India: CERC Allows NTPC To Utilize NVVN's Trading Licence

Last Updated: 7 November 2016
Article by HSA Advocates

CERC by its order dated October 14, 2016 has rejected NTPC's prayer to grant a separate trading licence, however, it has allowed NTPC to utilize the trading licence already granted to its wholly owned subsidiary – NTPC Vidyut Vyapar Nigam Limited. Set out below is a summary of the order, our analysis and observations on the same.

Brief Background

NTPC Vidyut Vyapar Nigam Limited (NVVN) was designated as the nodal agency since 2010 under the Jawaharlal Nehru National Solar Mission (JNNSM), now called as National Solar Mission (NSM), for buying power from solar power developers, bundling it with cheaper thermal power from power plants of National Thermal Power Corporation Limited (NTPC) and then selling such bundled power to various discoms. Subsequently, Solar Energy Corporation of India (SECI) was also involved as the designated agency by the Ministry of New and Renewable Energy (MNRE) for implementation of a number of its schemes including the VGF schemes for large-scale grid-connected projects under JNNSM.

Both NVVN and SECI applied for and were granted inter-state trading licence from the Central Electricity Regulatory Commission (CERC) as they were effectively involved in trading of electricity by way of purchasing power from solar power developers and selling such power to discoms.

In order to implement different phases of JNNSM, the MNRE in March 2015 issued the Guidelines for Selection of 3000 MW Grid – Connected Solar PV Projects under Batch – II, 'State Specific Bundling Scheme' (1st Tranche Guidelines) as part of the overall scheme involving three tranches for implementing 15000 MW grid connected solar PV power plants during the period 2014 – 2019.

Under the 1st Tranche Guidelines as well, NVVN was made the designated agency for implementation by way of getting involved in the activity of trading. However, in order to provide additional financial comfort to solar power developers for undertaking projects of higher capacity, MNRE, at the request of the stakeholders, decided to replace NVVN by NTPC in April 2015.

Pursuant to this, NTPC got involved in implementation of the scheme and started entering into Power Purchase Agreements (PPAs) with solar power developers and back to back Power Supply Agreements (PSAs) with discoms i.e., got effectively involved in the activity of trading as defined under the Electricity Act, 2003 (EA Act). Despite, not being a trading licensee under the EA Act, NTPC was undertaking the trading activity.

Requirement of Trading Licence by NTPC

In view of the background set out above, NTPC filed a petition before CERC (bearing Petition No. 2/TDL/2016) for granting inter-state trading licence to it in terms of the EA Act. This petition has been disposed of by CERC by way of its dated October 14, 2016 (Order). This Order assumes significance as it clarifies the position vis a vis NTPC's legal standing of entering into PPA with solar power developers and back to back PSAs with discoms, in absence of having a trading licence.

Critical Issues involved in proceedings before CERC

The biggest hurdle faced by NTPC during the proceedings before the CERC was on account of the fact that NVVN (NTPC's wholly owned subsidiary) was already holding an inter-state trading licence. In view of this, CERC inquired from NTPC as to why NVVN cannot undertake the activity of purchasing and selling power under the MNRE scheme and why NTPC should be granted a separate licence. Further, CERC also directed NTPC to suggest alternatives to ensure effective use of NVVN's existing licence.

In relation to the first issue, NTPC submitted that on account of its direct involvement in view of the policy decision of the Government of India for implementing NSM, it has become necessary for NTPC to directly get the trading licence. With respect to suggesting alternative mechanisms for ensuring effective utilization of NVVN's licence, NTPC suggested the following alternatives :

  • (i) CERC may permit and direct NVVN to be added as a party to the Agreements which have been/are required to be entered into with the solar power developers and also, with the discoms on a back to back basis.
  • (ii) The transaction of purchase of electricity from the solar power developers and re-sale thereof to discoms be directed to be covered under the inter-state trading licence of NVVN and therefore, being authorized in accordance with law, notwithstanding NTPC is a party to the transaction and does not hold any licence. The inter-state trading licence given to NVVN, when NVVN is the wholly owned subsidiary, may be permitted to be utilized for purchase and re-sale of electricity involving NTPC.
  • (iii) NTPC as a commercial arrangement, entered into such agreements as it thinks appropriate with solar power developers, notwithstanding that the purchase of electricity from a solar power developer requires a licence.

Outcome of the CERC's Order

CERC at the outset did not consider the third alternative on account of lack of clarity in the said option. In context of the first alternative which required NVVN to be added as a party to the existing PPAs, CERC observed that the said alternative requires it to issue directions to the existing contracting parties to modify their contract in order to make NVVN party to the PPA and PSA. This according to CERC could not have been done as it is a cardinal principle of contract law that the parties should enter into an agreement through their free consent. As the solar power developers and the discoms were not parties to proceedings before CERC, it held that no direction can be issued with regard to inclusion of NVVN as a party to the PPA/PSA without hearing the relevant parties. Accordingly, CERC rejected the first alternative suggested by NTPC.

In relation to the second alternative suggested by NTPC, CERC observed that since NVVN is a wholly owned subsidiary of NTPC which exercises pervasive control over the management and operation of NVVN (that has been issued a Category I inter-state trading licence), NTPC can utilize the trading licence issued to NVVN in order to fulfill its obligations under the NSM. Therefore, CERC did not grant an independent trading licence to NTPC and allowed it to use NVVN's existing licence.

CERC further clarified in its Order that the billing for purchase and sale of solar power is required to be done in the name of NVVN but settlement of tariff and other dues will have to be made by NTPC in terms of the provisions of the PPA or PSA as the case may be. CERC observed that doing so, will obviate the need for any change in the PPA or PSA that NTPC has already entered into with the solar power developers or the discoms respectively.

Conclusion

In our view, the legal principle which can be derived from the CERC's Order is that a holding company which has pervasive control over management and operation of a subsidiary company can utilize the licence granted to the subsidiary company for undertaking the licensed activity of trading, without obtaining a specific licence for itself. Having said that, it should be noted that CERC has categorically specified in its Order that NTPC has been allowed to use NVVN's licence by way of a special dispensation in order to further the objective of NSM being a programme of MNRE and the Government of India and also to provide comfort to stakeholders in form of better bankability of the solar power projects. Further, CERC has clearly stipulated that its Order in this case should not be quoted as a precedent. However, in view of the fact that CERC has proceeded on the basis of a specific legal principle as discussed above, it will be interesting to see as to how a similar case in context of private parties is dealt with by it in future.

That said, in any event, by passing this Order, CERC has ensured that the solar power developers who have already signed the PPAs with NTPC do not have to undergo any hardship, as the sanctity of such PPAs and PSAs involving NTPC, has been protected. Moreover, CERC has chiseled the way forward for implementation of NSM by way of allowing NTPC to continue with execution of PPAs and PSAs going forward.

This Order of CERC definitely can be termed as a welcome step as this will help in creating the confidence of the investors and solar power developers in the institutional framework for power sector in India and will be instrumental in the growth and development of the renewable sector specifically.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions