CERC Validates Relinquishment Charge Payability despite Force Majeure in Essar Power v. PGCIL

Introduction

The case of Essar Power (Jharkhand) Limited (EPJL) v. Power Grid Corporation Of India Limited (PGCIL) addressed critical issues related to the relinquishment of Long-term Open Access (LTOA) under the Bulk Power Transmission Agreement (BPTA). Heard by the Central Electricity Regulatory Commission (CERC) on February 4, 2021, the judgment delved into the interplay between contractual obligations and regulatory provisions, particularly in the context of force majeure events.

Summary of the Judgment

EPJL, after securing an LTOA of 1100 MW under the BPTA dated February 24, 2010, encountered multiple delays in project implementation due to various force majeure events. These included delays in coal block allocations, environmental clearances, water linkages, and socio-political disturbances. Consequently, EPJL sought to relinquish its LTA (Long Term Access) without incurring relinquishment charges, invoking Clause 9 of the BPTA, which pertains to force majeure. However, CERC ruled that Clause 9 does not provide an omnibus exemption covering all contractual obligations, particularly the payment of relinquishment charges under Regulation 18 of the Connectivity Regulations. Thus, EPJL was held liable to pay the stipulated relinquishment charges.

Analysis

Precedents Cited

The judgment referenced several key precedents:

Manohar Lal Sharma v. The Principal Secretary & Ors [2014 (9) SCC 516]: Dealt with the cancellation of coal block allocations and its classification as a force majeure event.
GMR Kamalanga Energy Ltd. and Anr. Vs Central Electricity Regulatory Commission and Ors. [Appeal No. 193 of 2017]: Addressed the scope of force majeure in power purchase agreements (PPAs) and its implications.
Aryan MP Power Generation Pvt. Ltd. Vs. PGCIL and Navbharat Power Private Ltd. Vs. PGCIL & Anr.: Clarified the temporary nature of force majeure clauses in BPTA and their limited applicability.

These precedents collectively emphasized that force majeure clauses are not carte blanche exemptions but are context-specific, particularly in long-term contractual agreements like BPTA.

Legal Reasoning

The crux of the legal reasoning rests on the interpretation of Clause 9 of the BPTA in conjunction with Regulation 18 of the Connectivity Regulations:

Clause 9 of BPTA: This clause provides temporary relief from contractual obligations due to force majeure events, stipulating that obligations resume once the event ceases.
Regulation 18 of the Connectivity Regulations: This regulation outlines the procedure and compensation mechanism for relinquishing long-term access rights, including the payment of relinquishment charges.

CERC determined that Clause 9 is not an overarching provision that absolves all obligations under the BPTA. Instead, it serves as a temporary shield against specific liabilities arising from transient force majeure events. The obligation to pay relinquishment charges under Clause 5 of the BPTA, as regulated by Regulation 18, remains intact. Therefore, EPJL cannot invoke force majeure to evade these charges.

Impact

This judgment has significant implications for future cases involving long-term transmission agreements and force majeure claims:

Reaffirmation of Regulatory Supremacy: Regulatory provisions, such as those outlined by CERC, take precedence over contractual clauses when specific regulatory frameworks exist.
Clarity on Force Majeure Applications: Parties cannot broadly apply force majeure clauses to circumvent contractual obligations unless explicitly covered.
Financial Accountability: Generating companies must meticulously assess and adhere to relinquishment protocols to avoid financial liabilities.

Complex Concepts Simplified

Force Majeure

A contractual clause that exempts parties from fulfilling obligations due to extraordinary events beyond their control, such as natural disasters or legal changes.

Relinquishment Charges

Compensation payable by a party that decides to withdraw from a long-term contractual agreement before its completion, covering potential losses incurred by the other party.

Bulk Power Transmission Agreement (BPTA)

A contractual arrangement between power generators and transmission utilities outlining the terms for the transmission of large-scale power over long distances.

Regulation 18 of the Connectivity Regulations

A regulatory provision that defines the process and compensation for relinquishing long-term access rights in power transmission agreements.

Conclusion

The judgment in Essar Power (Jharkhand) Limited v. Power Grid Corporation Of India Limited underscores the importance of adhering to both contractual and regulatory obligations in the power sector. While force majeure clauses provide necessary flexibility in unprecedented circumstances, they do not offer blanket exemptions from financial liabilities established by regulatory frameworks. This ensures a balanced approach, safeguarding the interests of both power generators and transmission utilities, and fostering accountability within the industry.