

Registration: Every producer is required to obtain registration from the Central Pollution Control Board (“CPCB”), which shall now be valid until it is cancelled or withdrawn.

Recyclers and refurbishers: The EPR certificates for recyclers and refurbishers shall be generated based on the weight of waste battery processed or refurbished.

Trading of EPR certificates: One or more electronic trading platforms for sale and purchase of EPR certificates may be established through accredited agencies, which will be regulated by CPCB. CPCB shall fix the highest or lowest price for EPR certificates every 6 months, or as required, keeping in view the cost for collection and management of waste battery and environmental compensation regime in force.

Advisory to stated owned GENCOs to participate in CIRP for taking over of Stressed Thermal Power Assets

The Ministry of Power issued an advisory dated 1 November 2023 encouraging all state owned generation companies (“GENCOs”) to participate in the Corporate Insolvency Resolution Process (“CIRP”) for taking over stressed thermal power assets.

The major challenges faced by the stressed assets include inadequate capital investment, shortage of raw material and prolonged recovery of dues. Such participation of GENCOs will lead to resolution and revival of significant public investment and national resources in stressed power assets in a cost and time effective manner, avoid the gestation period of new projects, and enhance the nation’s power-generation capacity. The said takeover via CIRP route will provide a ‘clean slate’ to the acquirer.

Reappraisal of environmental clearances by State Expert Appraisal Committee / State Environment Impact Assessment Authority

Pursuant to the order of the National Green Tribunal passed in Jayant Kumar vs. Ministry of Environment, Forest & Climate Change (“Ministry”) & Ors., the Ministry issued an office memorandum, dated 28 April 2023, directing all valid environmental clearances (“ECs”), issued by the District Environment Impact Assessment Authority (“DEIAA”), to be reappraised through the State Expert Appraisal Committee / State Environment Impact Assessment Authority (“SEIAA“).

The Ministry has now issued a clarification vide its office memorandum dated 3 November 2023 stating that the ECs granted by the DEIAA which are valid as on date shall continue to be valid for 1 year from the date of issue of its earlier office memorandum dated 28 April 2023, unless the validity of the EC granted lapses prior to 28 April 2024 or until SEIAA has invalidated an EC upon reappraisal.

Clarification on timeline for transfer of environmental clearances after transfer/ acquisition/ demerger

The Ministry of Environment, Forest & Climate Change (“Ministry”) has, vide office memorandum dated 3 November 2023 (“Office Memorandum”), clarified that subsequent to the transfer/ acquisition/ demerger/ change in name etc., of a project/ unit, having a valid environmental clearance (“EC“), from one legal entity to another, all the accumulated environmental obligations, shall be deemed to be transferred to the new entity from the date of such transfer/ acquisition/ demerger/ change in name etc. Accordingly, the transferor/ transferee shall apply for transfer of EC on PARIVESH, within 12 months of such transfer/acquisition/demerger/ change in name etc. of the company.

However, in case of delay in filing of the application beyond such period of 12 months, up to 24 months from the date of transfer/ acquisition/ demerger/ change in name etc, the delay shall be condoned at the level of the minister in charge of Ministry or chairman of State Level Expert Appraisal Committee, as the case may be. Delay in filing beyond such period of 24 months shall be considered as non-compliance of the condition of grant of the EC and action shall be initiated on the project proponent as per the existing rules.

Any project proponent who, as of the date of the Office Memorandum, has not applied for transfer of EC, in respect of a change in name/ownership of the company, even after 1 year from such change, is required to so apply within a period of 6 months from the date of the Office Memorandum and the same shall not be considered as a non-compliance of the EC.

Draft safety and procedural requirements for type approval of hydrogen power vehicles

The Government of India has hosted a draft for Safety and Procedural Requirements for Type Approval of Hydrogen Powered Vehicles (Liquid / Compressed Gaseous Hydrogen) for public comments on 6 November 2023. These standards are formulated by Automotive Industry Standards Committee to minimize human harm that may occur as a result of fire, burst or explosion related to the vehicle fuel system and / or from electric shock caused by the vehicle’s high voltage system. Since on-road vehicle experience with liquefied hydrogen system is limited and safety requirements have not been comprehensively evaluated for feasibility and known failure conditions, the standard also presents optional requirements and test procedures for vehicles with liquefied hydrogen storage systems.

Engagement of personnel by contractors in EPC road projects

Clause 4.4 of the Standard Engineering Procurement and Construction (“EPC”) Agreement for national highways (road projects) puts the onus on the contactor to ensure that the personnel engaged by them or their sub-contractors, in the performance of their obligations under the agreement, shall at all times be appropriately and adequately qualified, skilled and experienced in their respective functions, in accordance with good industry practice.

In furtherance to the above, the National Highways Authority of India, issued a policy circular, dated 10 November 2023, providing the qualifications of the respective personnels considering good industry practices.

New conditions for assignment of forest land on lease to government and private entities

The Central Government on 29 November, notified certain terms and conditions, under the Van (Sanrakshan Evam Samvardhan) Adhiniyam, 1980, to be abided by the State Government or Union territory Administration while considering the proposals for assignment of forest land on lease to government or private entities. In case of existing mining leases having forest land in part or in full, no mining shall be allowed until the approval of the Central Government is obtained for the entire forest land falling in such mining lease. The user agency seeking assignment of forest land on lease for mining, shall also submit the approved mining plan and a mine closure plan, and for activities other than mining, a detailed project report or plan for activities shall be submitted along with the proposal. The validity of approval shall be valid for a period co-terminus with the period of mining lease granted or for the period specified by the Central Government. The State Government or Union territory Administration and the user agency shall monitor at least once a year, the compliance of conditions imposed for allowing non-forestry use of forest land and upload a copy of such monitoring report on PARIVESH portal.

New National Repowering & Life Extension Policy for Wind Power Projects, 2023

The Ministry of New and Renewable Energy (“MNRE”) has issued the new National Repowering and Life Extension Policy for Wind Power Projects, 2023, dated 7 December 2023. This policy inter alia, allows the replacement of aging turbines with more efficient ones before reaching the end of their design life, involving modifications to components like gearbox, blades, generator, and controller and aims to enhance energy yield by using modern technologies. A repowering/refurbishment project should satisfy the specified criteria and the annual enhanced generation should be at least 1.5 times the old project. Repowering can be standalone or aggregated projects, extending power purchase agreements by up to 2 years. Developers can sell surplus power without mandatory fixed rates and without any right / obligation of the distribution companies over such surplus power, with a 24-month operational timeframe post-consent. Additional transmission augmentation will be provided to the developer for such projects.

CERC (Terms and Conditions of Tariff) (Third Amendment) Regulations, 2023

Central Electricity Regulatory Commission (“CERC”) on 15 December 2023 amended the Appendix II of Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019 which regulates the calculation of transmission system availability factor for a month. Pursuant to the amendment, the transmission elements shall be deemed to be available if an outage is caused by shut down of a transmission line due to its shifting or modification by projects of NHAI, Railways or Border Road Organization. Member Secretary of Regional Power Committee (“RPC”) may set a reasonable availability period provided designated inter-state transmission system customers remain unaffected by such shutdown.

The outages due to acts of god or grid incidents/disturbance not attributable to the transmission licensee which will be excluded from the total time of the element under period of consideration, shall now be declared by (a) Member Secretary, RPC, for maximum up to 1 month; (b) RPC, beyond 1 month and up to 3 months; and (c) CERC, beyond 3 months and for which the transmission licensee shall approach CERC along with reasons and mitigation steps.

Offshore Wind Energy Lease Rules, 2023 notified

On 19 December 2023, the Ministry of External Affairs notified the Offshore Wind Energy Lease Rules, 2023 (“Rules“) under the Territorial Waters, Continental Shelf, Exclusive Economic Zones, and Other Maritime Zones Act, 1976. Some of the key principles of the Rules are set out below:

Grant of lease: The Central Government shall have the power to grant such lease within the exclusive economic zone to any person for an offshore wind energy project or an offshore wind transmission project (either, a “Lessee“). Prior to the granting of such lease, clearances from the Ministry of Defence, Ministry of Home Affairs, Ministry of External Affairs, Ministry of Environment, Forest and Climate Change, Department of Space and Ministry of Ports, Shipping and Waterways shall be obtained. The area covered under the lease shall range from 25 to 500 square kilometres.

Exclusive rights of lessee: A Lessee will have the exclusive right to carry out activities related to offshore wind energy generation and transmission within the designated area, with a right to restrict boats, ferries, or ships within the designated area. However, activities such as fishing for livelihood and other activities for public benefit can be carried out, without interference to the wind farm.

Lease fee: The Lessee shall be required to pay a lease fee of INR 1 lakh per square kilometre or part thereof per year in advance, along with a security deposit.

Lease period: The lease will be valid for 3 years, for resource measurement and other related study or survey activities, extendable by 2 more years if valid reasons are provided. However, if establishment of the wind energy capacity has not started at the end of the 5 year period, the lease shall expire. For the construction and operation of the offshore wind energy project, the lease will be extended up to 35 years, with further extensions on a case-by-case basis.

Case Summaries

Supreme Court settles key principles for captive generation plants

In the matter Dakshin Gujarat Vij Company Limited vs. Gayatri Shakti Paper and Board Limited and another, the Supreme Court of India interpreted various provisions of the Electricity Act, 2003 (“Act”) and Rule 3 of the Electricity Rules, 2005 (“Rules”) in relation to classification of captive generation plants (“CGPs“). The key findings of the judgment are as follows:

Import of the terms ‘set up’: The court upheld the rationale in Kadodara Power Pvt Ltd and Ors v. Gujarat Electricity Regulatory Commission & Anr that ‘Set up’ defined in section 2(8) of the Act has been made equal to “construct, maintain or operate” by use of these words in section 9. A CGP does not lose its captive status due to transfer of its ownership, provided that the transferee complies with the eligibility requirements under Rule 3.

26% requirement to be met throughout the year: The court disagreed with the Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission and held that the minimum threshold of ownership, i.e. 26%, has to be met throughout the year and not at the end of financial year alone.

Clarity on proportionality requirement: While interpreting the second proviso to Rule 3(1)(a) where captive users are an ‘association of persons’, the Supreme Court elaborated on the unitary qualifying ratio in the proportionality principle. The court observed that the unitary qualifying ratio is the consumption requirement divided by the shareholding requirement, i.e. 51% divided by 26%. This means that the owner of every 1% shareholding of the CGP should have minimum consumption of 1.96% of the electricity generated by the CGP, with a variation of +10% being permissible. This does not take into account 100% of the electricity generated.

Company set up as SPV as an ‘association of persons’: The Court held that Rule 3(1)(b) does not undo or override the eligibility criteria specified under Rule 3(1)(a) read with second proviso. It held that special purpose vehicles (“SPVs“) which own, operate and maintain CGPs are an “association of persons” in terms of the second proviso to Rule 3(1)(a) of the Rules. Companies, body corporates and other persons, who are shareholders and captive users of a CGP set up by a SPV, are required to comply with Rule 3(1)(a) of the Rules read with the second proviso of the Rules.

For more information contact:

Jhinook Roy
Practice Head – Projects & Infrastructure
jhinook.roy@veritaslegal.in

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