Projects and Infrastructure | April – June 2023

Regulatory Updates

Addendum to the Dredging Guidelines for Major Ports

The Ministry of Ports, Shipping and Waterways (“MoPSW”) has, on 16 March 2023, issued an addendum to the Dredging Guidelines for Major Ports 2021 (“Addendum“). The Addendum became publicly available on MoPSW’s website on 15 May 2023.

The Addendum lays down the following factors for suitable incorporation in the bidding process while framing dredging contracts:

Data on type of soil, characteristics, approximate quantity of dredged material, disposal sites to be made available by authorities in bid documents, for assessment by bidders of price for dredging and dredging material;
Final quantity of dredging material may vary from estimate and can be verified basis third party survey;
Environmental clearance should be obtained with option for onshore/offshore disposal of dredging material based on beneficial use and sustainability;
Option to submit quotes in two parts separately for execution of dredging work and for estimated value of dredged material; and
Provision of dumping yard for temporary storage of dredged material. The Addendum also specifies that the lowest net cost, i.e., dredging cost less the value of dredged material quotes, could be considered as a bid evaluation parameter.

Guidelines to promote development of pumped storage projects

The Ministry of Power has issued guidelines to promote the development of pumped storage projects (“PSPs”) in the country, on 10 April 2023. The following are some of the important features of these guidelines:

Allotment of project sites: The state governments may allot project sites: (a) on nomination basis, to central / state public sector undertakings and/or their joint ventures; (b) by allotment through a two-step competitive bidding process; (c) allotment through tariff based competitive bidding to developers; or (d) self-identified off stream PSPs.

Timelines for starting construction: Construction work should commence within 2 years from allotment of the PSPs, failing which such allotment shall be cancelled. Relaxation of 1 year may be granted to where delay is attributable to pending environmental/forest clearance, if applications are submitted to the concerned authorities within the timelines agreed at the time of awarding of the project.

No upfront premium: The state governments shall ensure that no upfront premium is charged for the project allocation.

Financial Viability: The Central Government may notify a benchmark tariff for storage for investment decisions of developers. Financial institutions should consider PSPs at par with other renewable energy projects for granting long term loans.

Taxes and Duties: In addition to tax benefits, electricity duty and cross subsidy surcharge shall not be applicable on pumping power for charging of PSPs.

Green Finance: PSPs may be supported through concessional climate finance along with deployment of funds through sovereign green bonds for PSPs utilizing renewable energy for charging.

Airports Authority of India (Ground Handling Services) Amendment Regulations, 2023

The Airports Authority of India on 20 April 2023, issued the Airports Authority of India (Ground Handling Services) Amendment Regulations, 2023 to further amend the Airports Authority of India (Ground Handling Services) Regulations, 2018. Key amendments include:

Airport operators can now appoint as the ground handling agency (“GHA“): (a) itself or its joint venture or its 100% owned subsidiary only if a transparent bidding process has been carried out and no bidder is selected or found suitable; (b) a subsidiary or joint venture of a public sector undertaking and if there is no subsidiary or joint venture of a public sector undertaking, a GHA shall be selected through a bidding process.

No GHA or any person(s) controlling such GHA shall have significant influence in any other GHA operating as such at the same airport. In case a GHA has such significant influence or acquires such significant influence pursuant to an acquisition from a public sector enterprise, then: (a) the two GHAs shall be deemed to be a single GHA at the relevant airport; (b) airport operator shall promptly appoint another GHA through a transparent bidding process; and (c) such GHA/person(s) controlling the GHA shall reorganize or restructure their ground handling business to ensure that on completion of 24 months of acquisition of significant influence, only one of the two GHAs operates at the relevant airport. Further, on expiry of such 24 months, the GHA (of the two involved GHAs) with the shorter outstanding concession period, shall be deemed to have surrendered its concession at the relevant airport.

Scheme for Pooling of Tariff of plants with expired PPAs

The Ministry of Power on 20 April 2023, notified a scheme for pooling of tariff for thermal power plants whose power purchase agreements (“PPAs”) have expired (“Scheme”).

As per the Scheme, a central sector generating company (“Genco“) wise common pool (“Pool“) will be created of thermal generating stations (coal and gas-based) with expired PPAs. A single window system shall be created through which the states or distribution companies (“DISCOMs”) shall submit their willingness for power allocation within 15 days from the formation of Pool. The Scheme stipulates a minimum 5 year requisition period for power from the Pool. The allocation of power from the Pool to the willing States/DISCOMs shall be subject to the signing of a new PPA of minimum 5 years with the Pool and ensuring compliance with the financial terms of the PPA signed.

As per the Scheme, the total capacity charge of the Pool will be calculated by adding the charging capacities of each station in the Pool in accordance with the tariff regulations of Central Electricity Regulatory Commission. A Genco shall declare the station-wise monthly Energy Charge Rate (“ECR”). The states/DISCOMs shall be billed a uniform energy charge computed based on station-wise weighted average pooled monthly ECR and final implementation schedule.

Clarifications by MNRE on time-extensions to solar PV and solar PV-wind hybrid power projects

The Ministry of New and Renewable Energy (“MNRE“) has notified certain clarifications on 1 May 2023, in respect of time extensions to be granted to specified solar PV and solar PV-wind hybrid power projects under its earlier notifications dated 29 December 2022 and 25 January 2023.

It has been clarified that the Renewable Energy Implementing Agencies (Solar Energy Corporation of India, National Hydroelectric Power Corporation & National Thermal Power Corporation) will be required to examine extension requests on a case-to-case basis, and grant extensions of timelines only to developers who have diligently taken steps to complete the projects but have been unable to complete the same on account of reasons beyond their control. Projects that have not progressed beyond the award stage on account of a developer not having taken implementation efforts will not qualify for an extension and may face project cancellation.

Extension of Covid-19 relief measures to Contractors/ Developers of Road Sector

By a circular dated 4 May 2023, the Ministry of Road Transport & Highways has further extended the following COVID-19 relief measures to contractors/developers of the road sector for a period of 1 year from 1 April 2023 to 31 March 2024:

Extension of relaxation in Schedule H/G (i.e. project completion schedules) till 31 March 2024 to improve liquidity of available funds;
Arrangement regarding direct payment to approved sub-contractors through escrow account till earlier of 31 March 2024 or completion of work by sub-contractor; and
Reduction of performance security/retention money: Except contracts under dispute proceedings, the performance security will be 3% of the contract value. All tenders issued/contracts concluded till 31 March 2024 are required to provide for reduced performance security and for abnormally low bids, additional performance security should be realized in line with the latest guidelines of the Department of Expenditure, Ministry of Finance.

The circular also provides that retention money (which is part of the performance security till construction period) should be released continuously in proportion to the work executed and no reduction of retention money should be made from contractor’s bills raised till 31 March 2024. Furthermore, for HAM/BOT contracts, performance guarantee may be released on a pro-rata basis as per contract terms, provided the concessionaire is not in breach.

Harit Sagar Guidelines

The Ministry of Ports, Shipping and Waterways, on 11 May 2023 released the “Harit Sagar” Green Port Guidelines – 2023 (“Guidelines“) which lay down a broad framework for Major Ports to take initiatives to reduce carbon intensity and develop an environment friendly ecosystem. This is a part of India’s commitment in COP 26 towards climate action, where it has pledged to reduce the emission intensity per unit GDP by 45% by year 2030 from 2005 level.

The principles of the Guidelines include: (a) ensuring sustainability in port development and operation; (b) employing an ecosystem aligning to ‘Working with Nature’ concept; (c) maximizing use of clean / green energy; (d) minimizing carbon and other harmful emissions and waste; (e) conducting appropriate environmental impact assessments; (f) stimulating continuous improvement in the port environment; and (g) promoting monitoring and environmental reporting.

As per the Guidelines, focus areas that contain potential to contribute towards improving sustainability in the ecosystem of ports include increase in green cover, electrification of port equipment, retrofitting of port craft, implementation of projects to achieve the targets set for the ports / port crafts in the “National Green Hydrogen Mission”, increase in share of renewable energy in ports, conservation measures, waste management etc.

Directions to RE developers to comply with CEA Connectivity Regulations by 30 September 2023

The Central Electricity Authority (“CEA”), vide its notification dated 12 May 2023 has issued directions to renewable energy (“RE“) developers.

The CEA has directed RE developers who have applied for connectivity till 30 April 2023 to ensure compliance with the requirement under the CEA (Technical Standards for connectivity to the Grid) Amendment Regulations, 2019 of supplying dynamically varying reactive power support to maintain power factor within specified limits, by 30 September 2023. Failure to comply would result in the RE plants being disconnected. RE developers who have applied for connectivity after 30 April 2023, must comply with requirements stipulated in the CEA (Technical Standards for Connectivity to the Grid) Regulations, 2007 and their subsequent amendments.

Amendment of Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022

The Ministry of Power has notified amendments to the Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022 on 23 May 2023.

Firstly, the term “entity” has been amended to mean any consumer who has contracted demand or sanctioned load of Hundred kW or more either through single connection or through multiple connections aggregating Hundred KW or more located in same electricity division of a distribution licensee, except or captive consumers. For captive consumers, there is no load limitation. The amendment enables aforementioned consumers to take power through green energy open access.

Secondly, offshore wind projects commissioned up to December 2032 and supplying electricity to open access consumers will be exempt from additional surcharges.

Waiver of ISTS charges for Offshore Wind, Green Hydrogen & Green Ammonia Projects

By an order dated 29 May 2023, the Ministry of Power has waived the inter-state transmission (“ISTS“) charges for offshore wind, green hydrogen and green ammonia projects, for a period of 25 years, to facilitate the implementation and expansion of these projects.

Offshore Wind Projects: Offshore wind projects commissioned on or before 31 December 2032, either through a power purchase agreement or on a merchant basis, will be exempted from ISTS charges for a period of 25 years from commissioning. Further, with regards to any offshore wind projects commissioned after 31 December 2032, the trajectory for ISTS charges as follows:

1 January to 31 December 2033 – 25% of applicable ISTS charges
1 January to 31 December 2034 – 50% of applicable ISTS charges
1 January to 31 December 2035 – 75% of applicable ISTS charges
From 1 January 2036 – 100% of applicable ISTS charges.

Green Hydrogen and Green Ammonia Projects: Green hydrogen and green ammonia projects commissioned on or before 31 December 2030, and utilizing renewable energy from sources such as solar, wind, large hydro commissioned after 8 March 2019, energy storage systems, or a hybrid combination of these technologies, will be exempted from ISTS charges for 25 years from commissioning. For such projects commissioned after 31 December 2030, the trajectory for ISTS charges as follows:

1 January to 31 December 2031 – 25% of applicable ISTS charges
1 January to 31 December 2032 – 50% of applicable ISTS charges
1 January to 31 December 2033 – 75% of applicable ISTS charges
From 1 January 2034 – 100% of applicable ISTS charges.

The waiver has been granted for ISTS charges and not ISTS losses.

New Dispute Resolution Mechanism for unforeseen disputes between RE Developers/ EPC Contractors and RE Implementation Agencies

The MNRE vide order dated 7 June 2023 has revised the existing dispute resolution mechanism between renewable energy developers/EPC contractors and Renewable Energy Implementing Agencies designated by MNRE (“REIAs”). The order provides for the set-up of a three-member Dispute Resolution Committee (“DRC”) consisting of eminent persons of impeccable integrity and below age of 70 years. The DRC mechanism will extend to all renewable energy schemes / programmes / projects being implemented through/ by REIA as well as contracts between REIA and the EPC contractor executing renewable energy project owned by REIA, provided REIA undertakes to abide by the decision coming out of this mechanism. The DRC will be an appellate authority for decisions of the REIA (which is required to give speaking orders) for all contractual and non-contractual disputes.

In addition to the applicable fee for application to DRC, the order specifies timelines for application and process for resolution of disputes pertaining to: (a) requests for extension of time for force majeure; (b) requests for extension of time not covered under contract; and (c) any other cause.

Cap on extension of commission date to solar and wind projects with waiver of ISTS charges on transmission of electricity

The Ministry of Power has by its order dated 9 June 2023, amended paragraph 3.1 (vii) of the order of the ministry dated 30 November 2021 regarding waiver of ISTS charges on transmission of electricity generated from specified solar and wind sources to projects which are granted an extension of time for commissioning by MNRE. The amendment provides that any extension in the date of commissioning shall only be for a period of 6 months at a time and shall not be provided more than twice.

Guidelines for tariff based competitive bidding process for grid connected RE projects with energy storage systems

The Ministry of Power, on 9 June 2023, has issued guidelines for tariff based competitive bidding process for procurement of firm and dispatchable power from grid connected renewable energy (“RE”) power projects with energy storage systems (“ESS“) (“Guidelines”).

Some key features of the Guidelines are as follows: (a) The Guidelines apply to distribution licensees, authorized representative(s) or intermediary procurers for long term procurement of firm and dispatchable power from RE power projects with ESS through tariff-based competitive bidding; (b) 100% of annual energy offered by the generator should correspond to RE power with allowance to source up to 5% of the RE power from green market sources or bilateral agreements; (c) the bidder/developer shall either set up storage capacity itself or tie up with ESS developers to meet the project parameters; (d) The successful bidder and procurer must enter into a PPA for a general period of 20 years and up to 25 years; and (e) The supply of power shall generally commence within a period of 24 months from execution of the PPA (if the project size is not more than 1000 MW) and 30 months from execution of the PPA (if the project size is more than 1000 MW).

Carbon Credit Trading Scheme, 2023

The Central Government in consultation with the Bureau of Energy Efficiency (“Bureau”) has notified the Carbon Credit Trading Scheme, 2023 (“Scheme”) on 28 June 2023 that introduces a domestic framework to regulate the Indian carbon market (“Market”). “Carbon Credit” is defined as the value assigned to the reduction or removal or avoidance of greenhouse gas emission and is equivalent to one ton of carbon dioxide equivalent.

The Scheme provides for setting up of a National Steering Committee and identifies other agencies for discharge of specified functions. The Bureau shall be the administrator for the Market and the Grid Controller of India Limited shall act as the registry for the Market. Further, the Central Electricity Regulatory Commission shall be the regulator for the trading activities under the Market. The Scheme also provides for agencies which shall be accredited by the Bureau to carry out verification activities under the Scheme.

Obligated entities successful in reducing their carbon emission will be issued carbon credit certificates, subject to the recommendation of the National Steering Committee. Entities failing to achieve their target reductions will be directed to purchase carbon credits certificate from the Market. The Scheme also sets out detailed procedure for operationalizing the Market.

Amendment to Electricity Rules

The Ministry of Power has notified the Electricity (Amendment) Rules, 2023 (“Amendment Rules”) on 30 June 2023, to amend the Electricity Rules, 2005. Brief overview of the Amendment Rules, is as follows:

Captive Generating Plant of an affiliate company: A new requirement has been introduced by which if a captive generating plant is set up by an affiliate company, a captive user is required to hold at least 51% of the ownership in such affiliate company.
Energy storage system: A captive user is now permitted to use electricity directly or through an energy storage system.
Subsidiary of existing captive user: Consumption by a subsidiary of a company which is an existing captive user is also admissible as captive consumption by captive user.
License period: License period of licensees under Section 14 of the Electricity Act, 2003 (“Act“) shall be: (a) the period specified under the license granted; (b) for deemed licensees, 25 years from the date of the Act coming into force; and (c) automatically renewed for 25 years or lesser period requested by licensee, unless revoked. However, this does not apply to license granted to transmission developers selected through tariff-based bidding under Section 63 of the Act.

Case Summaries

Supreme Court upholds sanctity of contract terms over regulatory powers

In Haryana Power Purchase Centre vs. Sasan Power Ltd. & Ors, the Supreme Court of India (“SC”) on 6 April 2023, held that the Appellate Tribunal of Electricity (“APTEL”) or any other regulatory commission or appellate tribunal cannot utilize their regulatory powers to rewrite the terms of a contract entered into by parties.

In the present case, disputes arose between Sasan Power Limited (“SPL”), the developer of an ultra-mega power project (“UMPP”) and the power procurers (appellants here), regarding claims of ‘change in law’ under the power purchase agreement dated 7 August 2007 (“PPA“). The ‘change in law’ claims were with respect to: (a) increase in costs due to an inaccurate water intake study report provided in the bid documents, based on a subsequent study conducted by SPL through the same agency which had conducted the original study; and (b) levy of customs duty on mining equipment imported for a captive coal mine for use in the UMPP based on an office memorandum by the Joint Secretary, Ministry of Power.

While APTEL rejected the change in law claim, it sent the matter back to the Central Electricity Regulatory Commission (“CERC“) observing that procurers cannot escape liability by way of disclaimers in the bid documents requiring bidders to conduct independent inquiries on matters affecting their bids. APTEL also held that duty exemptions would apply to the project including the coal mining equipment.

The SC agreed that there was no change in law (as ruled by both the CERC and thereafter, APTEL), but held that APTEL exceeded its jurisdiction by going beyond the express terms of the contract despite having concluded that there was no change in law. Further, a ‘change in law’ under the PPA was only after a court, tribunal or government agency being a final authority had declared it so and that a memorandum from an official in a ministry was not to be considered a final authority.

For more information contact:

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

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