2017 (10) TMI 1549 - SC - Indian Laws

Interpretation of the provisions of the PPA dated 18.1.2010 - International competitive bidding for selection of developer - significant contention of the appellant is that the operation cost mentioned in clause 2.7.1.4(3) of the RFP only referred to the cost towards operating and maintenance of power plant, and cannot refer to any cost associated with the cost of coal, which is a part of the energy charges - HELD THAT - The pricing of the coal is, if one may say, the crux of the problem. It is no doubt true, as contended by the first respondent, that while submitting the financial bid, clause 2.7.1.4(3) of the RFP required the tariff to be quoted in Format-1 of Annexure 4 to be an all inclusive tariff and provided that no exclusion shall be allowed. This clause has already been extracted aforesaid. The bidder/appellant was, thus, required to take into account all costs, including capital and operational costs, statutory taxes, etc.. The same clause also provides that the availability of inputs necessary for generation of power should be ensured by the seller at the Project Site , which must be reflected in the quoted tariff. The significant aspect is that the working of the contract is on the basis of Project Site . It has to be, however, simultaneously kept in mind that the present project is in the nature of a Case-2 project which provides for a fuel specific procurement, having a pre-identified site. The contract did not provide for a fixed energy charge, or a periodic revision of that charge, as the formula for energy charge was designed in such a manner that it would be influenced by the actual cost of coal. Thus, the basis is the actual cost incurred with regards to the coal. Of course, a major controversy has arisen as to whether the cost of coal has to be determined on the basis of the purchase price from SECL at the mine-end , when the property is supposed to pass to the appellant, or whether it is the cost of coal to be used for the plant as incurred by the appellant at site of the project, or the project-end . The variable component of FCOALn refers to the actual cost to the seller/appellant of the three components, i.e., (a) purchasing; (b) transporting; and (c) unloading the coal. The first respondent is thus right that there may be different aspects before the coal is used in the plant which are not required to be reimbursed by the first respondent. The illustrations given by the first respondent are of sizing of coal, crushing of coal, sprinkling and moisturisation of coal for stacking and storage, etc. being activities required to be undertaken prior to generation - there is no hesitation in our concluding that in view of the specific formula provided, only three aspects relatable to coal would determine the particular co-efficient. The definition of FCOALn is the weighted average actual cost incurred by the appellant of purchasing the coal and transporting it to the project site and thereafter unloading the coal at the project site. The fact that the property in coal passed on to the appellant vis- -vis SECL, on delivery being taken at the mine-end would not change the definition of coal pricing as is required for the purposes of calculation of the tariff. The fact that the clarification made it clear that the appellant had to arrange the washing of coal, did not imply that the cost of washing the coal had to be borne by the appellant, as the energy charge formula alone would have to be referred to for the purposes of calculation of the coal price. The operating cost in clause 2.7.1.4(3) of the RFP would refer to the activities mentioned therein and the operation and maintenance of the power plant which would not alter the formula of the energy charges which contains the cost of coal. The principle of business efficacy would also require us to read the Monthly Energy Charges formula in a manner as would be normally understood - The plea of the first respondent that the fuel supply agreement and the fuel transportation agreement are part of the project documents which does not include the component of washing , does not hold much water for the reason that washed coal is a necessity for the project as a quality requirement for the formula envisaging the requisite quality of coal to be obtained at the project site and, thus, including all the relevant costs up to that quality. The mere term coal , therefore, would have to mean washed coal, as no other type of coal could be used in the matter at hand. Transportation Cost - HELD THAT - What is sought to be excluded is taking the coal for washing as well as the last mile to the project, on account of the Railway siding not being located at the project site for a certain specified period of time. It is for that period of time that the actual transportation cost through road is sought to be recovered by the appellant. There is no hesitation in concluding that the point at which the Calorific Value of the coal is to be measured is at the project-site. The plea of the first respondent that there is no such methodology of measuring the Calorific Value at the project-site is belied by the sample reports of different financial years filed by the appellant along with the synopsis, which itself referred to the joint sampling and testing of the coal received and is duly signed by both sides. It is surprising how such a bald denial was made despite the position existing at the site. These sample reports are for years 2014, 2015, 2016 and 2017. Thus, the reading of the energy formula leads to only one conclusion that all costs of coal up to the point of the project site have to be included and the Calorific Value of the coal has to be taken as at the project-site. The appellant is held entitled to the washing cost of coal, the transportation from the mine site via washing of coal to the project site inclusive of cost of road transportation for the period where it was necessary. The Calorific Value of the coal would have to be taken at the project site - appeal allowed in part.

Summary

Issues Involved:
1. Cost of purchasing coal, including washing-related costs.
2. Consideration of Gross Calorific Value (GCV) of coal for calculating energy charges.
3. Denial of road transportation costs.
4. Denial of various charges including liaising charges, transit and handling losses, and third-party coal testing charges.
5. Non-payment of capacity charges for a specific period.
6. Claim for interest on disputed energy charges.

Detailed Analysis:

1. Cost of Purchasing Coal, Including Washing-Related Costs:
The appellant contended that the cost of coal should include washing charges, as clarified in the pre-bid stage that the coal must be washed. The court agreed, stating that the energy charge formula in the Power Purchase Agreement (PPA) includes the actual cost incurred for purchasing, transporting, and unloading coal at the project site. The court emphasized that the term "coal" in the formula refers to "washed coal" as it is a necessity for the project. The court concluded that the washing cost is part of the purchasing cost.

2. Consideration of Gross Calorific Value (GCV) of Coal for Calculating Energy Charges:
The appellant argued that the GCV should be measured at the project site, not at the mine-end, as the GCV changes significantly during transportation. The court upheld this view, stating that the formula for energy charges requires the GCV to be taken at the project site. The court noted that joint sampling and testing of coal at the project site were already being conducted, thus supporting the appellant's claim.

3. Denial of Road Transportation Costs:
The appellant sought reimbursement for road transportation costs incurred due to the absence of a railway siding at the project site. The court ruled in favor of the appellant, stating that the transportation costs to the project site must be compensated, regardless of the mode of transportation. The court found that the absence of a railway siding was due to land acquisition issues, which should not penalize the appellant.

4. Denial of Various Charges Including Liaising Charges, Transit and Handling Losses, and Third-Party Coal Testing Charges:
The court rejected the appellant's claim for these additional charges, stating that the energy charge formula in the PPA only includes the cost of purchasing, transporting, and unloading coal. The court held that any other costs are not part of the formula and are thus not reimbursable.

5. Non-Payment of Capacity Charges for a Specific Period:
The appellant's claim for non-payment of capacity charges for the period from 20.02.2014 to 03.03.2014 was upheld by the Appellate Tribunal, and this part of the judgment was not contested further in the Supreme Court.

6. Claim for Interest on Disputed Energy Charges:
The appellant claimed interest on the disputed energy charges based on specific clauses in the PPA. However, the court denied this claim, noting that no such claim had been made at any earlier stage of the proceedings. The court stated that there were serious disputes regarding the interpretation of the contractual clauses, and thus the principle of compensation for deprivation did not apply.

Conclusion:
The Supreme Court partly allowed the appeal, holding that the appellant is entitled to:
- Washing cost of coal.
- Transportation costs from the mine site via washing to the project site, including road transportation costs for the necessary period.
- GCV of coal to be measured at the project site.

All other claims, including interest on disputed energy charges, were rejected. The court directed that the amount payable to the appellant be remitted within three months from the date of the order, failing which it would carry interest at 12% per annum. No costs were awarded.