TMI Blog2000 (2) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... eration, distribution and supply of electricity. Pursuant to that policy the State of Madhya Pradesh decided to invite private companies for setting up power plants at different places within the State so as to increase it power generating capacity by about 7000 MW. On 27.2.1992 Madhya Pradesh Electricity Board (MPEB) invited offers from potential private investors for pre qualification in establishment of Four power projects. One of them was Thermal Power Project at Korba (West) in the district of Bilaspur. Indian Thermal Power Ltd. (hereinafter referred to as 'ITPL') made an application for establishment of that power plant. After considering its application the Government of Madhya Pradesh made an offer by issuing a letter of inlent to ITPL to establish, operate and maintain a power plant at Korba (West) as a generating company. Similar advertisements were issued for other projects also and letters of inlent were issued to those who were found qualified. In all 21 MOU's which were entered into between them and the Slate Government and MPEB. 13 Independent Power Producers (IPPs) entered into Power .purchase Agreements (PPAS) -with MPEB. Under the MOU and PPA the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Pradesh Government, MPEB and the IPPs regarding the terms and conditions of the Escrow Agreement. The Government had proposed to give Escrow Protection equal to one month's invoice. A meeting between Government Officers, MPEB and the Financial Institutions was also held on 5.9.1997 for discussing the issue of escrowable capacity available with MPEB and whether it was possible to reduce Escrow Cover to one month's invoice amount. In that meeting the Government suggested that in order to accommodate more number of IPPs the Escrow Cover may be reduced from 1.5 times to at least 1.2 times, The banks and Financial Institutions accepted the escrowable capacity of MPEB at about 2200 M.W. only and stated that Escrow Cover equal to 1.25 times could be accepted as reasonable. Even for this relaxation it insisted that MPEB shall have to take certain steps to improve its finances. The Filtanciai Institutions also directed that MPEB should indicate to IPPs its ability/inability to provide Escrow Account facility to them so that there may not remain any misunderstanding in that behalf. After considering various aspects the Financial Institutions decided to consider financial assistanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 30.3.1992, That was followed by a letter dated 12/15.6.1998 of the Minister of Power, Government of India to the Chief Minister of Madhya Pradesh Government pointing out the necessity to finalise the projects quickly and drawing attention to the amendment made in the tariff notification dated 8.6.1998. He requested the Government to take an early decision by giving priority to those projects which offer the least tariff so as to ensure that in the 9th Five Year Plan they get the benefit of the capacity addition from those projects. The Minister of Power again wrote to the Government on 5.7.1998 and 11,7.1998 to quickly finalise the projects. The Madhya Pradesh Government therefore,, decided to call all the IPPs on 14.7.1998 for discussion for altering terms and PPAs in view of the amendment in the tariff notification and the suggestion made by the Minister of Power. After the meeting MPEB took the decision to prioritise the projects for providing Escrow Protection mainly on the basis of least tariff criteria and alter considering an optimum mix of liquid fuel, hydel and coal projects. By its letter dated 24.7.1998 it brought that decision to the notice of all the IPPs and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their fresh bids they can be said to have abandoned their right to seek enforcement of the PPAs and to challenge the letter dated 24.7.1998. It also held that as the ITPL had not challenged the earlier decision of issuing Letters of Comfort to six IPPs it was not now entitled to any relief. Taking this view the Division Bench allowed the appeals and dismissed the writ petitions filed by the IPPs. It was contended by Mr. Cooper, learned senior counsel appearing for appellant GBL and also by some counsel appearing for other appellants that the appellant/IPPs had entered into PPAs under Sections 43 and 43A of the Electricity Supply act and as such they are statutory contracts and, therefore, MPEB had no power or authority to alter their terms and conditions. This contention has been upheld by the High Court, in our opinion the said contention is not correct and High Court was wrong in accepting the same. Section 43 empowers Electricity Board to enter into arrangement for purchase of electricity on such terms as may be agreed. Section 43 A(l) provides that a generating company may enter into a contract for the sale of electricity generated by it with Electricity Board, As regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the MPEB incurred an enforceable obligation in respect of providing an Escrow coverage is a different thing. The MOUs and IPPs while providing for payment of dues by MPEB has also at the same time made provisions for securing these payments. Apart from an undertaking by MPEB under those agreements an obligation is imposed upon MPEB to open a revolving letter of credit or letters of credit for payment of the dues. By way of further security it is provided in those contracts that Escrow Account shall be opened and maintained by MPEB to secure payment of the amount equal to 1.5 times the monthly bill. Those contracts also provide for a guarantee agreement with the State Government for payment of dues of MPEB. Thus the purpose of opening and maintaining an Escrow Account is to secure payment for the electricity to be supplied by the generating companies to MPEB, The Escrow Account is, therefore, really required to be opened at that stage and, therefore, it is provided in most of these contracts that the Escrow Account shall be opened at the time of the First Unit Commercial Operations Date. The MOUs with ITPL and SPPL do not specifically provide for an Escrow Agreement or an Esc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failing to maintain, replenish, renew, restore or replace one or more Letters of Credit in the amounts provided for above. Such Escrow Account shall be established and maintained by MPEB in accordance with an Escrow Agreement which shall be in form and substance acceptable to the Parties.'' These provisions in the MOUse and PPAs clearly disclose that the obligation to open and maintain an Escrow Account is to be discharged by MPEB after the First Unit Commercial Operations Date. They do not impose an obligation on MPEB to execute an Escrow Agreement at an earlier date. The Escrow Agreement is to be in such form and substance as is Acceptable to the parties. The Escrow Account is also to be established and maintained in the manner and to the extent agreed by the parties. The only obligation of MPEB which had came into existence on execution of the MQUs and PPAs was to cooperate with and assist the appellants in the matter of execution of an Escrow Agreement and opening of an Escrow Account Execution of the Escrow Agreement and opening of an Escrow Account are thus contigent upon an agreement between the parties regarding the terms and conditions of those agreements and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before even obtaining financial closure. There was no reluctance or refusal on the part of MPEB to provide Escrow Coverage to all or as many as possible. But it was not possible for it to issue Letters of Comfort and provide Escrow Coverage and enter into Escrow Agreements with all of them as the appellants desired and the FIs required better Escrow Coverage than the one which the MPEB was willing to provide. The situation which had arisen was beyond the control of MPEB. The IPPs including the appellants also could riot obtain financial closure because of their inability to persuade the FIs to lend them enough money. This was the position b the month of July 1998. The Minister of Power, Government of India had drawn the attention of the State Government to the delay in finalising the projects and the need to take a final decision in the matter as early as possible and to the recent amendments to the notifications issued under section 43A of the Electricity Supply Act, Though the said amendment is prospective it cannot be said that it was totally irrelevant and could not have been taken into consideration by MPEB to seek revision of PPAS by inviting better terms from those IPPs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that Jindal did not furnish the security deposit nor had shown its willingness to give 2% security deposit if any longer time was given to it for obtaining financial closure. It is, therefore, obvious that it did not comply with one of the conditions of re-invitation of offer and, therefore, cannot complain if it's offer has not been considered for prioritisation and grant of Escrow Coverage on that basis. It was submitted by Mr. Dave, learned senior counsel appearing for STI that MPEB having decided to provide Escrow Coverage to 4 or 6 IPPs, really no need had arisen for it to change that decision, even though it was justified in entering into negotiations for reduction of tariffs. The Minister of Power, Government of India had pointed out in his letter dated 12/25.6.1998 that it would be better to give priority to those projects which offers the State the least tariffs for the power to be supplied to MPEB, He had also suggested that it was necessary to establish a mechanism to quickly finalise those steps and select projects with least tariffs for being given an Escrow facility urgently so as to ensure that in the 9th Plan they get the benefit of the capacity addition fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that least tariff criteria adopted by MPEB for deciding prioritisation is unrealistic. Our attention was drawn to certain assumptions on the basis of which the project cost was to be estimated and least tariff was to be determinated. Our attention was also invited to the report of the Expert Committee which was constituted for tariff evaluation for the improved offers submitted by IPPs. The said Committee had opined as under: CONCLUSION : - Based on the factors and assumptions as brought out in para 3/N above, it can be stated that the project cost as complied on Commercial Operation Date (COD) is not realistic or accurate. Any subsequent tariff calculations based on the unrealistic project cost are also un-reliable and unrealistic. Given the set of assumptions, the resulting tariff for various IPPs falls in narrow range and a change in any of the assumptions can lead to a different tariff for the IPPs. Therefore such resulting tariffs, should not be depended upon to arrive at any conclusions or any subsequent decisions. The Cabinet Sub Committee in spite of the objections raised by Bhilai and Bina had evaluated the offers on the basis of said wrong assumptions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t properly evaluated and the cost of supplying water from the dam was not taken into consideration on the ground that the whole cost of the dam is to be borne by MPEB. We need not go into the further details regarding the merits and demerits of the Pench Project, as in view of the remaining available Escrowable capacity we are directing MPEB to reconsider its decision as to which remaining coal based project should be given priority in recommending it for Escrow Coverage. It was next contended by Mr. Nariman appearing for SPPL that right from the beginning the Government of India and even the State Government of Madhya Pradesh had accepted the policy of an optimum mix of liquid fuel project, hydel project and coal based project. He submitted that while deciding prioritisation on the basis of least tariff criteria the Government and the MPEB ought to have compared the tariffs within the fuel category and not between different fuels used. The MPEB also in its letters dated 24.7.1998 had declared that it would decide prioritisation of projects after considering an optimum mix of liquid fuel projects, hydel projects and coal based projects. He, therefore, submitted that the MPEB ought ..... X X X X Extracts X X X X X X X X Extracts X X X X
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