RAKESH NATH, J. - (1.) THIS appeal has been filed by M/s. Patikari Power Ltd. against the order dated 16.7.2010 passed by the Himachal Pradesh State Electricity Regulatory Commission ("State Commission") in the matter of determination of tariff for a small Hydro Electric Power Station set up by the appellant.
(2.) THE appellant is a generating company and has set up a small Hydro Electric Power Station of 16 MW capacity in the State of Himachal Pradesh. The State Commission is the first respondent. Himachal Pradesh State Electricity Board, the purchaser of power from the appellant, is the second respondent. The Government of Himachal Pradesh and the HIMURJA, a State Government agency responsible for promotion of renewable sources of energy are the third and the fourth respondents respectively.
(3.) THE facts of the case are as under: 3.1. The Government of Himachal Pradesh in the year 1999 invited proposals from Indian/International companies for implementation of Hydro Electric Projects in the Private Sector on 'Build, Own, Operate and Maintain (BOOM)' basis for various projects which, inter alia, included the 16 MW Patikari Hydro Electric Project. It also stated that the State Electricity Board, the respondent no. 2 herein, would buy the whole of power generated by the Project at rate and conditions to be decided by the State Government and the rate would not be less than Rs. 2.25 per kWh. 3.2. M/s. East Indian Petroleum Ltd. ("EIPL"), predecessor in interest of the appellant, filed a proposal for development and implementation of Patikari Hydro Electric Project and subsequently a Memorandum of Understanding ("MOU") was executed by the State Government on 21.6.2000 in favour of M/s. EIPL for review of the Detailed Project Report ("DPR") prepared by the respondent no. 2 for implementation of the Project. 3.3. M/s. EIPL on 9.11.2001 entered into an Implementation Agreement ("IA") with the Government of Himachal Pradesh. The IA envisaged incorporation of a separate public/private Limited company for implementation of the Project. Accordingly, a Tripartite Agreement dated 9.11.2001 was also executed between the State Government, M/s. EIPL and the appellant to, inter alia, build, own, operate and maintain the Project. 3.4. The appellant after obtaining various statutory clearances for implementation of the Project approached the respondent no. 2 for determination of tariff in terms of the global invitation of tender. 3.5. In January, 2003 the State Government and the respondent no. 2 prescribed the tariff for the power generated from the Project at Rs. 2.25 per kWh. On 14.1.2003 the appellant executed a Power Purchase Agreement ("PPA") with the respondent no. 2 at a tariff of Rs. 2.25/Kwh. 3.6. The State Commission having already been constituted on 6.1.2001, vide its order dated 5.9.2003 held the PPA dated 14.1.2003 executed between the appellant and the respondent no. 2 as void ab -initio, non -est and inoperative and directed the parties to file a PPA in accordance with the PPA guidelines issued by the State Commission. Accordingly, after obtaining the approval of the State Commission, the appellant and the respondent no. 1 entered into a PPA on 5.7.2004. 3.7. On 18.6.2007 the State Commission notified the Regulations for power procurement from renewable sources and cogeneration by the distribution licensee. According to the Regulations, the Commission may determine tariff by a general order for small hydro projects not exceeding 5 MW capacity and by special order for small hydro projects of more than 5 MW and not exceeding 25 MW capacity, on individual project basis. These Regulations were not applicable to the PPAs, which were approved prior to commencement of the Regulations and were not subjected to the provisions of the State Commission's Regulations. 3.8. On 12.11.2007, the State Commission amended the above Regulations by introducing a proviso under which the State Commission in order to promote generation of electricity from renewable sources could review or modify the PPAs approved prior to commencement of the Regulations or where after the approval of the PPA there is change in statutory laws, or rules or the State Government's Policy. 3.9. The appellant commissioned the project in the beginning of the year 2008 at a cost of Rs. 117.60 crores as against the approved cost of Rs. 125.90 Crores by the respondent no. 2. 3.10. The appellant in August 2008 filed a petition being no. 184 of 2008 before the State Commission under Section 62 and 86 of the Electricity Act, 2003, praying for determination of tariff in respect of Patikari Hydro Electric Project. Similar petitions were also filed by other project developers. 3.11. The State Commission by its common order dated 29.10.2009 disposed of the petition no. 184 of 2008 and batch and decided to consider each petition for review or modification of already concluded PPA on merits in terms of its Regulations. 3.12. The appellant in compliance with the order dated 29.10.2009 submitted an application being Petition no. 201 of 2009 praying for determination of tariff. 3.13. The State Commission by its order dated 16.7.2010 partly allowed the Petition nos. 184 of 2008 and 201 of 2009. The State Commission only passed the benefit of change in law/change in State Government Policy to the appellant after the date of execution of the PPA dated 5.7.2004 @ 29 paise/kWh prospectively but did not determine the tariff in respect of the Project. Aggrieved by the impugned order dated 16.7.2010, the appellant has filed this appeal. Learned Counsel for the appellant has submitted as under: - 4.1. The Global Invitation for investment in Hydro Power Generation in Himachal Pradesh dated 19.4.1999 had clearly stated that for projects upto 25 MW capacity the incentives would be as per the policy of the Ministry of Non -Conventional Energy Sources, Govt. of India and after supply of 12% of the energy generated from the project free of cost to the State Government in lieu of surrender of potential site, the remaining energy would be bought by the Page 9 of 87 Appeal No. 179 of 2010 & IA No. 248 of 2011 Electricity Board at rates and conditions to be decided by the State Government and the rate would not be less than Rs. 2.25 per kWh. This prompted the appellant to develop the project. The Global Invitation never stated that the tariff would be fixed at Rs. 2.25/kWh. The appellant in a bonafide belief that the tariff would not be less than Rs. 2.25/kWh and the same would be subjected to escalation as per the policy of Ministry of New & Renewable Energy, as also it would reflect the actual cost incurred and the mandated Return on Equity, derived its interest to develop the project. 4.2. The MOU dated 21.6.2000 entered into between M/s. EIPL and the State Government entitled the appellant to review the DPR with the data provided by the respondent no. 2. Although the MOU had stated that the energy would be sold @ Rs. 2.25/kWh, it never stated that the MNRE policy guidelines would not be applicable to the Project. The MNRE guidelines of 1993 provided for tariff for base year of 1994 -95 at Rs.2.25 per kWh with escalation of 5% per annum for 10 years. Thereafter, the tariff will be equal to the purchase price or HT tariff prevalent in the state whichever is higher. 4.3. The techno -economic clearance to the Project was granted to the appellant only on 27.9.2001 wherein the project cost had been approved by the respondent no. 2 at Rs. 125.90 Crores. Thus, the tariff had been fixed by the respondent no. 2 prior to submission of the DPR by the appellant and according of the techno - economic clearance by the respondent no. 2. The logical expectation of the appellant was that only after detailed survey and investigation leading to finalization of DPR, the tariff would be ascertained and the PPA would be executed. 4.4. The appellant was forced to implement the project at the tariff of Rs. 2.25/kWh without taking into account the DPR and the financial viability of the Project. 4.5. The appellant had approached the State Government for fixation of tariff reflecting the actual capital cost and ensuring Return on Equity as mandated by the Tariff Regulations, Ministry of Power Guidelines, etc. However, the State Government had refused to determine the tariff as per the DPR. The appellant having invested enough time and money for development and implementation was left with no choice but to enter into a PPA with the respondent no. 2 on 14.1.2003 which was executed in the hope that after or just before the completion of the Project the regulatory regime would fix the tariff on the basis of applicable rules and regulations. There was, thus, enough evidence to suggest that the PPA had been concluded by undue influence and there was a misuse of dominant power by the respondent no. 2. 4.6. The appellant, after spending time and money on formation of DPR, getting statutory environment and forest clearances and survey and investigation of the Project, etc., was only left in a 'take it or leave it' situation. 4.7. The DPR was prepared by the appellant on the basis of Design Discharge Data of last 15 years as provided by the respondent no. 2 and on the basis of preliminary survey and investigation carried out by the respondent no. 2. The appellant carried out explorations and validations regarding civil works proposed by the Electricity Board (R -2) in their DPR, the hydrological data included by the Electricity Board in their DPR was assumed to be correct and river discharge pattern was adopted accordingly in the revised DPR. The DPR envisaged that at the current rate of tariff, the Return on Equity would not be in accordance with law and the Tariff Regulations. However, on attaining commercial operation, it was realized that the design discharge in the river channel was much less than the data provided by the respondent no. 2, which led to drastic reduction in Capacity Utilization Factor ("CUF") making the project economically unviable. 4.8. The Project return after 3 years of operation are almost negligible and the appellant has been burdened with the hike in interest rate as also suffering the hydrological and change of law risk. The developer has to financially support the project with additional equity investment so as to service the debt and ensure that the project does not become a non -performing asset. 4.9. It is a settled law that State in exercise of its power cannot resort to the theory of 'take it or leave it'. While entering into a contract, the State cannot on account of individual's lesser bargaining power, put unfair and unreasonable conditions under a contract, the performance of which conditions are against the interest or financial viability of the company or such individual or is against public interest. 4.10. The Tariff Regulations, 2007 for Power Procurement from Renewable Sources specifically empowers the State Commission to re -open the concluded PPAs and determine the tariff of the Projects, in order to promote generation of electricity from renewable sources of energy. Inspite of this, the State Commission decided not to determine the tariff of appellant's project. On the other hand, the State Commission has already decided to enhance the tariff in respect of projects below 5 MW capacity to Rs. 2.87 per kWh. 4.11. Even dehors the above Regulations, the State Commission has powers to reopen the concluded PPA between the appellant and the respondent no.2. 4.12. Further, the benefits of change in law or policy of the State Government should have been allowed by the State Commission to the appellant with retrospective effect i.e. from the date when the change in policy or law came into effect rather than prospectively i.e. from the date of the impugned order.;