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Wednesday, May 27, 2020

Citing ‘force majeure’, ACME Solar terminates 600-MW Rajasthan project

The solar power developer has approached the Central Electricity Regulatory Commission (CERC) to restrain the Solar Energy Corporation of India (SECI) and Power Grid Corporation of India (PGCIL) from invoking bank guarantees and letters of comfort that it had submitted for the project.

By: ENS Economic Bureau | New Delhi | Updated: May 21, 2020 2:20:57 am
During the proceedings, ACME told CERC it had terminated its power purchase agreements (PPAs) with SECI for this project on May 4 “on account of the force majeure events”.

Over a year after it had won a 600-megawatt solar project in Rajasthan at a historically low tariff bid of Rs 2.44 per unit, ACME Solar has terminated the project citing ‘force majeure’ events like the ongoing COVID-19 lockdown. Experts suggest similar cases may emerge.

The solar power developer has approached the Central Electricity Regulatory Commission (CERC) to restrain the Solar Energy Corporation of India (SECI) and Power Grid Corporation of India (PGCIL) from invoking bank guarantees and letters of comfort that it had submitted for the project.

During the proceedings, ACME told CERC it had terminated its power purchase agreements (PPAs) with SECI for this project on May 4 “on account of the force majeure events”. This includes status quo orders by the Rajasthan High Court related to land on which the Fatehgarh substation for the project was to be constructed, the outbreak of Covid-19 and its “adverse impact” on manufacturing facilities of suppliers in China and India as well as the delay in commissioning of associated transmission network elements by other transmission service providers.

“As a consequence of the foregoing, the projects have already been delayed by 15 months and further delay will continue on account of uncertainty due to Covid-19,” stated the company’s counsel during the proceedings. The Indian Express has viewed a copy of the record of the proceedings.

Invoking the ‘force majeure’ clause allows companies to wriggle out of liabilities in case they are unable to fulfil their contractual obligations, on account of extraordinary events or circumstances beyond human control.

According to ACME, its PPAs with SECI require it to commission the entire capacity of the project by May 8, 2021, considering a maximum six month extension allowed from the scheduled commissioning date of November 8, 2020.

“The PPAs do not permit any extension beyond this point for any reason. However, due to delay on account of force majeure events, the petitioner is not able to execute the projects within the time period. Accordingly, performance of obligations under the PPAs has become impossible and thus become void. Therefore, the parties are absolved from their obligations,” ACME’s counsel said.

As the PPAs allow for termination if force majeure events continue for over three months, ACME has argued that it has “validly terminated the PPAs” and has sought the return of its bank guarantees and letters of credit.

“Based on the developer profile, supply chain disruptions, change in financing cost, price bid and anticipated despatch from the project, similar cases may emerge,” said Sambitosh Mohapatra, partner, PwC India, adding, “It would require considered actions with the involvement of all stakeholders and need to avoid cancellations and disputes.”

SECI said it has not accepted the termination of the PPAs, and is disputing ACME’s claim that there has been an event of force majeure. Even if there has been such an event, SECI is disputing that its effect has continued for more than three months. “There was no such event which prevented the petitioners from implementing the power projects,” SECI’s counsel told CERC.

PGCIL, on its part, submitted that ACME had told CERC on March 5 that, since the status quo orders had been vacated by the Rajasthan high court, they had applied for, and have now been granted, four months’ extension for achieving the financial closure, land procurement and scheduled commercial operation date.

“Despite serving force majeure notice dated 26.2.2020 to PGCIL, the petitioners willfully represented to this Commission on 5.3.2020 that commissioning of the projects was under progress, although with the extended timeline. Thus, the only cause of action which can be agitated in the present Petition is with respect to the outbreak of COVID-19 and its impact on the performance of the petitioners’ obligations under the LTAA, TTA and TSA,” stated PGCIL’s counsel.

They argued that ACME “cannot be allowed to escape the liabilities under the contracts entered into it and the regulations of this Commission with regard to abandonment/exit from the project under the guise of force majeure.”

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