Case No. 224 of Coram. Shri. I.M. Bohari, Member Shri. Mukesh Khullar, Member. M/s. Vidarbha Industries Power Ltd (VIPL-G)

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: / www. merc.gov.in Case No. 224 of 2018 In the matter of Petition of Vidarbha Industries Power Ltd. (Generation Business) seeking amendment of the Power Purchase Agreement dated Coram Shri. I.M. Bohari, Member Shri. Mukesh Khullar, Member M/s. Vidarbha Industries Power Ltd (VIPL-G)..Petitioner M/s Adani Electricity Mumbai Ltd (Formerly known as Reliance Infrastructure Limited (Distribution).. Respondent Appearance: For the Petitioners For the Respondent : Shri Venkatesh (Advocate) : Shri Ghansham Thakkar ORDER Date: 28 September, M/s Vidarbha Industries Power Ltd. (Generation Business) (VIPL-G), H Block, 1 st floor, Dhirubhai Ambani Knowledge City, Navi Mumbai, filed a Petition on 3 August, 2018 under section 86(1) (b) of the Electricity Act (EA), 2003 and Regulations 92 & 94 of the MERC (Conduct of Business) regulations, 2004 seeking amendment of the Power Purchase Agreement (PPA) dated 14 August, MERC Order in Case No. 224 of 2018 Page 1 of 9

2 2. Petitioner main prayers are as follows: (b) Approve the amendment to the PPA as annexed in Annexure P-4; (c) Condone any shortcomings in the Petition and allow the Petitioner to submit additional information as may be required by the Hon ble Commission at a later stage; 3. VIPL-G in its Petition stated as follows: 3.1. VIPL has a 600 MW (2 x 300 MW) Power Plant at MIDC Butibori, District Nagpur in Maharashtra In December 2012, the VIPL-G and RInfra-D resolved to enter into a long term PPA for supply of power from the power plant belonging to VIPL and approached the Commission for approval of the said PPA. During the process of the said approval in Case No. 2 of 2013, the parties submitted the initialed draft PPA, which was based on the Standard Case 1 PPA document, as published by the Ministry of Power, Government of India RInfra-D provided the list of deviations in the said PPA entered into between the parties vis-a-vis the Standard Case-1 PPA in its Response to data gaps dated 07 February, In the said Response, it was stated that the provisions under Clause 8.4 of the Standard Case-1 PPA, which was related to Payment Security Mechanism through Letter of Credit and Collateral Arrangement, was deleted on account of the parties being Group Companies and so the mutual comfort related to Payment Security The Commission in its Order dated in Case No. 2 of 2013 accepted the above deviations and accorded its in-principle approval to the PPA for supply of power from Unit VIPL-G and RInfra-D entered into PPAs for Unit 2 on 15 March, 2013 and for Unit 1 on 4 June, 2013 along with a Consolidation Agreement on 4 June, The Commission also approved PPA for supply of power from Unit 1 in Order dated 19 July, 2013 in Case No. 76 of 2013, which was on the exactly same lines as for Unit 2, while suggesting certain minor changes, and also approved the Consolidation Agreement Accordingly, on 14 August, 2013, the PPAs were finally signed. The Draft Standard Case-1 PPA document as issued by the Ministry of Power duly includes an appropriate provision for Payment Security and Collateral Arrangement. MERC Order in Case No. 224 of 2018 Page 2 of 9

3 3.8. The said provisions related to the Payment Security Mechanism, as prescribed in the Draft Standard Case 1 PPA document, are not incorporated in the PPA dated 14 August, Clause 15.3 of the PPA states as follows: Amendment This Agreement may only be amended or supplemented by a written agreement between the Parties and after obtaining the approval of the Commission, where necessary The Parties based on mutual agreement or as required under Financing Agreements subject to approval of the Commission, may incorporate, the provisions related to letter of credit, contract performance guarantee, collateral arrangement (i.e. Default Escrow Account and Agreement to Hypothecate Cum Deed of Hypothecation) as applicable in Standard Case 1 Bidding PPA Draft prevailing on Effective Date for long term power procurement. Details of such Standard Case 1 Bidding PPA Draft provisions for long term power procurement related to letter of credit, contract performance guarantee and collateral arrangement are described for illustrative purposes in Schedule 10. Format of contract performance guarantee shall be as per Schedule 9. [Emphasis added] 3.9. The draft of the amendment was also incorporated in the Schedule 10 to the PPA. The Mumbai Distribution Business of RInfra-D is being taken over by Adani Transmission Limited and the Distribution License is being assigned to Reliance Electric Generation and Supply Limited (REGSL). By its Order dated 28 June, 2018, the Commission has accorded its approval in Case No. 140 of 2017 for the said assignment and transfer In view of the foregoing factual background, and in terms of Clause 15.3 of the PPA dated 14 August, 2013, VIPL-G is now seeking to establish the Payment Security Mechanism, which was deleted from the PPA. Notably, since the PPA is no longer between entities of the same group company, appropriate security mechanism is accordingly required to be put in place Letter dated 24 July, 2018 issued by VIPL-G and the response dated 26 July, 2018 of RInfra-D were also exchanged between the parties, mutually MERC Order in Case No. 224 of 2018 Page 3 of 9

4 agreeing to the foregoing proposal. Copies of the Letters dated 24 July, 2018 and 26 July, Hence, VIPL-G and RInfra-D have approached the Commission by way of the present Petition, in line with the Clause 15.3 of the existing PPA, for approval of the said Amendment in the PPA It is submitted that timely payment by the utility for the energy purchased by it is an essential requirement without which the developer cannot meet his liabilities in time. That any delay in payment of debt and/or interest would have substantial impact on the tariff, and also adversely affect the viability of any project. Hence, there is a need for the security of payment and need for compensation to the developer in case of delay thereof. Necessity of Payment Security Mechanism has also been duly recognized by the Commission in a catena of cases, while approving PPAs It is submitted that the relevant provision for Payment Security was initially deleted from the PPA on account of the parties being from the same group company. Hence, at the time of entering into the PPA, it was agreed that such a provision, which is adding no significant value to the PPA, ought not to be retained. It was further clarified at the time of approval of the PPA that the relevant payment mechanism provision would also have an impact on the tariff on consumers and therefore it was deemed appropriate to exclude the same Presently, however, since there has been a change in the nature of the parties to the PPA, which are notably no longer from the same group company, in the humble submission of the parties, it would be appropriate to re-insert the clause for Payment Security Mechanism, in line with the Standard Case-1 PPA. That such insertion would not be prejudicial to either party to the PPA, or the consumers. The same has, in fact, also been mutually agreed between the parties thereof That as per Clause 15.3 of the PPA, for any amendment in the PPA, including for insertion of payment security mechanism, the parties are required to obtain appropriate approval from the Commission. In compliance thereof, the Petitioner with the consent of RInfra-D has preferred the present Petition. 4. VIPL-G vide its additional submission dated 23 August, 2018 stated that: 4.1. The Clause of the PPA, which has been relied upon for the amendment of the PPA in the Petition, also provides for inclusion of the MERC Order in Case No. 224 of 2018 Page 4 of 9

5 terms and Conditions related to the establishment of Contract Performance Guarantee (CPG) The Parties have now agreed to incorporate the said provisions related to CPG in the proposed Amendment to the PPA. 5. At the hearing held on 14 September, 2018, 5.1. The Counsel for the Petitioner reiterated its submission made in the Petition. To the query of the Commission, the representative of M/s Adani Electricity Mumbai Limited (AEML) stated that the management has given the consent for addition of Payment Security Mechanism, Contract Performance Guarantee and related provisions in PPA The Commission observed that the consent letter dated 26 June, 2018 submitted along with the Petition was from RInfra (Distribution Business). However, taking into account the management change effected recently from RInfra (Distribution Business) to AEML. The Commission directed to submit consent letter from the new management. 6. AEML Vide its submission dated stated that: 6.1. AEML is a company incorporated under the Companies Act, 2013 having its registered office at Adani Electricity, CTS 407/A(New), 408 Old village, Eksar Devidas lane, Off SVP Road, Borivali (west), Mumbai, Mumbai City, Maharashtra, India AEML is engaged in the business of generation, transmission and distribution in India The Commission vide its Order dated 28 June, 2018 in Case No. 140 of 2017 approved the transfer of Distribution License of RInfra in favour of REGSL and sale of 100% shares of REGSL to Adani Transmission Limited (ATL) thereafter. ATL has acquired 100% shareholding of REGSL along with name change of REGSL to Adani Electricity Mumbai Limited (AEML) the Respondent In view of the foregoing and to align the subsisting Power Purchase Agreement executed between erstwhile related parties on arm s length basis the Petitioner has moved the Petition. In this regard the Respondent humbly submits that any amendment to the PPA at this stage needs to be considered holistically so as to protect the interest of not only the parties to the Agreement but above all the consumers. Therefore it would be appropriate MERC Order in Case No. 224 of 2018 Page 5 of 9

6 to give full effect to article of PPA and not in part or selective manner. Article of the PPA states as follows: 15 ARTICLE 15: MISCELLANEOUS PROVISIONS The Parties based on mutual agreement or as required under Financing agreements subject to approval of the Commission, may incorporate, the provisions related to letter of credit, contract performance gurantee, collateral agreement (i.e. Default Escrow account and Agreement to Hypothecate Cum Deed of Hypothecation) as applicable in Standard Case 1 Bidding PPA Draft Details of such :Standard case 1 Bidding PPA Draft provisions for long term power procurement related to letter of credit, contract performance guarantee and collateral agreement are described for illustrative purposes in Schedule 10. Format of contract performance guarantee shall be as per Schedule As can be seen from the above reproduced clause of the PPA, the provisions relating to Payment security Mechanism (being letter of credit and other collateral arrangements) and Contract Performance Guarantee are complementary so as to balance the interest of the parties under the PPA and thus forms an essential part of the standard Case-I PPA on an arm s length basis. Consequently, any amendment to the provisions of the PPA in terms of article at this stage is required to incorporate both the provisions relating to Payment security Mechanism ad also the provisions relating to Contract Performance Guarantee to be furnished by the Petitioner in favour of the Procurer (the Respondent) under the PPA to protect the interest of its consumers. The Respondents would not like to waive any of its right under the PPA including right for obtaining Contract Performance Guarantee. Without prejudice to be aforesaid even Hon ble Supreme Court in its Judgment in Civil Appeal No of 2016 has held that any waiver under the Agreement which is not in public interest is void It is respectfully submitted that the Commission in its Orders in Case No. 76 of 2013 and Case No. 2 of 2013 has approved the PPA, schedule 10 of which provides for the clauses that shall be incorporated /given effect to when the Petitioner and the Respondent agree to implement the mechanism of Payment security Mechanism and Contract Performance Guarantee. In this regard the respondent submits and confirms that the Petitioner is in agreement to provide to the Respondent the Contract Performance Guarantee. MERC Order in Case No. 224 of 2018 Page 6 of 9

7 6.6. It is submitted that in the event the Commission approve amendment to the PPA, it should allow to incorporate provisions relating to both Payment Security Mechanism and the Contract Performance Guarantee in terms of schedule 10 of the PPA Except for amendments stated in Para 6 above, all other provisions of the PPA shall unaltered and nothing shall be deemed as waiver or consent on any other aspect. Commission Analysis and Ruling 7. VIPL-G in its Petition and additional submission has contended to amend the existing PPA with M/s. AEML (Formerly known as RInfra-D) dated 14 August, The provisions related to Letter of Credit, Contract Performance and Collateral Arrangement as prescribed in the Draft standard Case 1 PPA document were not incorporated in that PPA. 9. The above provisions were deleted in the original PPA on account of the parties being Group Companies and hence no separate Payment Security Mechanism was incorporated by the company. However the Clause 15.3 was retained in that PPA Amendment This Agreement may only be amended or supplemented by a written agreement between the Parties and after duly obtaining the approval of the Appropriate Commission, where necessary. 10. RInfra-D vide its letter dated 26 June, 2018 had given consent for incorporating the provisions related to the Payment Security Mechanism in line with Clause of the PPA as prescribed in the Draft Standard Case 1 PPA document. 11. The Commission vide its Order dated 28 June, 2018 in Case No. 140 of 2017 approved assignment of Distribution License of RInfra-D to Reliance Electric Generation and supply Limited (REGSL) and consequent transfer of ownership of Mumbai distribution Business of RInfra-D to Adani Transmission Limited. 12. The Commission notes that in accordance with the Article 13 of the PPA 13 Assignment, This agreement shall be binding upon, and inure to the benefit of the Parties and their respective successors and permitted assigns MERC Order in Case No. 224 of 2018 Page 7 of 9

8 .. (b) this Agreement shall continue to remain valid and binding on such successor. Therefore, in accordance to this Article the PPA signed between VIPL-G and RInfra-D gets assigned to its new successor i.e. M/s AEML. 13. At the hearing the Representative of M/s AEML, Shri Ghansham Thakkar submitted that M/s AEML has no objection for incorporating the clause of Payment Security Mechanism and Contract Performance Guarantee in the PPA dated 14 August, The Commission in Order dated 20 June, 2016 in Case No. 91 of 2015 did not find it appropriate to approve the actual fuel cost incurred by VIPL-G in FY and FY The Commission disallowed the Fuel Cost stating that the basic premise of approval of the PPA was the availability of linkage coal from CIL, and VIPL-G in all its Petitions had projected the Energy Charge based on utilisation of domestic coal. Deviating from this premise, higher Energy Charge in the Truing up for FY cannot be justified. 15. VIPL-G filed an appeal against the said Order before Appellate Tribunal of Electricity, the Tribunal by its Order dated November 3, 2016 in Appeal No. 192 of 2016 allowed the cost of coal for Unit -I limiting to the extent of what has been allowed /is being allowed by the Commission for the corresponding period for the supply under FSA arrangement for the generation from Unit-II. 16. The Commission has filed a Civil Appeal against the said order of Tribunal before the Hon ble Supreme Court of India (Civil Appeal No. 372 of 2017) which is pending. 17. The Commission in its daily Order in MA No. 3, 4, 5 and 6 dated 14 September, 2018 directed VIPL-G to step up their efforts for expeditious execution of much delayed FSA for its Unit 1 by taking up the matter with the concerned authorities, so as to not render the PPA approved by the Commission, infructuous. 18. M/s AEML vide its letter dated 25 September, 2018 has submitted its consent to give full effect to Article of the PPA and not in part or a selective manner. i.e. to add Payment Security Mechanism and Contract Performance Guarantee in the PPA. Further stated that except for this 2 clauses proposed for amendment, all other provisions of the PPA shall remain unaltered and nothing shall be deemed as a waiver or consent on any other aspect. MERC Order in Case No. 224 of 2018 Page 8 of 9

9 19. Further, the Commission observed that in the Article 1.1 i.e. Definitions, the term Payment Mechanism was also deleted in the Original PPA and VIPL-G has not included these term in the amendment PPA. Payment Mechanism shall have the meaning ascribed thereto in Article 8.4 of this Agreement; In view of above, the Commission directs to also add the above mentioned definition in proposed amendment to PPA. 20. The Commission hereby approves to incorporation of provisions related to Payment Security Mechanism, Contract Performance Guarantee including definition of Payment Mechanism in terms of schedule 10 of the PPA. Hence following Order: ORDER 1) The amendment in the PPA for incorporating Payment Security Mechanism and Contract Performance Guarantee is allowed. 2) The Parties are directed to submit the amendment to the PPA, after incorporating the modifications stated above, for the information of the Commission within one month from the date of this Order. 3) The Commission rules that allowing amendment to the existing PPA on the lines above, does not in any way obviate the responsibility of Petitioner to execute long term FSA which was the basic premise of approving original PPA. Sd/- (Mukesh Khullar) Member Sd/- (I.M.Bohari) Member MERC Order in Case No. 224 of 2018 Page 9 of 9