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Describe the areas of energy development in the country.
India has a varied energy mix comprising coal, oil and gas, solar, wind, biomass, hydro and nuclear power. India’s energy needs are presently met predominantly through coal-based thermal power followed by hydrocarbons and then clean and renewable energy. The National Institution for Transforming India (NITI Aayog), the government’s policy think tank has released the Draft National Energy Policy 2017. The policy, which is yet to be adopted, recommends a framework to bring about an overarching energy efficiency policy in India by forging coordination between different ministries dealing with electricity. Under the policy, India’s latest energy development goals are as follows: access at affordable prices, greater sustainability, improved security and independence, and economic growth. NITI Aayog is expected to present the integrated energy policy to the Prime Minister by the end of 2018.
Oil and gas
In the oil and gas sector, improved upstream exploration and production policies such as the Open Acreage Licensing Policy and the Hydrocarbon Exploration and Licensing Policy (HELP) have been introduced since 2016 to incentivise private sector participation by addressing pitfalls of the erstwhile New Exploration and Licensing Policy (NELP).
Solar and onshore wind
The renewable energy sector has experienced exponential growth in recent years and various government incentives (both fiscal and non-fiscal) have played a critical role. The government has taken hitherto unprecedented steps to incentivise the development of renewable energy, especially solar and wind, and has set an ambitious target of producing 175GW of renewable energy by 2022. In this regard, record low solar (INR 2.44 /kWh) and wind tariffs (INR 2.43/kWh) were discovered through competitive bidding in 2017. However, as the renewable energy sector has evolved and achieved grid parity, the government aims to gradually roll back the incentives. For instance, renewable energy project developers (along with other power project developers) had the benefit of a 10-year corporate tax holiday that expired earlier this year. Another instance is the proposed withdrawal of an exemption available to renewable energy projects from payment of transmission charges and losses for using the interstate transmission network. More recently, bids for solar power projects have witnessed an upward trend. The MoP’s Tariff Policy, 2016 mandates that 8 per cent of electricity consumption (excluding hydropower) shall be from solar energy by March 2022.
In this regard, the National Solar Mission (NSM), presently in Phase 3 (2017-2022), is a central scheme envisioned to promote solar energy power generation and forms the dominant framework under which solar power procurement is carried out. Solar projects, under either the NSM or state-specific policies, are envisaged to be developed in a phased manner with a target of achieving 100GW (increased from the original target of 20GW) of installed solar capacity by 2022, of which 40GW is proposed to be through rooftop solar projects. To achieve these targets, the central government is developing large solar parks in collaboration with state governments and has also issued detailed guidelines for their development. The intention is to provide ring-fenced, shovel-ready land to the power developer along with associated power evacuation facilities. Among other things, the NSM provides various tax exemptions, capital subsidies and incentives for several components and sub-components of the solar energy value chain.
For onshore wind energy, under the Ministry for New and Renewable Energy (MNRE)’s Policy for Repowering of the Wind Power Projects 2016, Indian Renewable Energy Development Agency (IREDA) provides an additional interest rate rebate of 0.25 per cent over and above the interest rate rebates available to the new wind projects being financed by IREDA. While India aims to auction 30GW of solar energy and 10GW of wind energy every year for the next 10 years, the past year has witnessed a lukewarm industry response to wind power auctions.
The present policy governing Hydro Power Development has been operative since 1998. In March 2018, a draft policy for hydropower projects pertaining to the period 2018-2028 was submitted by the Ministry of Power (MoP) for the Union Cabinet’s approval. Among other proposals, the draft policy contemplates application of a lower goods and services tax (GST) rate of 5 per cent on engineering, procurement and construction (contracts for hydropower projects, and for distribution companies to receive funds (equal to 4 per cent interest subvention for five to seven years of construction and three years after the commissioning of plants) from the central government for signing hydro power purchase agreements for at least five years for encouraging the offtake of hydropower from private power plants.
Coal bed methane, shale gas, natural gas and offshore wind
Further, the government is actively pursuing the exploitation of coal-bed methane (CBM), shale gas, natural gas and offshore wind potential. Applicable to all sectors uniformly, the New Domestic Natural Gas Pricing Guidelines, 2014 (NDNGPG) governs the quarterly pricing of the wellhead gas price based on average price of liquified natural gas (LNG) imports into India and benchmark global gas rates, with a one quarter lag. NDNGPG was applicable to all domestically produced natural gas, irrespective of the source, whether conventional, shale or CBM till 31 March 2019. However, in April 2017, the government notified the Policy Framework for Early Monetization of Coal Bed Methane allowing CBM contractors pricing freedom based on a fully transparent and competitive procedure for sale, thereby excluding the applicability of NDNGPG to CBM. In April 2018, the Cabinet Committee on Economic Affairs waived the requirement on Coal India Limited (CIL) for procuring separate licences from the Ministry of Petroleum and Natural Gas (MoPNG) for CBM extraction from its leasehold areas.
On 20 August 2018, the government notified the Policy Framework for Exploration and Exploitation of Unconventional Hydrocarbons under existing Production Sharing Contracts, Coal Bed Methane Contracts and Nomination Fields that allows existing private production sharing contracts (PSCs) holders of pre-NELP and NELP blocks to explore and exploit unconventional hydrocarbons including, shale oil and gas and CBM.
On 8 November 2018, the Petroleum and Natural Gas Regulatory Board (PNGRB) announced fresh bidding for 50 geographical areas (GAs) for grant of licence to retail compressed natural gas and piped natural gas, in what will be the 10th city gas distribution (CGD) bidding round. While the first 8 rounds of CGD bidding have seen a mixed response from the industry, the 9th and the largest CGD bidding round thus far, involving 86 GAs, was an overall success. In the 9th CGD bidding round that concluded in July 2018, Adani Gas Private Limited, state-owned Indian Oil Corporation, Bharat Petroleum Corporation Limited and Torrent Gas Private Limited were the big winners.
While onshore wind power projects account for a substantial portion of the installed renewable capacity in India, the government issued the National Offshore Wind Energy Policy in September 2015 with an aim to promote the country’s offshore wind energy potential and recently issued an expression of interest (EoI) from suitable and experienced bidders for the development of 1GW of offshore wind energy anywhere within India’s exclusive economic zone.
Additionally, the MNRE in May 2018 issued a National Wind-Solar Hybrid Policy that seeks to optimise the utilisation of infrastructure like land and the transmission system as there are regions in India where wind and solar energy have moderate to high potential. A wind-solar plant will be considered hybrid if the rated power capacity of either source is at least 25 per cent of the rated power capacity of the other source. The policy not only aims at the development of new windsolar hybrid plants but also at the hybridisation of existing wind and solar plants. In furtherance of this the MNRE, in May 2018, issued a scheme for setting up 2,500MW of interstate transmission connected windsolar hybrid power projects. Also, the Solar Energy Corporation of India Ltd recently issued a tender for the development of a 160MW solar-wind hybrid power project with a battery energy storage system. While initially, the policy provided only for battery storage, it was recently expanded to include all forms of storage, such as, pumped hydro, compressed air, flywheel, etc.
Currently there is no regulatory framework governing electricity storage in India. However, in 2016, the central government announced in its Annual Budget the launch of a new programme for energy storage. With a view to develop a regulatory framework to govern energy storage systems in India, the MNRE constituted an expert committee to propose a draft policy to establish a National Energy Storage Mission (NESM) for India and the committee recently submitted the draft policy to the MNRE. The NESM aims to establish a regulatory framework that promotes manufacturing and deployment of battery storage systems. Further, reports suggest that the government is also working on a policy framework to introduce on-site storage integration for wind and solar power projects. In 2017, the government floated tenders for more than 300MW of renewable energy capacity with energy storage systems. However, almost all the tenders were suspended or withdrawn for various reasons. In 2018, the government issued tenders for about 180MW of renewable energy capacity with energy storage systems, which are currently ongoing.
Role of government
Describe the government’s role in the ownership and development of energy resources. Outline the current energy policy.
Article 297 of the Indian Constitution vests eminent domain over all natural resources in the central government. Thus, all aspects of energy development in India are administered by functionaries of the central government. The MoPNG is responsible for overseeing the functioning of the entire oil and gas sector and sets the agenda for the regulation of this sector. It grants leases and licences to private agencies for upstream, midstream and downstream activities. It is also responsible for determining the pricing of gas. Under the aegis of the MoPNG is the Directorate General for Hydrocarbons (DGH), which is the principal authority responsible for regulating the upstream exploration and exploitation of all hydrocarbons in India. The PNGRB is the midstream and downstream regulator that regulates the refining, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas. It is also tasked with the responsibility of resolving disputes between participating entities. The power sector is administered by the MoP and the MNRE. Independent electricity regulatory commissions at the central (Central Electricity Regulatory Commission) and state levels (State Electricity Regulatory Commissions) regulate the distribution and transmission of electricity, and also adjudicate disputes between various stakeholders.
Previously, the Integrated Energy Policy 2006 (IEP) was the key policy document that articulated the energy policy objectives. The NITI Aayog’s draft National Energy Policy dated 27 June 2017, which is expected to be presented to the Prime Minister soon, will replace the IEP. Some of the salient features of the draft National Energy Policy are:
- creating the requisite infrastructure to facilitate 24/7 electricity by 2022;
- promoting the growth of gas over oil;
- ending the government-owned CIL’s monopoly by encouraging private participation in coal mining;
- introducing an independent regulator for coal, oil and gas;
- ensuring sustainable growth by focusing on clean energy and meeting environmental concerns; and
- replacing government subsidies in the energy sector with direct benefit transfers.
On a broader policy canvas, the government appears to be determined to promote and develop renewable energy and is taking several measures to fine-tune the policy and regulatory framework. In addition to the Tariff Policy, 2016, some of the salient legislative and policy changes proposed are:
- provisions in the proposed amendments to Electricity Act, 2003 (issued by MoP on 22 May 2018), with specific focus on renewable energy; and
- proposed separate legislation for renewable energy (ie, the National Renewable Energy Act) for addressing issues that are not dealt with under the Electricity Act 2003.
Some of the key changes proposed to be introduced through these amendments are:
- mandatory renewable energy generation obligations;
- promotion of low-cost financing;
- grid connectivity provisions specific to renewable power;
- compliance planning by obligated entities for renewable purchase obligations;
- payment security for renewable energy developers; and
- promotion of net metering.
Commercial/civil law – substantive
Rules and industry standards
Describe any industry-standard form contracts used in the energy sector in your jurisdiction.
Until recently, contracts for exploration and exploitation of oil, including hydrocarbons, were granted under NELP, which was launched by the government in February 1999. NELP provided a broad policy framework for the grant of licences to parties chosen through competitive bidding to explore and exploit hydrocarbons. In view of various disputes between operators and the government under the NELP regime, NELP was replaced by HELP in 2016. Under HELP, the DGH has released a model revenue sharing contract (RSC) and a model reconnaissance contract (RC). The key difference between NELP and HELP is that the profit sharing mechanism under the former has now been replaced by a revenue-sharing model. Under the profit sharing model, profits were shared between the government and the contractor after recovery of cost. As the ascertainment of the cost incurred by the contractor was often controversial, this led to many delays and disputes. Under HELP, the government receives a share of the gross revenue from the project. Further, under NELP the government used to identify blocks and thereafter initiate competitive bidding to select a successful bidder, which led to delays. However, under HELP, any party can submit a suo motu EoI on the basis of the information available in the National Data Repository, a technical database of information on Indian sedimentary basins. On receipt of an EoI, the government will assess it against the qualification criteria outlined in HELP. Once an EoI is accepted, the government will conduct a competitive bid to award the block or area demarcated in such EoI for an RC or RSC, as the case may be.
The model RSC sets out the terms and conditions of the licence, such as the period of operation, contours of the work programme, rights and obligations of parties, environmental protection measures to be taken, confidentiality standards to be maintained, etc. The model RC regulates reconnaissance operations for all kinds of hydrocarbons for a period of two years.
Some other standard-form contracts include:
- Fuel supply agreements released by Coal India Limited (CIL) that govern the purchase of coal from CIL and its subsidiaries. CIL is practically a monopoly in the commercial mining of coal as mines allocated to the private sector are typically for an exclusive pre-specified end use.
- Model design-build-finance-own-operate (DBFOO) and design-build-finance-own-transfer (DBFOT) contracts have been issued by the MoP for long-term procurement of thermal power by distribution utilities. Under the DBFOO model, a licensed distribution licensee invites bids to procure a fixed quantum of power, while also prescribing the type of fuel and technology that is to be used for such supply. Under the DBFOT model, one or multiple government agencies may collectively invite bids for setting up projects on the basis of the lowest tariff, while also specifying the fuel and location of the project (which is required to be arranged by the government agency).
- On 3 August 2017, the MoP notified the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects, whereby power purchase agreements and power supply agreements have been standardised for competitive bids.
What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?
The substantive law regulating contracts in India is the Indian Contract Act 1872 (ICA). The first principle that Indian courts typically bear in mind while construing commercial contracts is to give effect to the explicit words used by the parties. Where the words used in a contract are clear, Indian courts refrain from resorting to external aids of interpretation. However, when multiple interpretations are permissible, courts typically construe a term considering the meaning that the word has acquired in established trade usage. Further, commercial contracts are generally construed in a harmonious fashion, to ensure that the interpretation of one part of the contract does not do violence to other parts. Another principle that is applied in the construction of commercial contracts is the contra proferentem rule. In accordance with this rule, any ambiguity in a contractual provision has to be construed against the party that drafted the contract. This rule is particularly relevant in the Indian energy sector as the majority of contracts are standard form agreements drafted by the government.
Where the explicit terms of a contract are unclear as to the intention of the parties, courts occasionally apply the ‘business efficacy’ test, which is an interpretation to achieve the purpose intended by the parties acting as prudent businessmen. The Indian Supreme Court has recently held in its judgment in Nabha Power Limited v Punjab State Power Corporation Limited & Anr (2018) 11 SCC 508, that implied conditions may be read in to interpret a contract in five limited circumstances:
- when the same appears reasonable and equitable;
- when it is necessary to give business efficacy to the contract;
- when such words go without saying;
- when the conditions are capable of clear expression; and
- the conditions must not contradict any express term of the contract.
The ejusdem generis rule is also regularly invoked by Indian courts to interpret general phrases appearing at the end of list of specific terms forming part of the same class or category of terms. The construction of such a generic phrase is limited by the subject matter and context of the specific terms. The ejusdem generis rule is a facet of the broader noscitur a sociis rule, which stipulates that a term must be interpreted in the context of the terms associated with it, unless a contrary intention appears from the contract.
Describe any commonly recognised industry standards for establishing liability.
In oil and gas contracts, such as the model RSC under HELP, contractors are obligated to adopt Good International Petroleum Industry Practices (GIPIP). In 2016, the DGH released a consolidated list of what constitutes GIPIP in key areas, such as: exploration and operations; discovery; production; health, safety and environment; and procurement procedure. Similarly, the erstwhile model PSC contained the concept of reasonable prudent operator, which held an operator to a standard equivalent to a reasonable operator in the same or similar circumstances. Besides GIPIP in HELP, a key parameter against which the conduct of most stakeholders in the energy sector is assessed is ‘prudent utility practices’. Typically, these are defined as internationally accepted best practices adopted by similarly placed operators, which account for the operation and maintenance guidelines provided by original equipment manufacturers; the requirements of applicable law; the physical conditions of the site; and the safety of the environment and personnel. Claims for exemption from liability would need to be substantiated by establishing that an operator acted with reasonable care and foresight by doing all in its power to avoid the occurrence of any injury or accident by following internationally accepted best practices.
Indian courts have construed the term ‘wilful misconduct’ to mean misconduct that is of a more serious nature than misconduct simpliciter, and must therefore satisfy a higher threshold. The Supreme Court in Shiv Nath Rai Ram Dhari and Ors v Union of India AIR 1965 SC 1666 has construed misconduct to mean ‘mere negligence or omission would not be enough but that negligence or omission should be such that a businessman would say that it amounted to bad management or mismanagement’.
Further, a party undertaking an energy project is also required to be cognizant of relevant environmental law standards as it can be held liable for any environmental damage resulting from its actions. Indian courts have recognised some important principles in this regard. As per the precautionary principle, an entity undertaking any operations that have environmental consequences is bound to take all precautionary measures permissible to ensure that its actions do not result in the causation of any environmental damage. Similarly, as per the polluter pays principle, if any negative environmental consequences result from the actions of a party, it is duty bound to pay for the same.
As per article 14 of the model RSC under HELP, an energy developer is required to take necessary and adequate steps to prevent or minimise environmental damage, provide adequate compensation to those affected and ensure that its operations are conducted in an environmentally safe and acceptable manner. These obligations have also been imposed on energy developers conducting reconnaissance operations under article 16 of the model RC.
Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?
Yes. The concepts of force majeure and frustration are recognised under Indian law. However, commercial impracticability or the coming into existence of more onerous commercial conditions is not recognised as a valid basis to excuse performance. The Supreme Court has held in the case of M/s Dhanrajamal Gobindram v Shamji Kalidas 1961 AIR 1285 that a force majeure event is one that is beyond the control of the parties. Further, a party must take all possible measures to mitigate the impact of a force majeure event, and cannot claim relief for such periods by which it ought to have recovered from the effects of a force majeure event.
A comprehensive force majeure clause finds mention in the HELP model RSC (article 29) and model RC (article 13). These articles are identically worded. The article clarifies that a party is exempted from any liability flowing from a delay in performing its obligation or for non-performance if the reason for such delay or non-performance is a force majeure event. The key parameter for ascertaining if an event constitutes force majeure is if it was entirely beyond the control of the party in question and the article sets out a non-exhaustive indicative list of the same. It bears noting, however, that the mere unavailability of funds is expressly excluded from the definition of force majeure. Force majeure relief is typically contingent on the prompt provision of adequate notice to the counterparty within a fixed time frame of the occurrence of the event, setting out the details of the event and its consequences.
Section 56 of the ICA absolves a party of the obligation to perform a contract when its performance becomes impossible (ie, when the contract stands frustrated). In a leading judgment in the case of Energy Watchdog v Central Electricity Regulatory Commission and Ors (2017) 14 SCC 80, the Supreme Court held in the context of a power purchase agreement that relief for force majeure cannot be sought solely on the ground of performance of a contract becoming more commercially onerous. If alternative modes of performance remain open, the doctrines of force majeure or frustration do not come into play.
Following the Energy Watchdog v Central Electricity Regulatory Commission and Ors (2017) 14 SCC 80 judgment, the state government of Gujarat set up a three-member high-powered committee on 3 July 2018 to find solutions for the three thermal power plants located in the state that were facing closure due to unviability. The committee has recommended measures that would, inter alia, pass on the cost of the force majeure events to consumers through tariffs. On the basis of the recommendations of the said high-level committee, the Supreme Court has granted the three generators liberty to approach the Central Electricity Regulatory Commission for approval of amendments to their existing power purchase agreements to enable their continued viability.
What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?
In India, nuisance constitutes a crime as well as a tort. Under section 268 of the Indian Penal Code 1860 (IPC), any person who engages in any conduct that causes any common injury, danger or annoyance to the public is guilty of public nuisance. The Criminal Procedure Code, 1973 lays down the procedural scheme for punishing a party for committing public nuisance. Whenever the appropriate magistrate arrives at a finding that any activity is causing public nuisance, he or she is empowered to issue a conditional order for the stoppage of such activity. After hearing the accused, the magistrate is empowered to make such order absolute. Further, the Magistrate is authorised to prohibit the continuation of the public nuisance, an unlawful act; and damage, actual or presumed.
In the realm of tort law, a civil suit can be filed under the Civil Procedure Code 1908 (CPC) against any party committing public nuisance. The Advocate General or two or more persons with the consent of the Advocate General, even if they are not specially impacted by the nuisance, can institute such a suit. The relief of a declaration that the practice in question constitutes nuisance or an injunction against those causing the nuisance can be sought. As per the Supreme Court’s judgment in Rafat Ali v Sugjani Bai (1999) 1 SCC 133, the following two parameters must be satisfied for proving the commission of nuisance: an unlawful act; and damage, actual or presumed.
Operators in the energy sector may also be held liable for negligence in certain cases. According to the Supreme Court’s judgment in Poonam Verma v Ashwin Patel (1996) 4 SCC 332, the following parameters must be established for proving the commission of negligence: a legal duty to exercise due care; breach of the duty; and consequential damages.
Consequently, an entity developing energy projects can be held liable for nuisance or negligence if it can be established that its conduct meets the aforementioned criteria by a third party.
Liability and limitations
How may parties limit remedies by agreement?
Parties have wide contractual freedom to limit available remedies, and courts are typically slow to override such freedom. However, damages are not awarded to penalise the party that has breached the contract, or to reward or confer any benefit or gain on the affected party, over and above the actual loss suffered by it. Liquidated damages clauses in respect of specific breaches of contract, general liquidated damages clauses and overall limitation of liability clauses are common in Indian energy contracts. That said, the Supreme Court’s judgment in Kailash Nath Associates v Delhi Development Authority (2015) 4 SCC 136 holds that liquidated damages can only be awarded if they are a genuine pre-estimate of the losses incurred. Even where a contract contemplates liquidated damages, if the extent of damages is ascertainable, the party affected by a breach would only be entitled to reasonable compensation. Thus, liquidated damages are treated as a maximum cap, subject to proving actual loss as a matter of evidence. The fundamental principle of damages for a breach of contract is that these are awarded to place the injured party in the same position in which it would have been, had the breach not occurred. Further, damages are awarded to compensate for losses that arise in the normal course of events because of the other parties’ breach and not for indirect or remote losses.
Under the ICA, an explicit prohibition is imposed on the ‘contracting out’ or waiver of certain rights, such as the right to judicial redress and the right to exercise a lawful profession, trade or business. Similarly, the Supreme Court has recently held in the case of All India Power Engineer Federation & Ors v Sasan Power Ltd & Ors (2017) 1 SCC 487 that where a bilateral waiver of any contractual right ultimately has an adverse impact on public interest, it will not be given effect to.
Under article 4.7 of the model RSC, the liability of a contractor is limited to any damage arising out of anything connected with the contract from the effective date of the contract up to the date of relinquishment. As per article 14.10, the liability of a contractor is confined to any damage that occurs to the environment after the effective date of the contract and is attributable to any act or omission of the contractor.
Is strict liability applicable for damage resulting from any activities in the energy sector?
Yes. Indian courts have evolved the concept of ‘absolute liability’, which is an even higher standard than strict liability. In the case of MC Mehta v Union of India (1987) 1 SCC 395, the Supreme Court transformed the doctrine of strict liability into absolute liability. As per the doctrine of absolute liability, where an entity is engaged in a hazardous or inherently dangerous activity, it is obligated to ensure that no harm results from such activity under any circumstances. Consequently, the entity must conduct its operations with the highest standards of safety, and it cannot escape liability by contending that it was not negligent.
The leading case where absolute liability was applied is the case of Union Carbide Corporation v Union of India 1990 AIR 273. The Supreme Court upheld the principle of ‘absolute liability’, which applies without limitation or exception and is applicable squarely to enterprises that are involved in hazardous or inherently dangerous activities. Unlike other tort claims where the remoteness of damage and the likelihood of its foreseeability is considered, in absolute liability, any person undertaking such hazardous activity will have to be prepared for the most unlikely situations as well. Undertaking exploration and drilling activities especially in eco-sensitive zones may attract the principle of absolute liability.
Under section 4(4) of the Civil Liability for Nuclear Damage Act (CLND Act), an operator is strictly liable for any damage arising out of a nuclear accident. As per section 6(2), the liability of such an operator is capped at 15 billion rupees. As per section 5(1) of the CLND Act, if the accident arises because of a force majeure event, like a natural disaster or armed conflict, the central government, and not the operator, is liable. The liability of the central government is capped at US$415 million. Further, section 5(2) of the CLND Act contains a proviso stating that any compensation liable to be paid by an operator for nuclear damage (payable in accordance with section 4 of the CLND Act) shall not have the effect of reducing the amount of its liability under any other Indian laws. Hence, it is possible for concurrent claims under the CLND Act, tort law and under Indian criminal law.
Commercial/civil law – procedural
How do courts in your jurisdiction resolve competing clauses in multiple contracts relating to a single transaction, lease, licence or concession, with respect to choice of forum, choice of law or mode of dispute resolution?
The cardinal principle that governs the approach of courts in construing such conflicting clauses is the rule of harmonious construction. In accordance with this principle, any contract or suite of contracts are to be construed in a harmonious and holistic fashion to ensure that effect is given to all its provisions and no provision is rendered redundant. If a conflict is unavoidable, then courts look to the overall purpose and intention of the parties to reconcile the same.
In case of any conflict between multiple provisions, Indian courts generally strive to make the contractual arrangement workable in a reasonable and pragmatic fashion, by making good any omissions that can help make the contract workable. For instance, in the case of Enercon (India) Ltd & Ors v Enercon GmBH & Anr (2014) 5 SCC 1 an arbitration agreement provided for a tribunal of three arbitrators to be appointed but delineated the procedure only for the appointment of two arbitrators. In such a situation, the Supreme Court held that, given that the parties’ intention to arbitrate was clear, the agreement had to be construed in such a fashion as to give effect to the intention of the parties, which is the governing consideration in all such cases.
Are stepped and split dispute clauses common? Are they enforceable under the law of your jurisdiction?
Stepped or multi-tier dispute resolution clauses envisaging attempts at amicable settlement before arbitration are common in India. So long as parties have made a bona fide attempt to resolve their dispute amicably before resorting to arbitration, strict compliance with any technical procedures for resorting to arbitration is not insisted upon. Under the dispute resolution clause of the model RSC (article 31) and RC (article 14), the dispute resolution clause is multi-tiered. First, the parties are to attempt to amicably resolve the dispute. Second, the parties have the option of referring their dispute to an independent sole expert of international repute, in which case the agreement stipulates that no arbitration proceedings will be initiated. Third, the parties have the option of referring their dispute to conciliation in accordance with the provisions of the Arbitration and Conciliation Act 1996 (Arbitration Act) during which no arbitration proceedings shall be instituted. Lastly, the parties may initiate arbitration proceedings by each appointing an arbitrator. The arbitrators so appointed are to appoint a presiding arbitrator. The venue and seat of the arbitration is to be New Delhi, and the arbitration is to be conducted in accordance with the rules set out in the Arbitration Act.
In Visa International Ltd v Continental Resources (USA) Ltd (2009) 2 SCC 55, the Indian Supreme Court dealt with a case in which arbitration was envisaged on a failure of the parties to settle the dispute amicably. Holding that the exchange of letters and correspondence between the parties was sufficient for satisfying this condition, the court held that conducting formal conciliation proceedings was not a precondition to the commencement of arbitration. Thus, while stepped arbitration clauses are common and enforceable in India, courts will analyse the facts of each case to determine whether requiring the parties to strictly follow the pre-arbitration steps would be fruitful or practicable. Moreover, notwithstanding the language of the dispute resolution clause in the model RSC and RC contemplating a binding decision to be passed by a sole expert, such a decision may not preclude a party from initiating arbitration proceedings after the sole expert’s decision is delivered.
Split-dispute resolution clauses are not common in India.
How is expert evidence used in your courts? What are the rules on engagement and use of experts?
Indian courts consider expert evidence and statements of witnesses in accordance with the provisions of the Indian Evidence Act 1872 (IEA). Expert evidence typically has more value, followed by documentary evidence. Indian courts have consistently held that the testimony of experts deserves due consideration but cannot be the sole basis for a court to arrive at a finding. In Magan Bihari Lal v State of Punjab (1977) 2 SCC 210 it was held that expert evidence cannot be the sole basis for a court to arrive at a finding. Expert evidence is subject to cross-examination and rebuttal by equally placed experts.
What interim and emergency relief may a court in your jurisdiction grant for energy disputes?
Courts in India have extensive powers to grant interim relief including temporary injunctions under the CPC, which is the procedural law governing the adjudication of civil disputes. Such injunctions may be granted to:
- preserve subject matter of dispute;
- maintain status quo;
- prevent a person from removing or alienating property; and
- prevent a party from creating any third-party rights over property.
The court may also direct the defendant to furnish security, attach any property and issue a warrant to arrest the defendant who is absconding or has left the local limits of the court’s jurisdiction, before the judgment is pronounced. The court may also order the freezing of the defendant’s assets to prevent them from being taken abroad (Mareva injunction) or order the defendant to permit the plaintiff to enter into the former’s premises to obtain evidence essential to the plaintiff’s case (Anton Piller order).
Similarly, in an arbitral proceeding, under section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), civil courts are vested with the power to grant interim relief aimed at preserving the property or goods that are the subject matter of arbitration so as not to frustrate the purpose of conducting the arbitration. Under section 17 of the Arbitration Act, the arbitral tribunal is vested with the power to grant interim relief during the pendency of the arbitration proceedings and before the enforcement of the award.
In exceptional cases, where it is established that there is egregious fraud, irretrievable injustice or that there exist special equities, courts are also empowered to injunct the invocation of bank guarantees.
What is the enforcement process for foreign judgments and foreign arbitral awards in energy disputes in your jurisdiction?
Under the CPC, a foreign decree can be enforced in India as a decree of an Indian court if it has been passed by a reciprocating territory. If a decree has been passed by a non-reciprocating territory, such as the United States, it can be enforced in India only by filing a fresh civil suit in an Indian court in which the foreign judgment merely has evidentiary value. The Indian government has recognised 12 reciprocating territories, including the United Kingdom, Singapore, Bangladesh, UAE and Malaysia. It bears noting, however, that a foreign judgment is not enforceable in India if it suffers from any of the legal infirmities outlined in section 13 of the CPC, which include:
- judgment not being pronounced by a court of competent jurisdiction;
- where it has not been given on the merits of the case;
- where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable;
- where the proceedings in which the judgment was obtained are opposed to natural justice;
- where the judgment has been obtained by fraud; and
- where it sustains a claim founded on a breach of any law in force in India.
Insofar as foreign arbitral awards are concerned, the Arbitration Act provides for their enforcement as a decree of an Indian court. India is a signatory to the New York Convention, 1960, and the Geneva Convention, 1924. The award must have been passed in a territory recognised as a signatory to the Geneva or New York Conventions.
Under Indian law, there is an added requirement for the country (in which the award has originated) to be notified in the official gazette of India. Around 50 countries have thus far been recognised by India, including the United States, United Kingdom, France and Germany. For the award to be enforceable, however, it must not suffer from legal infirmities such as being contrary to the public policy of India. The Arbitration Act clarifies that an award would be in contravention of public policy only if: the award is induced by fraud or corruption; the award is in contravention of fundamental policy of Indian law; or the award conflicts with basic notions of morality or justice. A foreign award or an award in an international commercial arbitration will not be reopened on the grounds that it is simply contrary to Indian law or by re-appreciating evidence. Thus, in the case of reciprocating territories, foreign awards may be enforced by approaching a competent civil court to make the foreign award a decree.
Alternative dispute resolution
Are there any arbitration institutions that specifically administer energy disputes in your jurisdiction?
Is there any general preference for litigation over arbitration or vice versa in the energy sector in your jurisdiction?
Parties generally prefer arbitration over litigation given the possibility of expeditious disposal and confidentiality of proceedings.
Are statements made in settlement discussions (including mediation) confidential, discoverable or without prejudice?
As per section 75 of the Arbitration Act, all matters connected with the conciliation proceedings must remain confidential. The section makes clear that confidentiality also extends to the settlement agreement, unless disclosure of the information is necessary for implementation or enforcement of the agreement.
Similarly, under the CPC, a civil court is empowered to refer a matter to mediation. All proceedings in such a court-referred mediation must remain confidential. Further, parties typically insert a confidentiality clause in settlement agreements that clarifies that the terms of the settlement as well as discussions leading up to it must remain confidential.
As regards communications made ‘without prejudice’, section 23 of the IEA clarifies that when an admission is made by a party with the express stipulation that evidence of it must not be given, or when such an admission relates to settlement discussions, such an admission cannot be used against the party making it. As per the Supreme Court’s judgment in the case of Peacock Plywood v Oriental Insurance (2006) 12 SCC 673 the phrase ‘without prejudice’ must always be construed in the context in which it appears and with regard to the object that it seeks to achieve. Thus, while the legal entitlements of a party cannot be taken away by using the phrase ‘without prejudice’, use of the phrase can ensure that any admissions made by a party during settlement discussions are otherwise not used against it.
Privacy and privilege
Are there any data protection, trade secret or other privacy issues for the purposes of e-disclosure/e-discovery in a proceeding?
Indian courts are empowered to order proceedings to remain confidential in particularly sensitive matters. Generally, courts devise a suitable mechanism on a case-by-case basis to ensure preservation of confidentiality and privacy of information that forms the subject matter of discovery or disclosure in a judicial proceeding. For example, in the case of M Sivasamy v M/S Vestergaard Frandsen 2009 SCC OnLine Del 2310, a division bench of the Delhi High Court held that information forming the subject matter of discovery had to be provided in a sealed cover to preserve its confidentiality. The court observed that a suitable mechanism must be designed to ensure that the information is not disclosed to more people than necessary and that the interests of any party are not undermined by such disclosure.
What are the rules in your jurisdiction regarding attorney-client privilege and work product privileges?
Professional communication between a client and his or her attorney has been afforded complete protection under sections 126 to 129 of the IEA, 1872. In accordance with section 126, an attorney or advocate is prohibited from disclosing any communication made to him or her during employment as an attorney unless such communication was made for an illegal purpose or if the attorney has observed, during the course of the professional relationship, that any fraud or crime has been committed by the client. The obligation to not disclose such information exists even after the employment has ceased. The Bar Council of India Rules stipulate that ‘An advocate shall not, directly or indirectly, commit a breach of the obligations imposed by section 126 of the Indian Evidence Act.’
As regards work product privilege, there is no specific statutory provision or judgment in India dealing with this species of attorney-client privilege. However, it is likely to fall within the auspices of attorney-client privilege.
Must some energy disputes, as a matter of jurisdiction, first be heard before an administrative agency?
No, all energy disputes are heard by quasi-judicial statutory regulatory bodies that have been set up for this purpose or directly by civil courts of competent jurisdiction. Under the model RSC and RC, disputes are resolved through ad hoc arbitration. In the midstream and downstream oil and gas sector, the PNGRB is the authority that adjudicates disputes between parties. In the power sector, independent electricity regulatory commissions have been established and empowered to adjudicate disputes at the central and state levels, that is, the Central Electricity Regulatory Commission and State Electricity Regulatory Commissions, respectively.
Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.
Oil and gas
- MoPNG - responsible for regulating the oil and gas sector, grant of licences, leases, determination of prices, etc;
- DGH - principle authority for regulating the exploitation of hydrocarbons; and
- PNGRB - established under the Petroleum and Natural Gas Regulatory Board Act 2006 (PNGRB Act) and is responsible for regulating the refining, processing, and other activities connected to petroleum products. It also resolves disputes enumerated in the PNGRB Act.
- MoP formulates the general policy in the electricity sector, deals with hydro-electric power, thermal power, administration of the Electricity Act 2003, matters relating to Central Electricity Authority, Central Electricity Board and Central Electricity Regulatory Commission, rural electrification, power schemes, energy conservation and energy efficiency.
- MNRE - research, design, manufacture and development of new devices, conduct survey, assessment, mapping, identify areas that need renewable energy products, deploy strategies for these new products and provide cost-competitive new and renewable energy supply options.
- Central Electricity Regulatory Commission and State Electricity Regulatory Commissions - performing mandatory functions outlined under the Electricity Act 2003 such as approving tariff and adjudicating disputes under the Act and advisory functions such as formulating National Electricity Policy and taking measures for promoting competition in the sector.
- Central Electricity Authority - responsible for advising the government on the formulation of the National Electricity Policy and for assisting in the formulation of technical and safety standards with which stakeholders in the power sector must comply.
The Department of Atomic Energy of the government governs development of nuclear energy.
The setting up of a Coal Regulatory Authority has been in active contemplation for a few years. While the Coal Regulatory Authority Bill 2013, which envisaged the setting up of such an authority has lapsed, the draft National Energy Policy envisages its setting up.
Access to infrastructure
Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?
The principle of open access, in accordance with which a party is empowered to use the transmission or distribution infrastructure developed by others on the payment of the required charges, has been explicitly recognised in many laws in the energy sector.
Under the PNGRB Act, section 2(J) empowers the PNGRB to declare any pipeline for the transportation of petroleum, petroleum products or natural gas a ‘common carrier’ that allows multiple entities to access such pipelines on a non-discriminatory basis on the payment of the required amount. Similarly, section 2(M) empowers the PNGRB to declare a pipeline for transporting petroleum, petroleum products or natural gas a contract carrier that empowers multiple entities to access the aforementioned facilities in accordance with a firm contract.
A similar open access regime is envisaged by the Electricity Act 2003. Section 2(47) of the Act empowers the appropriate commission to issue regulations for the non-discriminatory use of transmission lines or distribution systems by licensees, consumers and all other entities involved in electricity generation. Section 38(2)(d) and section 39(2)(d) of the Act impose a duty on the Central Transmission Utility and the State Transmission Utility respectively to provide non-discriminatory access to their transmission facilities to licensees or generating companies by imposing the necessary transmission charges and the prescribed surcharge in accordance with the provisions mandating open access. Similarly, section 40(c) of the Act imposes an obligation on transmission licensees to provide access to their transmission facilities on the payment of the required charges and surcharge.
Finally, India’s competition law regime is still developing, but as India’s competition law jurisprudence develops further, the competition regulator, the Competition Commission of India may use provisions in the Competition Act 2002 to compel monopolists to share essential facilities that their competitors need to be able to effectively compete with them in the market.
What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?
Decisions taken by administrative agencies in the energy sector are amenable to challenge, usually under the extraordinary writ jurisdiction of the high courts provided for in article 226 of the Indian Constitution. It bears noting, however, that the scope of the court’s power in this regard is very limited. Generally, courts do not probe the wisdom or desirability of any administrative policy but only interfere with the policy if it is arbitrary, completely unreasonable or violative of the fundamental rights guaranteed by the Indian Constitution. Further, non-judicial procedures to challenge the decisions of any energy regulator are not available. Guidelines may be framed by the appropriate government on specific issues under the PNGRB Act and the Electricity Act 2003.
What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?
While the grant of permission for fracking has been a hotly contested issue in India, the government has taken measures in recent years to put in place the appropriate regulatory architecture to promote fracking.
In October 2013, the MoPNG issued its maiden Shale Gas Guidelines, which prohibit shale gas exploration by private parties and only permit government-owned Oil India Limited and Oil and Natural Gas Corporation to conduct prospecting operations in non-conventional energy blocks.
However, under HELP, both private and public-sector entities are to be issued a single licence for exploring conventional and non-conventional energy, which would potentially include fracking. News reports indicate that private investors are awaiting the issuance of guidelines for fracking under HELP.
Further, on 14 August 2017, the Ministry of Labour of the government of India issued Oil Mine Regulations 2017, which define fracturing as: ‘the process of forcing a fluid in the sub-surface strata with the purposes of enhancing flow passages’. According to Regulation 74 of these Regulations, certain precautions must be observed while conducting fracturing operations, such as:
- ensuring that fracturing operations are conducted under the direct supervision of an authorised official;
- creating optimal conditions near the well where fracturing is taking place;
- ensuring that pumping units are located at a safe distance from the wellhead; and
- anchoring and securing all high-pressure pipes.
Other regulatory issues
Describe any statutory or regulatory protection for indigenous groups.
Under the Indian Constitution, the fifth and sixth schedules protect the interests of the scheduled tribes. Under the fifth schedule, the interests of the scheduled tribes have to be protected in the scheduled areas. This schedule envisages the setting up of a Tribes Advisory Council and vests the governor of the concerned state with wide powers to safeguard the interests of the tribal population living in the scheduled areas.
Under the sixth schedule, the formation of autonomous districts and regions in the states of Assam, Meghalaya, Tripura and Mizoram for the effective protection of the tribal population residing in these states has been envisaged. Further, under the Schedule Tribes and other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, special statutory protection for traditional forest dwellers and scheduled tribes has been envisaged. In addition, under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013, a separate chapter has been created for the protection of the interests of scheduled tribes in the process of land acquisition. Measures envisaged by this chapter include:
- acquiring land belonging to the scheduled tribes as a last resort;
- formulation of a special development plan for members of these communities whose land is acquired;
- payment of one-third instalment upfront; and
- providing resettlement in the same area to the extent possible.
Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.
In India, 100 per cent foreign direct investment (FDI) is envisaged for companies intending to participate in power generation, transmission, distribution and trading, with the exception of nuclear power. Further, up to 49 per cent foreign investment is envisaged in power exchanges, consisting of 26 per cent FDI and up to 23 per cent foreign institutional investment.
One hundred per cent FDI is allowed under the automatic route for exploration activities in oil and gas fields, infrastructure associated with marketing of petroleum products and natural gas, natural gas pipelines, LNG regasification infrastructure, refinement of petroleum products, etc.
Finally, up to 49 per cent FDI under the automatic route is permitted for petroleum refining activities by public sector undertakings.
As regards legal and regulatory barriers in oil and gas exploration, foreign investors, like Indian investors, have to comply with financial and technical criteria for engaging in competitive bidding under HELP. In addition, the model RSC and RC lay down the terms and conditions in accordance with which such operations are to be conducted, which must be complied with by foreign investors as well.
What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?
Companies in the energy sector face potential liability under environmental laws dealing with environmental, water and air protection and under the IPC.
Under the Environment Protection Act 1986, which lays down the standards for environmental safety that must be complied with, any contravention of the provisions of the act gives rise to imprisonment for a term which may extend up to five years or a fine up to 100,000 rupees. Similarly, under the Water (Prevention and Control of Pollution) Act 1974 and Air (Prevention and Control of Pollution) Act 1981, different penalties have been prescribed for the contravention of different provisions of these acts. If no specific penalty is prescribed for the contravention of a specific provision, the penalty envisaged by the acts is imprisonment for a period up to three months and a fine of 10,000 rupees.
All these acts also envisage the penalisation of a company responsible for committing the offences set out under these acts. In such a case, any person who is directly in charge of or responsible for the affairs of a company or with whose consent or connivance an offence is committed is to be held liable under these acts.
Under the Water and Air Act, the Central and State Pollution Control Boards are also empowered to issue directions for carrying into effect the provisions of these acts. Further, the terms and conditions subject to which environmental clearance for setting up any project is granted must also be complied with.
As per section 27 of the Petroleum Act 1934, in case of commission of an accident or explosion, the operator is liable to inform the nearest magistrate about the same in an expeditious time frame. Further, under the IPC, those dealing with poisonous substances, combustible material or explosive substances are obligated to deal with them in a prudent fashion. In case of any rash or negligent conduct in dealing with these materials, imprisonment up to six months and a fine of 1,000 rupees is envisaged. The IPC punishes those engaging in rash or negligent conduct resulting in the causation of death with imprisonment for a period that may extend up to two years, or a fine, or both.
Sovereign boundary disputes
Describe any actual or anticipated sovereign boundary disputes involving your jurisdiction that could affect the energy sector.
Is your jurisdiction party to the Energy Charter Treaty or any other energy treaty?
India is not a party to the Energy Charter Treaty, Lisbon 1994. However, news reports indicate that India has been contemplating signing the treaty to obviate the need to enter into multiple bilateral treaties.
Other multilateral energy treaties or declarations to which India is a party include: Cebu Declaration on East Asian Energy Security, the Statute of the International Atomic Energy Agency and the Statute of the International Renewable Energy Agency.
Describe any available measures for protecting investors in the energy industry in your jurisdiction.
The most robust instrument for safeguarding the interests of foreign investors are bilateral investment treaties (BITs), which India has entered into with most nations whose businesses invest in the energy sector in India. India has executed around 73 BITs. These BITs contain clauses that prevent expropriation or wrongful taking of the property of investors, most favoured nation clause for providing conditions most conducive to foreign investors, national treatment principle as per which Indian and foreign investors must be treated on an equal footing, and fair and equitable treatment clause for ensuring that foreign investors are treated in a fair manner.
Describe any legal standards or best practices regarding cybersecurity relevant to the energy industry in your jurisdiction, including those related to the applicable standard of care.
As per article 24 of the model RSC, the data collated by a contractor is the property of the government and must be shared with it. Such data must be kept strictly confidential (as per article 24.4) and can only be shared in the following circumstances:
- with contractors or sub-contractors and affiliates for the purpose of petroleum operations;
- with labs, data consultants, processors, etc, for the purpose of performing functions related to the petroleum contract;
- with banks and other financial institutions in connection with petroleum operations;
- with bona fide assignees or transferees of the participating interest of a contractor;
- when the same is required by law or share market regulations where the shares of a party are listed;
- with government departments for the preparation of statistical reports connected with petroleum operations; and
- data or information that is generally known by the public.
Any third party with whom data is shared is also bound to keep it confidential.
As per article 7.2.1 of the model RC, any party receiving the reconnaissance data is bound to keep the information confidential and not to use it for any other purpose apart from reconnaissance operations. Such a party is also prohibited from disclosing the information to any other party except on a need-to-know basis and provided that the receiving party agrees to abide by the same standards of confidentiality. The contractor has to recognise that reconnaissance data is the proprietary information of the government and has to return the same to the government when its use is over. The contractor and any third-party licensee must also enter into a confidentiality agreement.
As per section 43A of the Information Technology Act 2000, if a body corporate does not adopt reasonable security practices and procedures in storing sensitive personal data or information, it must compensate any person who resultantly suffers a wrongful loss or wrongful gain. As per section 72, if a body corporate gains confidential information, it will be held liable for disclosing such information to any third party without the consent of the party owning the information. As per section 72A, any body corporate disclosing confidential information in breach of a contract is liable to imprisonment and fine.
Update and trends
Update and trends
List any major developments (case law, statute or regulation) that are anticipated to affect the energy sector in your jurisdiction in the next 12 months, including any developments related to the taxation of energy projects. What is the anticipated impact of climate change regulations, treaties and public opinion on energy disputes?
Amendment to Electricity Act
In May 2018, the MoP issued draft amendments to the Electricity Act 2003. Some of the salient features are as follows:
- The proposed amendments aim at reinforcing the intent of the legislature by ensuring that there is effective ownership and nexus between companies developing and operating captive power projects and companies consuming the electricity generated by the project. To this end, the proposed amendments to the Electricity Rules 2005 prescribe an ownership stake of at least 26 per cent of the equity share capital with voting rights (excluding equity shares with differential voting rights and preference shares), mandate a maximum of two shareholding pattern changes per year and allow for a variation in consumption in proportion to their ownership shares not exceeding 15 per cent and in case of solar and wind power plants not exceeding 30 per cent.
- At present, the sale and distribution of power to consumers is undertaken under a single licence and once the distribution licence has been issued, the licensee does not require a separate licence for the sale of power. However, the proposed amendments provide for segregation of supply and distribution activities (content and carriage) by allowing multiple suppliers of electricity to use the distribution network provided by a separate entity, each requiring a separate licence. It is proposed that distribution licensees give up all supply-related functions and restrict their function to operating the network. Furthermore, existing power procurement arrangements of distribution licensees will vest in intermediary companies, which will be specially created for this purpose.
- Distribution licensees are to mandatorily supply 24x7 power to their consumers. To this end, the amendment proposes to authorise the relevant state electricity regulatory commission to levy an appropriate penalty on the distribution company in the case of power cuts.
- The amendment proposes that if any state government intends to provide subsidy to any category of consumers, it shall be through the direct benefit subsidy (DBT) mechanism. Under DBT, the subsidy is transferred directly to the bank accounts of the respective beneficiaries instead of being paid to the distribution companies. This applies even to any subsidies given through a government scheme. This scheme is said to start with the commencement of the next financial year.
- The proposed amendments also suggest provisions for ‘Smart Grid’, an electricity network that uses information and communication technology to collect information and act intelligently in an automated manner to improve the efficiency, reliability, economics and sustainability of generation, transmission and distribution of electricity.
Goods and Services Tax Act 2017
GST was implemented in 2017, subsuming many different consumption taxes. The objective of the GST regime is to remove the multiplicity of taxes levied by the central and various state governments on different goods and services, thereby reducing the complexity and corresponding tax cascading. GST, being also applicable to various goods and services required for making a power plant operational, has increased the cost of power projects. The Central Electricity Regulatory Commission has recognised the imposition of GST as a ‘change in law’ event under generation and transmission project contracts, and accordingly awarded compensation to developers.
A recent decision by the Directorate General of Trade Remedies to impose a safeguard duty on the import of solar cells and modules from Malaysia and China is likely to adversely impact solar tariffs. A 25 per cent duty is to be imposed on imports of electrical systems such as solar power systems from 30 July 2018 to 29 July 2019, followed by a 20 per cent duty from 30 July 2019 to 29 January 2020 and a final 15 per cent duty from 30 January 2020 to 29 July 2020. Subsequently, the MoP issued directions to the Central Electricity Regulatory Commission under section 107 of the Electricity Act 2003 on 27 August 2018, directing the regulator to treat any change in domestic duties, levies, cess and taxes imposed (including safeguard duty and GST) by any government leading to a change in the cost of a power project as a ‘change in law’ event, and pass through the adverse economic impact to consumers as tariff.