Introduction

The case of Talwandi Sabo Power Limited (TSPL) v. Punjab State Electricity Regulatory Commission (PSERC) and Punjab State Power Corporation Limited (PSPCL) is a landmark judicial decision delivered by the Appellate Tribunal for Electricity in New Delhi on July 19, 2021. This case revolves around contractual disputes concerning the supply and procurement of coal essential for the operation of TSPL's 1980 MW thermal power project at Talwandi Sabo, Punjab.

The primary parties involved include TSPL as the appellant, challenging orders passed by PSERC that disallowed the incremental costs incurred by TSPL in procuring alternate or imported coal. These costs arose due to a shortfall in coal supply from Mahanadi Coalfields Limited (MCL) during the peak paddy season of June to September 2017. PSPCL, the successor of Punjab State Electricity Board (PSEB), was identified as the procurer responsible for arranging fuel as per the Power Purchase Agreement (PPA).

Summary of the Judgment

The Appellate Tribunal for Electricity meticulously reviewed the disputes between TSPL and PSPCL/PSERC regarding the arrangements for coal supply essential for TSPL's power generation operations. The core issue was whether PSPCL had fulfilled its obligation under the PPA to supply adequate quantity and quality of coal, and consequently, whether TSPL was entitled to claim incremental costs incurred due to procuring alternative or imported coal.

The Tribunal concluded that PSPCL had indeed failed to meet its obligations to ensure the supply of coal as initially assured under the Fuel Supply Agreement (FSA). This inadequacy compelled TSPL to arrange for alternate coal to maintain uninterrupted power supply during the critical peak season. Consequently, PSERC's earlier orders disallowing these incremental costs were set aside. The Tribunal directed PSPCL to compensate TSPL for the costs associated with procuring alternate/imported coal, along with applicable late payment surcharges. Additionally, PSPCL was instructed to take immediate actions to secure adequate coal supply to prevent future shortfalls.

Analysis

Precedents Cited

The Tribunal referenced several legal precedents to substantiate its decision:

• Khardah Co. Ltd. v. Raymon & Co. Pvt. Ltd. (1963) – Emphasizing that obligations under a contract must be adhered to unless mutually altered.
• Indu Kakkar v. Haryana State Industrial Development Corporation Ltd. (1999) – Highlighting the non-transferability of contractual obligations without consent.
• ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd. (2010) – Reinforcing that contractual duties cannot be unilaterally shifted.

These precedents reinforced the Tribunal's stance that PSPCL, as the procurer, bore the responsibility to secure and supply adequate fuel, and failure to do so vested TSPL with the right to claim additional costs.

Legal Reasoning

The legal crux of the judgment hinged on the interpretation of the PPA and associated documents. The PPA explicitly defined the roles and obligations of both parties. Under Case 2, Scenario 4 of the Competitive Bidding Guidelines, PSPCL was tasked with the unilateral obligation to provide fuel linkage, including arranging for land, fuel, and initial clearances.

The Tribunal observed that despite these clear guidelines:

• PSPCL failed to secure the assured quantity and quality of coal from MCL.
• TSPL was forced to procure alternate coal to meet its operational commitments.
• PSERC's orders were based on flawed assumptions about TSPL's procurement efforts, neglecting the extent of PSPCL's failures.

By adhering to the principle of business efficacy and ensuring economic justice, the Tribunal concluded that the incurred costs by TSPL were legitimate and PSPCL was liable for compensation.

Impact

This judgment has significant implications:

• Clarification of Procurer's Obligations: It reaffirms that procurers under long-term PPAs bear the primary responsibility for ensuring fuel supply, including securing quality and quantity.
• Accountability: Entities responsible for procuring essential inputs cannot shirk their duties by defaulting to their subsidiaries or through corporate restructuring.
• Protection for Power Producers: Producers are safeguarded against non-performance by procurers, ensuring financial viability even in cases of supply chain disruptions.

Future litigations in the power sector will likely cite this case to reinforce the obligations of procurers and support producers in claiming rightful compensations.

Complex Concepts Simplified

Fuel Supply Agreement (FSA): A contractual agreement between the procurer (PSPCL) and the fuel supplier (MCL) outlining the terms for the purchase, transportation, and handling of fuel required for power generation.

Power Purchase Agreement (PPA): A long-term contract between the power producer (TSPL) and the procurer (PSPCL) detailing the terms for the sale of generated electricity, including pricing, obligations, and responsibilities of both parties.

Case 2, Scenario 4 Bidding: A specific procurement mechanism where the procurer is responsible for arranging fuel linkage, bearing more risk due to increased responsibilities like land acquisition and securing fuel supplies.

Deemed Capacity Charges: Payments made to the power producer for the availability of its power plant to generate electricity, even if actual generation falls short due to factors beyond its control.

Conclusion

The judgment in Talwandi Sabo Power Limited v. PSERC and PSPCL underscores the critical importance of clearly delineated responsibilities in power sector contracts. By holding PSPCL accountable for its failure to secure adequate fuel supply, the Tribunal not only reinforced contractual obligations but also provided a blueprint for resolving similar disputes in the future.

This decision serves as a reminder to procurers to diligently fulfill their obligations to ensure seamless operations of power projects. Simultaneously, it empowers power producers to claim rightful compensations when faced with non-performance by their contractual partners, thereby fostering a more equitable and efficient power procurement ecosystem.