SECI wins a crucial deal at APTEL on negotiation margins, for now

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Strong points :

  • The judgment of APTEL should put an end, for the moment, to the irritation of the discoms to the commercial margin of 7 paise of SECI.
  • However, this opens the door to more difficult negotiations in future contracts. Mostly bigger, healthier dcoms as they fix their books.

The ruling against orders from Delhi and Punjab regulators will be a relief for the central agency.

In a detailed 77 page judgment delivered on July 2, a bench of two judges of the Court of Appeal for Electricity (APTEL) had delivered good news to SECI (Solar Energy Corporation of India) on its precious commercial margin of 7 paise per unit. This trade margin was evidenced by the decision taken by the Delhi Electricity Regulator (DERC) and the Punjab State Electricity Regulator (PSERC) of the Punjab. In both cases, state regulators had decided to reduce the trade margin to 2 paise / unit, which clearly hurt SECI.

Without going into the details of the order, the main issues APTEL has addressed are the competence of state regulators and the right of state regulators to make any changes to a contract between two parties in this case, between SECI and the state regulators. solar energy developers. , and second, between the SECI and the state discoms.

Regarding the first question, APTEL quoted that “the power and jurisdiction of the State Commission under Article 86 (1) (b) relates to the source, amount and price (tariff) of the supply. by the holder of the distribution license. In interstate transactions, he is bound to follow the regulatory regime or the determination of the trade margin by the Central Commission and cannot comment on his ownership. In this case, with the power coming from projects outside the state (s), the writing of the CERC reigns supreme, as APTEL has clearly reiterated.

On the second state discoms assertion, in which they sought to exploit a 2 paise per unit marine trading condition for short-term contracts, and extrapolate it to longer-term contracts, APTEL ruled that “There was no provision for trading margin in long-term trades. In addition, for short-term transactions, there is a cap on the trade margin at 4 paise / kWh and 7 paise / kWh in case the sale price is less than or equal to Rs. 3.00 / kWh and the sales price is respectively above 3.00 Rs / kWh.

The Trading Margin Regulations 2010 framed by the Central Commission have been replaced by the Trading License Regulations, 2020. To recap, by Regulation 7, the subject of “trading margin” is controlled with respect to “transactions undertaken by the Trading Licensee ”which include“ Transactions under long-term contracts (where the duration of the Licensee’s contract with the seller or the buyer or both is greater than one year) ”and“ Transactions under back to back contracts, regardless of the length of the contract ”. Regulation 8 unambiguously states that “(f) for transactions under long-term contracts, the profit margin shall be decided by mutual agreement between the licensee of the trading license and the seller”, but this being so subject to the clause stipulating that “in contracts where the arrangement or irrevocable, unconditional and renewable letter of credit as specified in clause (10) of Regulation 9 is not provided by the holder of the business license in favor of the seller, the business license holder will not charge a profit margin greater than two (2.0) paise / kWh ”. The same provision also provides that for transactions under back-to-back contracts, “where an escrow agreement or irrevocable, unconditional and revolving letter of credit, as specified in clause (10) of regulation 9 is not not provided by the Vendor Trading Licensee, the Business Licensee will not charge a trade margin greater than two (2.0) paise / kWh ”. Along with Clause (10) of Regulation 9, it is stipulated that “(the) Holder of the business license will make Appeal No. 52 of 2021 and Appeal No. 70 of 2021. The payment of contributions to the due date agreed upon by the seller for the purchase of the quantity of electricity agreed upon through an escrow agreement or an irrevocable, unconditional and revolving letter of credit in favor of the seller… ”

So even though SECI comes back happy with a victory under its belt that protects its trading margin, it is clear that this is a battle that is far from over. Over time, the discoms, especially if they improve their finances and their credibility to the extent that they always should have had it, this profit margin will be called into question. After all, this is the small price state discoms pay for their own ineffectiveness and mismanagement, be it losses, late payments, or other arbitrary actions against producers. This required the inclusion of a centralized mediator in the power buying game, in the form of SECI.

And it worked. We have seen how, when acquiring after acquisition of solar assets by different developer companies, we were careful to point out to investors that the assets have long term power purchase agreements with CENTRAL entities and power supplies like SECI, NTPC, etc. Having a direct deal with a state discom just isn’t worth the same amount of money. Thus, SECI has in fact more than justified its trade margin so far, thanks to the state of most state discoms. That SECI takes significant risks by opening irrevocable letters of credit in favor of developers, for example, is a fact. And this is a condition to which he was held on several occasions, both by the CERC and the APTEL, each time he invoked late payment due to late payment on the side of the discom. Since it’s back to back, public service announcements with state discoms rarely work as well.

As dcoms improve their finances and compliance with contracts, the best will surely ask for and get a discount in time for SECI, or better yet, they can consider the will of their developers. sell at the same time. price as say, SECI, the best indicator of their progress.

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