BEFORE THE ARBITRAL TRIBUNAL by CLO4YG0

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KARNATAKA POWER TRANSMISSION CORPORATION LIMITED
No: KPTCL: B-36: 6580: F: 2002-03:                             Corporate Office,
Encl: proposal in six sets                                      Regulatory Affairs
      along with Annexures                                 1st Floor, Kaveri Bhavan
                                                             Bangalore-560 009
                                                                Dated: 07-08-2003



The Secretary,
Karnataka Electricity Regulatory Commission,
6th, 7th Floor, Mahalaxmi Chambers,
M.G. Road, Bangalore-560001.


Sir,

Sub: Approval for enhancement of BST and retail supply Tariff consequent on
     allowing USD $ 0.04 towards fixed charges payable to Tannir Bhavi
     Power Company –reg.


I am submitting in six sets the proposal for enhancing the bulk supply and
retail supply Tariff of FY-04, consequent to allowing the fixed charges at USD $
0.04 payable to Tannir Bhavi power Company as per Arbitral Award, for kind
consideration and approval of Hon’ble Commission.
                                                          Yours faithfully



                                                 Superintending Engineer Electrical
                                                  Regulatory Affairs & Computers
                                              2


     BEFORE THE KARNATAKA ELECTRICITY REGULATORY COMMISSION,
                          AT BANGALORE


                        IN THE MATTER OF TARIFF ORDER 2003

KARNATAKA POWER TRANSMISSION
CORPORATION LIMITED
Kaveri Bhavan, Bangalore – 9.                                 ………APPLICANT
                              AFFDIVIT


     APPLICATION FOR MODIFICATION OF TARIFF ORDER-2003 DATED 10.3.2003
         UNDER SECTION 27 OF KARNATAKA ELECTRICITY REFORM ACT


1.     I, B.S. Ramesh, S/o Late M.R. Somashekhara Rao, aged 56 years, residing at No.42, 1 st
       Cross, GKW Layout, Vijay Nagar, Bangalore – 560 040, do solemnly affirm and say as
       follows:

2.     I am the Superintending Engineer Electrical, Regulatory Affairs and Computers, KPTCL,
       Bangalore, duly authorised to make this Affidavit.

3.     The statements made in paragraph 1 to 11 herein now shown to me and marked with the
       letter ‘A’ are true to my knowledge and the statements made in paragraph 1 to 11 are
       based on information I believe them to be true.
4.     Solemnly affirmed at Bangalore on this day 07.08.2003 that the contents of the above
       Affidavit are true to my knowledge, no part of it is false and nothing material has been
       concealed therefrom.




                                                              B.S. Ramesh
                                                    Superintending Engineer Electrical
                                                     Regulatory Affairs & Computers,
                                                        KPTCL, Kaveri Bhavan,
                                                                  Bangalore.
                                               3


                                                ‘A‘

       BEFORE KARNATAKA ELECTRICITY REGULATORY COMMISSION
                          AT BANGALORE


IN THE MATTER OF TARIFF ORDER 2003

KARNATAKA POWER TRANSMISSION
CORPORATION LIMITED
Kaveri Bhavan,
Bangalore – 9                                      ……….APPLICANT

     APPLICATION FOR MODIFICATION OF TARIFF ORDER-2003 DATED 10.3.2003
         UNDER SECTION 27 OF KARNATAKA ELECTRICITY REFORM ACT

Applicant above named states as follows:

1.     M/s Tanir Bavi Power Company Private Limited (TBPCL) has entered into a Power
       Purchase Agreement on 16th July 1997 providing for payment of Fixed Charges and also
       Variable Charges for the electricity supplied. This was amended by two supplemental
       agreements dated 29th May 1999 and 30th September 1999.

2.     A dispute arose between KPTCL and TBPCL regarding rate at which the fixed charges
       shall be paid. As per TBPCL, the fixed charges payable as per clause 7.3 of PPA is US $
       0.04 per Kwhr where as KPTCL differed from it.

3.     The dispute came to be referred to the Government of Karnataka. The Government of
       Karnataka, after consulting the Advocate General, vide its letter dated 1st December 2001
       directed KPTCL to pay the fixed charges at the rate of US $ 0.04 per Kwhr.

4.     Consequent to the above letter, KPTCL filed a revised Expected Revenue From Charges
       for FY- 02 and FY- 03 and claimed the additional fixed charges payable to TBPCL to the
       tune of       Rs. 121-79 Cr and Rs. 163-81 Cr for the FY-02 and FY-03 respectively.
                                                     4




5.         The Hon’ble Commission held a hearing on 18th February 2002 only on the issue of rate
           of fixed charges payable to TBPCL. After hearing, the Commission (at page 123 of the
           tariff order 2002) passed the following order:

     i)           The additional fixed charges payable to TBPCL of Rs. 121.79 Crore in FY- 02 and
                  Rs.163.81 Crore in FY-03 are disallowed for inclusion in the ERC for the respective
                  years:
     ii)          KPTCL is directed not to take any further action on the claims of TBPCL without
                  following the dispute resolution mechanisms included in the PPA.

6.         As per the above order, KPTCL started admitting the bills of TBPCL excluding the
           disputed amount. Consequent to it, the Generating Company invoked the Escrow
           instrument and started realising the electricity charges inter-alia, the fixed charges at US
           $ 0.04 per Kwhr.

7.         KPTCL approached the Karnataka Electricity Regulatory Commission to restrain the
           generating company from realising the disputed fixed charges till the dispute is decided
           by arbitration. The Hon’ble Commission, however, held that it has no powers to grant an
           injunction against the Company and its Escrow Agent. TBPCL thus kept realising its
           dues according to its own interpretation of the PPA relating to the fixed charges.

8.         Pursuant to the directions of the Commission to follow the dispute resolution mechanism
           provided in the PPA, both KPTCL and TBPCL referred the dispute to an Arbitral
           Tribunal consisting of the Hon’ble Mr. Justice Y.V. Chandrachud, (Former Chief Justice
           of India), Hon’ble Mr. Justice S. Mohan, (Former Judge of the Supreme Court) and
           Hon’ble Mr. Justice G.N. Ray, (Former Judge of the Supreme Court). The Tribunal has
           passed the following Award on 19th May 2003.
                                                   -3-

           i)        The claimant is entitled to the fixed charge at the rate of US $ 0.04 per Kwh, for
                     the electricity supplied by it to the respondent as per the terms of the Power
                     Purchase Agreement dated 16.7.1997 and the subsequent amendments.
           ii)       The claimant is further entitled to the amount of Fixed Charges at Rs. 191.31
                     Crores together with interest at the rate of 24% per annum from the date of
                     default to the date of payment.
           iii]      Each party shall bear its own costs of these Arbitral proceedings.
                                                        A copy of the Award is placed at Annexure-A

9.         KPTCL is therefore, bound to pay fixed charges @ US $ 0.04 per Kwhr. Consequently,
           the additional burden on KPTCL for FY- 02 and FY- 03 is Rs. 113-50 Crore and 158-10
           Crore respectively.     For FY-04, the anticipated additional burden on KPTCL will be
           Rs. 147-34 Crore. The detailed calculation is placed at Annexure-B.
           Annexure-C indicates the interest liability of Rs. 34.10 Cr.
                                              5


10.   This Hon’ble Commission has not allowed the above amounts to be included in the
      respective ERCs during the pendency of the arbitration proceedings. In the light of the
      Arbitral Award, the Commission may have to take note of its impact on KPTCL and
      consequently revise the tariff. The additional outgo on account of Power Purchase Cost is
      a pass through expenditure for KPTCL and should be recovered from the consumers.

11.   The claims of KPTCL made in this application are without prejudice to its rights and
      contentions in the MFA No. 3456/2003 pending before the Hon’ble High Court of
      Karnataka against the Tariff order-2003.



                                            Prayer
      It is respectfully prayed that the Hon’ble Commission may be pleased to take note of the
      additional payment of Rs. 271.60 Cr received through Escrow by TBPCL for the Power
      supplied for the years FY-02 & FY-03 and projected additional expenditure of           Rs.
      147.34 Cr for FY-04 and an interest burden of Rs. 34.10 Cr totalling to Rs. 453.04 Cr and
      to enhance the bulk supply tariff and consequential retail tariff of FY-04 suitably in the
      interest of justice.


                                         FOR KARNATAKA POWER TRANSMISSION
                                                CORPORATION LIMITED


                                                  Superintending Engineer Electrical
                                                   Regulatory Affairs & Computers
                                      6


                                                            ANNEXURE-A

                   BEFORE THE ARBITRAL TRIBUNAL

                                  PRESENT

                      JUSTICE Y.V. CHANDRACHUD
                   (FORMER CHIEF JUSTICE OF INDIA)



       JUSTICE S. MOHAN                          JUSTICE. G.N. RAY
   (Former Judge supreme Court)               (Former Judge supreme Court)



                           IN THE MATTER OF

                       Dispute relating to Fixed Charge


Between


       Tanir Bavi Power Company Pvt Ltd (TBP)……………….. Claimant

And:

Karnataka Power Transmission
Corporation Ltd (KPTCL)                               ….…….. Respondent


                                  AWARD

Per. G. Mohan J.
                                         7


Pleadings:
1. M/s Tanir Bavi Power Company Pvt Limited, the claimant herein, is a
   company incorporated under the provisions of Companies Act, 1956 with the
   object of setting up Power Plants. (This Company will be referred to in our
   Award as “The Claimant”)
2. M/s Karnataka Power Transmission Corporation Limited is the Respondent, a
   Company incorporated under the companies Act of 1956. It is the successor of
   the Karnataka Electricity Board in terms of the provisions of Karnataka
   Electricity Reforms Act 1999. It is wholly owned and controlled by the State
   of Karnataka. Its responsibility is to generate, transmit and distribute electrical
   energy to the consumers of Karnataka. (it will be referred to as KPTCL).


   3. In view of the acute power shortage faced by the State of Karnataka, a
   Notification was issued by Government of Karnataka on 8-12-1995 inviting
   Global Tenders / Bids for setting up Barge Mounted Power Plants of 150 MWs
   near Mangalore and one unit of 100 MWs at Kurta (This unit to be set up @
   Kurta does not form part of the present controversy) which have short gestation
   period. Pursuant to the said notification, several bids were submitted. M/s.
   Smith Cogeneration International and Chicago Power Inc., submitted
                                          8


a Joint Bid/Proposal for setting up two Barge Mounted Power Plants at Mangalore.


4 In the said notification it was stipulated that the electricity generated by the
   Power Plants shall be Purchased by the Karnataka Electricity Board, the
   predecessor-in-interest of the Respondent. The tender documents required the
   bidders to specify the tariff in two parts comprising of:
              (i)    Total Fixed Charge, and
              (ii)   Variable Charge.


In its bid, M/s. Smith Cogeneration International and Chicago PowerInc., quoted
the following tariff per KWh at 85% load factor.


              (i) Variable Charge             Rs. 1.05
              (ii) Dollar denominated         US $ 0.04 (4 Cents) (Equivalent to
                 fixed charge                 Rs. 1.40 at the then prevailing rate
                                              of 1 US$=Rs.35/- )
              (iii) Other fixed charges       Rs.0.175.


    5.    Bids were evaluated by a High Power Committee which recommended
    the award in favour of M/s. Smith Cogeneration International and Chicago
    Power Inc., Accepting the recommendation of the High Power Committee the
    Cabinet of Government of Karnataka accorded its approval in favour of
                                       9


M/s. Smith Cogeneration International and Chicago Power Inc., to set up two
Barge Mounted Power Plants at Mangalore. Thereafter, by Government Order
dated 5th March, 1996 the said Company was called upon to set out the Barge
Mounted Power Plants and enter into a Power Purchase Agreement (PPA) with
Karnataka Electricity Board.


   6.    A Meeting of Karnataka Electricity Board was held on 15 th September
         1997. In the agenda prepared for the Board Meeting the tariff payable to
         M/s. Smith Cogeneration International and Chicago Power Inc., was
         stated as Rs.2.625 per KWhr comprising of the following components:-


         (i) Variable charge                   : Rs.1.05
         (ii) Dollar denominated               : US $ 0.04 (4 cents)
            fixed charge                         (equivalent to rs.1.40 at the then
                                                prevailing rate of 1 US $=Rs.35/-
         (iii) Other fixed charges             ; Rs.0.175




   7.    On 16.7 1997 the Power Purchase Agreement was approved and the same
         was signed between Karnataka electricity Board and the Claimant
         Company. By the same Government Order, the capacity of the Project
         was enhanced to 170 MW, and again the capacity of the Project was
         enhanced to 200 MW by order dated
                                            10




  10.11.1997. In view of the said enhancement, Karnataka electricity Board was
  directed by the Government to hold talks afresh on tariff negotiation with the
  Claimant Company.       Subsequently, by Government Order dated 10.03.99 the
  capacity of the Project was enhanced to 220 MW. Consequent to this, there were
  negotiations concerning the tariff. The other fixed charges came to be reduced
  from Rs. 0.175 to Rs.0.145 per Kwh, in view of the enhancement in capacity to
  220 MW. Thereupon to incorporate the same, on 15.12.1997 a Power Purchase
  Agreement was entered into between Karnataka Electricity Board and the Claimant
  setting out in detail the terms and conditions including the tariff payable.


8. As was required by the Power purchase Agreement, the Government of Karnataka
  Government Guarantee Undertaking to discharge the obligations and liabilities in
  the event of default on the part of the Karnataka Electricity Board.




  Article 7 of power Purchase Agreement (PPA) dated 15.12.1997 provides for tariff
  payments.


  Subsequent to the execution of Power Purchase Agreement, two Supplemental
  Agreements were entered into between the parties on 29th May, 1999 and 30th
  September, 1999 amending certain
                                 11




Paragraphs of PPA. The Amended Articles 7.3 and 7.4 of the PPA run as
follows:-
Article 7.3 (As amended)

Tariff: In consideration for the Electricity supplied by the company to the
Board and Deemed Generation pursuant to section 7.6, the Board shall pay
the company the Tariff payment. The monthly Tariff Payment shall equal
the sum of the Monthly Total Fixed Charge Payment; Monthly variable
Charge Payment and payments pursuant to supplemental invoices. The
basis of Monthly Fixed Charges Payment and Monthly variable charge
payment will be the individual tariff components as given in the following
table.


    Tariff Period           1         2     3     4     5     6      7
    Variable Charge         In accordance with provisions of Section
                            6.5, 6.6 and 7.5 of this Agreement with a
                            Tariff heat Rate of 2075 kcal./Kwh.
    Total Fixed Charge      At 85% plant Load Factor
    1.      Fixed   Charge .04        .04   .04   .04   .04   .04    .04
    (USD/Kwh)-Fc
    2.      Other     Fixed 0.145, 0.145 plus escalation in accordance
    Charge                  with Section 7.4
    (Rupee/Kwh)-Fo
                                   12


Article 7.4

Total Fixed Charge:

Total Fixed Charge for a Tariff Period is fixed price per Kwh of Electricity

delivered and Deemed Generation, upto 85% PLF for the applicable Tariff

Period, as set forth in tariff table of Section 7.3


The total Fixed Charge shall comprise of Dollar denominated Fixed

Charge component expressed in USD per Kwh and a Rupee denominated

other Fixed Charge component expressed in Rupee per Kwh. The dollar

denominated fixed charges shall provide exchange rate protection.

       (a) upto 16% Return on foreign Equity component and

       (b) foreign debt service charges

The total equity component shall not exceed 30% of the project Cost. The

Company shall be required to demonstrate that the Return on Equity and

Debt Service component of the Dollar denominated Equity or dollar

denominated Debt are paid to service the dollar denominated debt or dollar

denominated equity invested in the project. The Fixed Charge shall be

determined at the time of Financial closing and shall be subject to a ceiling

of $ 0.04 per Kwh.
                                    13


  In case there is any balance in the Fixed Charge after meeting (a) and (b)

  above, the balance will be paid in Rupees for which there will be no foreign

  exchange protection.

9. The Claimant set up the Power plant at a cost of Rs. 950 Crores.         It

  borrowed from several banks, both Rupee loan as well as Foreign Currency

  Loan, to the tune of Rs. 660 Crores in order to set up the project. The

  Power Plant was manufactured at south Korea by M/s Hyundai Engineering

  & Construction Co., and was brought from South Korea by sea to the site

  and connected to the onshore facility.

        The project achieved Financial Closure on 14th September 2000. In

  terms of Article 7.4 of the Power Purchase Agreement (quoted above), the

  claimant wrote a letter to KPTCL on 13.11.2000 furnishing computation of

  foreign equity component and foreign debt service component. Along with

  the same, the Claimant submitted a working sheet for determination of the

  fixed Charge.

              On receipt of the letter of the Claimant, KPTCL sought

  certain clarifications. After exchange of correspondence, the claimant   by

  letter dated 7.4.2001 submitted Fixed Charge computation statement

  showing the details of Tariff for the entire period of Power Purchase
                                    14


   Agreement.      By its letter dated 28.6.2001, KPTCL approved the Fixed

   Charge computation statement since it was of the view that the calculation

   was in accordance with the provisions of PPA, based on the note to the

   Board by the Superintendent Engineer (Project dated 8.6.2001 arriving at the

   same opinion.

10. The Respondent filed a petition before the Karnataka electricity Regulatory

   Commission (hereinafter referred to as KERC) constituted under the

   Karnataka Electricity Reforms Act 1999. Pursuant to the said petition the

   above said Commission approved the tariff order by its letter dated

   18.12.2000.

11.The Power Plant became operational with effect from 8.6.2001 and from that

   date electricity generated by the Claimant was supplied to KPTCL., the

   Respondent herein in terms of Power Purchase Agreement. The claimant

   submitted its first Tariff Invoice for the month of June 2001 to the KPTCL

   on 2.7.2001. Similarly the Claimant submitted Tariff Invoice for the month

   of July 2001 on 1.8.2001. In both these Tariff Invoices, the computation in

   accordance with the Fixed Charge was approved by KPTCL, by its letter

   dated 20-6-2001.      In both these Invoices fixed Charge payable was

   calculated at US $ 0.04 P Kwh. However, the Chief Engineer
                                     15




(Electrical) of KPTCL sent a letter of even date stating that fixed charge

payable by KPTCL was not US $ 0.04 but it was only at 0.02054 P Kwhr. On

this basis, the Respondent withheld payment of the tariff on the above Tariff

Invoices. The Claimant wrote several letters pointing out the illegality of the

stand taken by KPTCL and demanded the payment on the Tariff Invoices as

claimed. But that was not accepted. A Meeting was convened to sort out the

differences, but that did not bear any fruit. In view of the rigid stand taken by

KPTCL, the State Government sought legal opinion from the Advocate

General. On a perusal of the records, the Advocate General offered his opinion

that fixed charges are required to be paid in US $ 0.04 P Kwh. Accepting this

opinion, the State Government directed KPTCL to disburse fixed charge at US

$ 0.04 per Kwh. But the Government order was not given effect. In February

2002 KPTCL filed their revised ERC and sought the approval of Karnataka

Electricity Regulatory Commission in respect of revision of tariff for 2002-03.



12. On 8.5.2002, Karnataka electricity Regulatory Commission (KERC) passed

a Tariff Order directing the KPTCL not to take any further action on the claim

without following the dispute resolution
                                    16


mechanism provided in the PPA. Thereafter, KPTCL wrote a letter dated

23.07.2002 calling upon the claimant to appoint an Arbitrator to adjudicate

upon the dispute which had arisen between the parties with regard to

interpretation of PPA pertaining to the payment of the fixed charge dollar

denominated portion.


Accordingly, the parties have appointed arbitrators as provided in Para 14.3 of

the PPA to adjudicate upon the disputes that have arisen between the parties

with regard to the interpretation of Articles 7.3 and 7.4 of PPA pertaining to

payment of fixed charge by KPTCL to the Claimant. This is how the matter has

come before us.


13.On the above averments, the Claimant contends as follows;-

The Respondent is liable to pay Dollar denominated fixed charge at US $ 0.04 P

Kwhr. That is evident because,

      (i)    Fixed Charge specified in the bill submitted by M/s Smith

             Cogeneration International and Chicago Power Inc., is US $ 0.04 P

             Kwh;

      (ii)   The     High   Power   Committee    which    evaluated   the   bill

             recommended acceptance as Fixed Charge payable at US $ 0.04 P

             Kwhr;
                                17


(iii)   The Government of Karnataka approved this specified fixed

        charge;

(iv)    The Agenda of the Board Meeting of Karnataka Electricity Board

        held on 15.09.1997 specified the fixed charge payable at US $ 0.04

        P Kwhr;

(v)     Article 7.3 of the PPA which was been entered into between the

        claimant and the KPTCL specifically provides that the fixed

        charge payable is US $ 0.04 P Kwhr;

(vi)    The opening sentence of Article 7.4 specifies that the fixed charges

        shall be as indicated in the table in Article 7.3, which in turn

        specifies that the fixed charge payable shall be US $ 0.04 per

        Kwhr.

(vii) Sample tariff calculations in Appendix 6 of the PPA specifies that

        fixed charge payable is US $ 0.04 per Kwhr;

(viii) The Computation of fixed charge sent by the Claimant to KPTCL

        on the project achieving financial closure which has been approved

        by KPTCL, specified that fixed charge payable is US $ 0.04 per

        Kwhr;
                                      18




      (ix)   The Board Note dt. 8.6.2001 put up by the Superintending

             Engineer (Project) of KPTCL specifies that fixed charges payable

             is US $ 0.04 per Kwhr;

      (x)    The computation of tariff approved by KPTCL as per its letter

             dated 28.6.2001 specifies that the fixed charge payable is US $

             0.04 per Kwhr;

      (xi)   In the ERC filed by the KPTCL with the KERC for the year 2000

             and the Tariff Order 2000 indicate that the tariff in respect of the

             Power Plant of the Claimant has been computed on the basis that

             the fixed charge payable is Us $ 0.04 per Kwhr;

      (xii) The Opinion of the Advocate-General was accepted by the State

             Government.

   Even while filing the ERC by the KPTCL for the year 2002-03, the Chief

   Engineer took the stand that fixed charge payable was US $ 0.04 P Kwhr.

   The same stand is taken by letter dated 15.2.2002 of the Chief Engineer

   (Electrical), KPTCL.

14.On these grounds, the following prayers are made, i.e.,

              (a)     declare that the dollar denominated fixed charge payable

                      by the respondent to the Claimant as per the terms of
                                      19


                      Power Purchase Agreement (PPA) is US $ 0.04 per Kwh;

                      and further declare that the claimant is entitled to receive

                      payment on the aforesaid basis in its monthly bills sent to

                      KPTCL.

              (b)     direct the respondent to make immediate payment of

                      accumulated fixed charges calculated on the basis of US $

                      0.04 per Kwh, along with interest for delayed payment on

                      at 24% p.a;

              (c)     direct the respondent to pay costs of arbitration; and

              (d)     grant such other further orders as are just.

15.The Respondent has filed its Counter Statement stating as follows;

   The mattes in issues center round the interpretation of Article 7.4 of the

Power Purchase Agreement (PPA) dated 15th December 1997, as amended by

Supplemental Agreements dated 29th May 1999 and 30th September 1999.

   Quoting in full Article 7.4 and the definition in Article 1 of the PPA, the

Counter Statement proceeds that the proper interpretation of the sentence. The

Fixed charge shall be determined at the time of Financial Closing and shall be

subject to a ceiling of $ 0.04 per Kwh
                                       20




(appearing twice) in Sec.7.4 of the PPA) would be that the mention of US $

0.04 P. Kwh, in Section 7.4 of PPA is the maximum of the ceiling amount.

Actually the fixed charges payable by the Respondent to the Claimant are

required to be determined within the above maximum / ceiling amount, at the

time of Financial Closing. Therefore, the contention that the fixed charge

actually payable is at the rate of US $ 0.04 P. Kwhr. is not correct.

   The actual fixed charge to be paid is to be determined only at the time of

financial closing. That is an event subsequent to the signing of the PPA. When

so determined, the fixed charge shall be subject to the ceiling of US $ 0.04 P.

Kwhr.

   If the parties had intended US $ 0.04 P. Kwhr, shall be the actual fixed

charge it was meaningless to have stipulated that:-

   (i)    The Fixed charge shall be determined at the time of Financial Closing,

          and

   (ii)   The Fixed Charge shall be subject to the ceiling of US $ 0.04 US $ P.

          Kwhr.

   If really the fixed charge is to be determined at US $ 0.04 P. Kwhr., the

   expression, ‘shall be determined at the time of Financial Closing
                                      21


   And shall be subject to the ceiling or US $ 0.04 p. Kwhr’ mentioned in

   Article 7.4 of the PPA is rendered otiose.

16.The reliance on Article 7.3 will not be of any help to the Claimant. Article

   7.3 states that monthly fixed charge shall be equal to the monthly total fixed

   charge payment, monthly variable charge payment and the payments

   pursuant to supplemental invoices. It further states that the basis of monthly

   fixed charges payment and monthly variable charges payment will be

   individual tariff components as given in the table. Hence, it follows that

   Article 7.3 the PPA does not state that the Fixed Charges shall be US $ 0.04

   per Kwhr. It only states that the basis of monthly fixed charges payment

   will be the individual tariff component given in the table. Thus the table is

   intended to deal with the component and not the rate. The US$ 0.04 referred

   to in the table in Article 7.3 is only indicative and not does finally determine

   Fixed Charges. As mentioned above, the fixed charge definition provided in

   the PPA specifically refers to Article 7.4 and not Article 7.3. If Article 7.3

   has already fixed the charges as US $ 0.04 per Kwh as contended by the

   Claimant then

             (a) the definition of the Fixed Charge would be with reference to

                   Article 7.3 and not with reference of Article 7.4 and
                                     22


              (b)    (b) there is no purpose in providing in Article 7.4 of the

                     PPA that ‘the fixed charge shall be determined at the time

                     of financial closing and shall be subject to ceiling of US $

                     0.04 cents per Kwh.

17.The Fixed Charges was agreed at US $ 0.04 P Kwh that is pre determined

   component is what is claimed by the Claimant. In such a case, the Financial

   Closing formula would have mentioned it as 0.04 cents. Even appendix – 6

   does not support the case of the claimant. The correct interpretation of

   Article 7.4 of the PPA is that the actual Fixed Charge is to be determined

   and such determination shall be subject to the limit of US $ 0.04 Cents P/

   Kwh. The balance referred to in the PPA is to be so construed that any

   difference as between the actual fixed charge determined at the time of

   Financial Closing and that Service Charge the Claimant demonstrate as

   having been paid to service in Dollar Denominated debt or Dollar

   Denominated equity invested in he project as covered by clauses (a) and (b)

18.The interpretation of the Claimant restricts the term ‘Fixed Charge’ in the

   relevant sentence to that part of the fixed charge which shall have exchange

   rate protection. The term ‘fixed charge’ is a definite term and should have

   the meaning as assigned to it
                                      23


Claiming the entire Fixed Charge as dollar Denominated is not correct since no

such qualification has been prescribed. If the intention was to restrict the fixed

charge to the methodology of apportionment of the sum which would have

exchange rate protection it would have been incorporated as such.

19.The use of the expression ‘determined’ as opposed to “apportioned” is also

   significant. The reliance of the Claimant on the letter dt. 28.6.2001 does not

   further its case. The letter specifically states that the computation of fixed

   charge would be in accordance with the Power Purchase Agreement. The

   letter cannot be regarded as admission of liability. Thus the claim made that

   the Claimant is entitled to Fixed Charges at the rate of US $ 0.04 Per Kwh is

   untenable and is contrary to the terms of the contract between the parties.

   As per the PPA, the respondent is liable to pay only US $ 0.2054 per Kwh

   for the first year of operation as per the documents produced by the

   Claimant. This includes return to the Claimant of 16%. If the Claimant is

   held to be entitled to US$ 0.04 per Kwh the return shall be above 65% which

   is clearly unconscionable, irrational and unjustified in a public utility where

   the cost will be a burden on the general public of the State of Karnataka.

   The parties could not
                                         24


      have intended this consequence at all. In view of Article 16.6 of Power

      Purchase Agreement all the prior written or oral understandings or other

      communications of every kind pertaining to the subject matter have been

      abrogated and withdrawn, and therefore any reference to bids is not relevant.

   20.The contention of the respondent is that during re-negotiations the Claimant

      agreed to a reduction of other fixed charge from Rs. 0.175 per Kwh to Rs.

      0.145 per Kwh. On the request of the claimant to make the project

      financially viable the capacity was again enhanced to 220 MWs.

   21.The true meaning and the purport of Article 7.4 of the PPA has to be

      gathered from the entire article and not in a truncated version as is sought to

      be done by the Claimant.

   22.The reliance on the confidential records of the respondent will be o no help

      to the Claimant. The fact that the respondent referred to the rate at US$ 0.04

      Kwh. In the tariff proceedings before the State Commission cannot operate

      as an estoppel in the present Arbitration proceedings. It cannot be said that

      any sum claimed by the claimant ought to be paid without any demur.




      It is submitted that Article 7.3 of the Power Purchase Agreements does not

impose any obligation on the respondent to pay fixed Charges at US $ 0.04 as the
                                         25


definition of the Fixed Charges refers to only Article 7.4 and not 7.3. Further what

is stated in Article 7.3 is only about the component to be taken for the purposes of

calculation of tariff and not the actual rate. The reading of the entire Article 7.4

clearly indicates that Fixed Charges payable shall have to be determined at the time

of financial closure and subject to ceiling of US $ 0.04. Article 7.4 does not state

that the Fixed Charge payable is US$ 0.04 per KW.



23.   After setting out the grounds of opposition, the Respondent also makes a

Counter Claim as below:

      By taking recourse unjustifiably to the escrow mechanism, the Claimant has

realised and recovered excess fixed charges totaling Rs. 166.94 Crores from the

State Bank of Mysore up to October 2002.

      The enforcement of the escrow mechanism and recovery of the aforesaid

sum is wholly unjustified and unwarranted. The sums claimed by the Claimant in

its invoice are exaggerated and not payable on a proper interpretation of Article 7.4

of the PPA. Inspite of this, the Claimant has taken coercive measures and has

recovered
                                         26


the sum. The Claimant is liable to refund the sum of Rs. 166.94 Crores or such

sums as determined along with interest at 24% p.a. The interest on the aforesaid

sums accrued up to the date of this reply statement at 24% p.a. amount to Rs. 23.37

Crores which the Claimant is entitled to recover. Thus the total sum due from the

Claimant to Respondent towards excess fixed charges is Rs. 190.31 Crores.

       The Power Purchase Agreement entered into between the parties provides

for a cost plus tariff where the respondent had agreed to bear debt-servicing

charges. It is incumbent on the claimant to mitigate the cost elements. The interest

rates have considerably reduced from the time when the claimant and the

respondent signed the Power Purchase Agreement. It is incumbent on the claimant

to take all necessary steps to reduce the interest burden and thereby the tariff. The

respondent, therefore, has a counter claim against the claimant for the failure of the

claimant to mitigate the costs and reduce the interest and other expenses in

accordance with the interest rate and circumstances prevalent subsequent to the

PPA.



   24.On the basis of the above, the following prayers are made:=



                  (a)    to dismiss the claim made against the respondent with

                         costs:-
                        27


(b)    to direct the Respondent the Claimant a sum of Rs. 190.31

       Crores and any further sums which it may realize from

       01.11.2002     onwards   by    recourse   through      escrow

       mechanism or otherwise upto date of disposal of these

       proceedings;

(c)    to award interest on the awarded amounts including costs

       at 24% p.a. from this date upto date of realization;

(d)    to direct the Respondent to mitigate the interest and other

       costs based on the reduction of interest and other burdens

       subsequent to the signing of the PPA.

(e)    To grant costs of these proceedings”

(* The prayers in (b) and (d) are wrongly worded. It should be for

directions to the claimant.)

 On the above pleadings the following issues are set down for

determination.

 Issues:

 1.   Whether the Fixed Charge payable by the Respondent to

      the Claimant as per the terms of the Power Purchase
                                       28


                Agreements dated 15.12.1997 is US $ 0.04 cents per Kwh and

                whether the Claimant is entitled to receive payment on the said

                basis in respect of the monthly bills sent by it to the

                Respondent?

                2.   Whether the Respondent proves that it is entitled to receive

                     from the Claimant a sum of Rs. 190.31 Crores and further

                     sums which may have been realized by the Claimant from

                     1.11.2002 onwards by recourse to escrow mechanism along

                     with interest thereon at 24% p.a?

                3.   Are the parties entitled to interest , if so at what rate and for

                     what period?

                4.   whether and if so, which of the parties is entitled to costs of

                     these proceedings?

                5.   What final order?

  Arguments:

25.Neither party adduced any oral evidence.           Both the Claimant and the

  Respondent advanced their arguments on the basis of the documents filed

  along with the Claim and the Counter Statements and also the written

  submission.
                                       29


26.Mr. Andhyarujina, the Learned senior Counsel for the Claimant submits that

   this is a unique Power Plant and he Government of India spelt out the

   guidelines for the tariff in two parts

      (i)    Fixed charge, and

      (ii)   Variable charge, which is liable to be reimbursed as reasonable

             return on Equity invested at 16% of the Foreign investment.

   In preference to the MOU System, where the process is arduous, bid system

   was introduced. Bidders are expected to quote a Fixed Charge and also a

   variable charge. The bidder also states the fixed price at which it would

   supply electricity, and therefore these are all definite figures. The Power

   Purchase agreement(PPA) provides for all these. The very object of Articles

   7.3 and 7.4 is to bind the parties by these stipulations. In the instant case,

   the first fixed charge computation Statement was sent on 7.4.2001 for

   approval and the computation was approved by KPTCL on 28.6.2001.

   strangely on 2.8.2001 a stand is taken that only the dollar Denominated

   Foreign Currency was liable o be paid.       On 25.9.2001 the Respondent

   replied that there was provision for Foreign Currency at US $ 0.04 per Kwh.
                                      30


27.Further the ‘balance’ occurring in Article7.4 excludes the elements (a) and

   (b) relating to Dollar Denominated investments. Which will be paid in

   rupees without any foreign Exchange protection.         This interpretation is

   clearly against not only the actual wording but also the intention of the

   parties.   The Financial Closing is the crucial date for determining the

   components of (a) and (b) it is that determination which is specified in

   Article 7.4 of the PPA. The categorical statement of the claimant is that

   Fixed charge is the absolute figure, otherwise ’balance’ will have no

   meaning. In the Respondent’s Counter, no reference is made as to what is

   meant by ‘balance’.

28.There are no elements in the PPA to determine to fixed charge.            The

   demonstration required by the respondent could only be dollar

   Denomination Fixed Charge and not the other Rupee denominated portion.

   The Learned Counsel traces the chronology of the events. He then refers to

   Article 7.4 of the PPA and draws our attention to the first paragraph of the

   said Article, where, after referring to Article 7.3 the language used is ‘Fixed

   Price’ which must be given the correct meaning.
                                        31




The Fixed charge by reference to Article 7.3 and a reading of Article 7.4 of the

PPA would clearly connote US $ 0.04 per Kwh.

29.The Learned Counsel emphasizes that the protected part of Fixed Charge

   alone is to be determined; that alone is the meaning of determination

   occurring in first sentence of article 7.4. Any other meaning will not only be

   against the intention of the parties as to how they proceeded to conclude the

   contract, but it will be clearly violative of Article 7.4 of the PPA. Therefore

   any attempt to deny the Claimant the payment in US $ 0.04 per Kwh is

   clearly unjust. The withholding of the sums that were legitimately due is

   arbitrary. Hence the Claimant is entitled to succeed in its claim together

   with interest at 24% p.a.

30.In opposition to this, Mr. Harish N. Salve, the Learned Senior Counsel for

   the Respondent argues that there are three main issues involved in this case.



      (i)     issue arising out of the order of Karnataka electricity Regulatory

              Commission;

      (ii)    the background as to how the contract came into existence; and

      (iii)   the interpretation of the contract.
                               32


The Power Purchase Agreement is a negotiated contract. It contains

provisions, stipulating two types of tariff. There are two kinds of capitals

contemplated, one is “domestic” and the other is ‘foreign’. At the time of

financial closing US $ 0.04 has to be paid in principle. Article 7.4 is the

Dollar Denomination clause. The argument of the other side that there is

a repugnancy by the interpretation placed by the respondent, is incorrect.

The ‘fixed charge’ expressed in US $ is the protection as seen in the

Notes of financial Statement Tariff opinion. The tariff submitted under

Clause (b) is the service on debt or capital. The Claimant’s bid was for

Foreign debt service only and nothing else was contemplated in that the

statement indicated that Foreign debt services and other charges would be

in US $ 0.04. There were no specific guidelines in this regard as there

were no two parts as Dollar Part and the Rupee part. The contention that

Article 7.3 speaks of fixed rates per Kwh is incorrect because that is only

a basis for determination.    Such an interpretation ignores the words

‘Ceiling Limit’. Therefore looked from any point of view, the Claimant

cannot straight away demand US $$ 0.04 per Kwh, when the respondent

never agreed to that figure. What is payable by the respondent is only

those two components
                                         33


      Which actually form part of (a) and (b) and not any other sum. Therefore the

rebuttal made by the respondent is correct. Lastly, while interpreting a contract,

regard must be had only to the actual wording in the contract and not the notes of

the correspondence. Hence the reliance on those notes and correspondence cannot

carry the claim further. It will have to succeed on the wording of the contract and

not by relying on the opinion of the Advocate General. There is no admission by

the respondent of any liability as argued by the learned Counsel for the Claimant.

   31.In reply Mr. Andhyarujina contends that focus must be on Article 7.3 and

      7.4. The two keys to understand are;

         (i)    Fixed Price

         (ii)   In case there is a ‘balance’

There is no constant stand as far as the respondent is concerned. Firstly the Chief

Engineer took the view that nothing more than US $ 0.0254 is payable. Secondly

KPTCL by its letter dt. 25.9.2001 took the stand that the ‘balance’ occurring in

Article 7.4 means ‘any other elements except those related to Dollar Denominated

investments will be paid in rupees without any Foreign Exchange rate protection’.
                                    34


          In the Counter Statement at paragraph 9 it is urged that the ‘balance’

referred to in Article 7.4 is with reference to the difference if any, between

the actual Fixed Charge determined at the time of financial Closing and that

part of the fixed charge so determined which the Claimant demonstrates as

having been paid to service on Dollar Denominated Investment or Dollar

denominated equity investments in the project as covered by Clauses (a)

and (b)

   The original Power Purchase Agreement stated that the Dollar

Denominated Monthly Fixed Charge Payment in rupees would be composed

of Exchange rate prevailing on the date of payment. In the Amended PPA it

is stated that the Dollar Denominated Monthly Fixed Charge payment in

rupees would be computed at the reference Exchange rate. If the contention

of the respondent is correct, that US $ 0.0254 is the Dollar denominated

fixed charge, there is no need to speak of reference to Exchange rate. Hence

what the Claimant is entitled to is made up of three components, namely,

                     (i)    Dollar protected elements (a) and (b);

                     (ii)   Dollar unprotected (the balance after deducting (a)

                            and (b) from US $ 0.04/Kwh;and
                                            35


                           (iii)   Lastly the other fixed charge i.e rupee component

                                   is at Rs. 0.145.

             Every year Foreign Debt is reported. If the claimant were to get Re.

      0.145 the losses will be abnormal. In fact in Annexure – A the claimant had

      pointed out as to what would be the amount of loss. In the said note to Final

      statement of power supplied and the Foreign Debt Service of Power

      supplied, the Foreign Debt Service charges alone are mentioned. Therefore,

      the “balance” must refer only to the Indian debt.



      Written submissions:

             In addition to the oral submissions written submissions have also

      been given by both the parties.

             The Claimant would emphasize in its written submissions that the

figure of US$ 0.04/Kwh for fixed charge is a fixed sum or a flat sum. The written

submissions may be summarized as follows:- The Claimant gave flat figure of US

$ 0.04/Kwh and Re. 0.175/Kwh as fixed charge. The bid method is drawn to the

cost. The primary requirement on investment is the basis of MOU. In this method

the fixed charge is matter of determination of reasonable capital cost the approval

of interest, local and foreign debt, period of loan the extent
                                          36




      of Foreign exchange rate protection etc., which became the issue of

protected negotiations.

      In contrast to the MOU in the bid method, the single ‘fixed charge of US$

and other fixed charge in rupees are quoted and accepted. Hence, there is no

scope for further determining or ascertaining the fixed charge. Article 7.3 which is

referred to in Article 7.4 speaks of fixed charge which means the settled price. The

tariff calculation given in Appendix 6 to the PPA shows a constant fixed charge of

US $ 0.04/Kw for 7 years. Likewise, the other Fixed charge in Rupees at Re.

0.145/Kwh is constant for 7 years.. If the Appendices form part of the Agreement,

they have the same value as the Agreement itself.

      The word ‘balance’ used twice in Article 7.4 clearly shows that the full sum

of US $ 0.04/Kwh being the fixed charge is payable. The concept of ‘balance’

necessarily refers to the Dollar denominated fixed charge which requires to be

determined and the remaining not receiving the Foreign Exchange protection.

      As to the meaning of fixed price, Law Lexicon is relied on. Any concept of

determining or ascertaining the element of Fixed Charge is repugnant and

inconsistent with the tenor of Article 7.3 and 7.4
                                        37


      There is no concept of the claimant determining the elements of fixed charge

with all requisite details and stipulating documents and providing them to KPTCL .

Nor again is there any mechanism to determine such elements.


      The contention of KPTCL that the Fixed Charge is to be determined is

illogical. There is no logical reason why only fixed Charge of $ 0.04/Kwh should

be subject to determination of its elements but not other Fixed Charge in Rupees of

0.145 parties could not have adopted such inconsistent and illogical approach. The

words ‘shall be subject to ceiling of US $ 0.04/Kwh’ are used in Article 7.4 byway

of abundant caution to obviate any claim of Foreign Exchange protection of 16%

of the return on Foreign Exchange Equity and foreign Debt Services. Such words

do not have any significance of cutting down or limiting the absolute figure of US

$ 0.04/Kwh for the Fixed Charge in Articles 7.3 and 7.4


      In the written submissions on behalf of the Respondent – KPTCL
it is contended that it is not correct to state that the respondent is taking

inconsistent stand. The clear stand of the respondent is that the Fixed Charge needs

to be determined at the time of Financial closing. The amount of US $0.04/Kwh is

the ceiling and not an
                                        38


      actual   Fixed price pre-determined.     Within the Fixed Charge to be

      determined, the Foreign equity component and Foreign debt service

      component will have exchange rate protection and the balance amount of

      Fixed Charge so determined will be paid in Indian Rupees without foreign

      exchange protection. This stand has been clearly stated in Paragraph 9 of

      KPTCL’s reply. In the invitation to bids there are two structures provided,

      (a) and (b). Admittedly the claimant adopted Structure (b). Structure (b)

      provides for the fixed charges as including (1) Foreign Debt Services in

      American Dollar per Kwh and (ii) Other Fixed Charges as stated hereunder:-

               The Foreign Debts Services Charge will cover pass through

               of actual foreign debt services incurred in equivalent Rupees

               based on Foreign Debt Service charge figures quoted.

      Even in the bid submitted, the Claimant quoted Foreign Debt Services

at US $ 0.04 per Kwh and other Fixed Charge was quoted at Re. 0.175.

Therefore the Foreign Debt Service Charge was a clearly identified

Component.

          Based on this, if Articles 7.3 and 7.4 are constructed, they refer

only to Foreign Debt Service since those provisions need to be
                                         39


Construed in the light of the bid. It is incorrect to contend that Fixed Charge is a

definite sum. It would also be noted in the same paragraph that other fixed Charge

as Re. 0.175 is not qualified with reference to any particular component.



      If the contention of the Claimant is accepted, KPTCL will be required to pay

not only Foreign Debt and Equity Service charge but also other sums totally

unrelated to this.

      When the parties originally intended that US $ 0.04/Kwh should relate to

Foreign Debt Service charge, it is not now open to the claimant to contend that it

should include the component of Foreign Debt and Equity service charge.



      The Foreign Debt service has 2 components, i.e., Equity Component and

Debt Component. IF it were to relate to any other component, Article 7.4 would

not have used the words “shall comprise of”. If what really the claimant contends

is correct, then the wording ‘shall comprise of’ have to be meant as ‘shall include’.

       Article 7.4 specifically provides that the company shall demonstrate

      the requirement to pay in Dollar the debt and equity to claim foreign

      exchange protection as provided in Clauses (a) and (b). This
                                        40


                     Obviously means that to the extent the debt/equity are

                     not demonstrated for payment in foreign currency, the

                     same shall not have the exchange rate protection and be

                     paid in Rupees’.



      The language used in Article 7.4 is ‘the Company shall require to

demonstrate’. The exchange rate protection in Article 7.4 is restricted to those

incurred in US Dollars i.e., US $ 54.24 million and US $ 124.23 million and the

balance of Rs.26.40 Crores and Rs.88.00 Crores incurred in Indian rupees will be

paid in Indian Rupees without Exchange Rate Protection. The aggregate of US

Dollar debt and equity and Indian Rupees debt and equity constitute fixed charge

determined at the time of the Financial Closing.



There is nothing more subject to the ceiling of US$ 0.04 / Kwh. The plain and
simple reasoning found in the provision is “


   ‘Article 7.4 specifically provides that the Company (Tanir Bavi) Shall

   demonstrate the requirement to pay in Dollar the debt and Equity to claim

   foreign exchange as provided in Clauses (a) and(b). This obviously means

   that to the extent the debt/equity are not demonstrated for payment in
                                          41


             Foreign currency, the same shall not have the exchange rate

             protection and be paid in Rupees’.


The Claimant has not explained what are the components that covered by ‘Other

Fixed Charge’. It is not open to the Claimant to fuse the issue by clubbing various

charges, which have no relevance to the subject.          Appendix 6 can only be

construed as merely an illustration.


If the interpretation given by the Claimant is accepted it would amount to re-

writing the clauses. The claimant has over emphasized and urged that fixed charge

is being the ‘fixed price’.



The Claimant has also not denied or disputed the fact that it had taken resort to the

Escrow amount and realized the sum claimed and the counter claim by the

Respondent / KPTCL.           Therefore the claim may be dismissed and the

Respondent’s over payment may be reimbursed.

BACKGROUND TO THE DISPUTE.


Pursuant to the Power Purchase Agreement (in short PPA) dt.15.9.1997,as

amended on 29th May,1999 and 30th September, 1999, entered into between the

Claimant and the Karnataka Electricity Board, the Power Plant was set up at a cost of
                                           42




Rs.953.98 Crores as seen from the Certificate below. It is a Barge mounted Power

Plant having a short period of gestation. The certificate dated.30 th August, 2002 of

the Chartered accountant states:



         We hereby Certify that the Project cost incurred by The company is
         rs.95,398 lakhs as on Combined Cycle Commercial Operation Date
         i.e., 21st Nov.01 The Project cost is inclusive of assets and
         expenditure incurred during construction period’.


Besides, the Certificate relating to loans drawn from Financial Institutions and

Banks by the Claimant evidences the following:



             We have verified the books and records maintained by M/s.

        Tanir Bavi Power Company Pvt. Ltd., (TBPCL) as made available

        to us and based on information and explanations given to us, we

        hereby certify that the following are the Loans and drawn from

        Financial Institutions / Banks till date.
                                        43


Financial Institution/Bank             Amount in                  Amount
                                       USD Mn.                      (Rs.)in Lakhs


Foreign Currency Term Loan*
IDBI                                     81.75                   38,042.45
Canara Bank                              11.76                     5,419.71
Bank of India                            20.12                     9,378.93
Bank of Baroda                           10.00                     4,663.50
       Rupee Term Loan
Bank of India                                                     4,550.00
Bank of Baroda                                                     1,000.00
Andhra Bank                                                        3,250.00
                                 ______________________________________
                 TOTAL                  123.63                   66,304.59
                                  ______________________________________


*converted at exchange rate on the date of drawal.

       Though originally what was stipulated was the setting up of 150 MW power

Plant, later on the capacity of the project was enhanced to 170 MW and again the

capacity was increased to 200 MW.

       The Claimant submitted its first Tariff invoice for the month of June, 2001

to KPTCL on 2.7.2001 claiming a sum of Rs.13.00 Crores (for the period 8 th June

2001 to 1st July 2001). Again on 1.8.2001 another Tariff Invoice was submitted

by the claimant for
                                         44




July 2001 claiming a sum of Rs.21,44,45,788/-. To these Invoices reply of KPTCL

(Respondent) is dated 2.8.2001. It is necessary to set out the same in full.



“To


Sr. Vice President & CFO
Tanir Bavi Power Co.Pvt.Limited
Bangalore-560 025.


Dear Sir,


Sub:- Tariff Invoice for the months of June 2001-dispute-Reg.




        The Component of dollar Denominated fixed charge is claimed at 4

        0.04/Kwh. In this connection the reference is invited to the following

        sentence in clause 7.4 of PPA. “The fixed charge shall be determined at

        the time of Financial closing and shall be subjected to a ceiling of $ 0.04

        per Kwh.



      The Fixed charge as per your financial closure documents works out

0.02054 / Kwh with the following outflow of Dollar Denominated component of

ROE on equity and Debt servicing for the year 2001-2002.
                                       45




                                                       (USD Mn)
ROE at 16%                                                8,03644
Interest payment on Foreign Debt                        12,11599
                                                        ------------
                                                        24,07366
                                                        ------------
No.of MU units at 85% PLF                                1172.184
Fixed Charge / Kwh                                        0.02054




As per the PPA clause the Dollar Denominated Fixed charge component

admissible is $ 0.02054 / Kwh considering the above which is subject to the

maximum ceiling limit of 0.04 / Kwh. Therefore, the Dollar Denominated fixed

charge payment works out.



17000*0.7329* 548.75* 0.02054      =                      1404328
Amount at $ = 45.96                                     65542924
Amount claimed by you                                   125686812
                                                       ---------------
          Difference                                    61143888
                                                       -------------
                                        46


Therefore the sum of Rs.6,11,43,888 is disputed. The bill amount will be deducted

in next month Tariff Invoice.



                                             Yours faithfully,
                                             Sd/ X X X
                                             Chief Engineer Electrical (I/C)
                                              LDC – KPTCL – Bangalore.


      On receipt of the letter, the Claimant replied by its letter dated 4 th August

2001, after detailing out the components of Article 7.4 of the PPA, it takes the

stand as follows:



    “The Fixed charge of US $         0.02054 PER Kwh. Represents that

 component of the Dollar denominated Fixed Charge which has Foreign

 Exchange protection. The detailed working for this has been given along

 with the Invoice and has also been indicated by you in your letter. The

 balance out of the $ 0.04 namely $ 0.01946 is that portion of the Fixed

 Charge which is not eligible for Foreign Exchange protection. We would

 also like to point out that KPTCL, vide their letter No. SEE Proj/IPC/655-

 56 dated 28th June 2001, have accorded approval to the Fixed Charges
                                          47




      Calculations on this basis, a copy of which is enclosed


      Our Invoice No.TBP/06/2001/M/02 dated 2nd July 2001 has been

      submitted accordingly.      The Dollar denominated monthly Fixed

      Charge of Rs.12,56,86,812 has been claimed at US $ 0.04 per unit

      converted at the Reference Exchange rate of 1 US $ = Rs. 45.96 .

      Foreign exchange protection is claimed under the head <Forex

      Adjustments>”.



By a further letter dated 29th August 2001, again the Claimant writes to the

   Chief Engineer, reiterating the stand taken by its letter dtd.4 th August, 2001

   and requested payment. On 31.8.2001, the claimant wrote to the Chairman

   and Managing Director of KPTCL seeking his intervention and to release

   the balance amount withheld KPTCL since nothing further was to be

   placed pursuant to this letter. On 12.9.2001, the Claimant wrote to General

   Manager (Tech.) KPTCL drawing his attention to Article 9.3 & 9.8 of the

   PPA and calling upon KPTCL to make payment in full and not to withhold

   payment of the disputed amount. A request was made to release the

   outstanding payment. In the meanwhile, as per Article 14.1 of the PPA
                                        48




the claimant called upon the respondent to nominate an officer …..the Claimant

was nominating its Vice President (Corporate affairs ) to represent the Company.

A meeting was convened on 20.9.2001 to discuss the issues relating to Fixed

Charge payable to the Claimant. This was in view of the fact that by letter

dtd.20.09.2001 the Chief engineer of KPTCL reiterated its stand that they will hit

the Dollar Denominated Fixed Charge only to $ 0.02054 per Kwh instead of US $

0.04 Kwh. When the meeting took place on 27th September, 2001, the parties took

unrelenting postures reiterating their respective stands. Hence the meeting was

called off suggesting further review.



            On 25.9.2001 emerges an important letter from KPTCL that the

respondent never approved the fixed charge at US $ 0.04 KWh without the

claimant determining the elements of Fixed Charge with all the requisite details

and supporting documents and providing the same to KPTCL. Concerning the

determination of the fixed charge, it was stated, subject to the ceiling of US $

0.04Kwh the intention behind the Power Purchase Agreement is to place the

ceiling limit on the Dollar Denomination on the PPA and to know the

maximum outflow from KPTCL. Then it proceeds to submit that it is clear from
                                          49




Article 7.4 of the PPA that the Dollar denominated Fixed Charge has two sub-

elements: (i) Payment that are foreign exchange rate protected and (ii) payments

that are related to Dollar Denominated investments but are not provided with

foreign exchange protection.        A rupee denominated Other Fixed Charge

component covers payments related to all Rupee denominated investments and

expenses.



      Further Article 7.4 of the PPA states ‘In case there is any balance in the

Fixed Charge after meeting (a) and (b) above, the balance will be paid in Rupees

for which there will be no Foreign exchange protection’. This sentence should be

read along with the preceding sentence. “the Fixed Charge shall be determined at

the time of financial closing and shall be subject to a ceiling of $ 0.04 per kwh”.



      It is unambiguously clear that the ‘balance’ in the above sentence means that

any other element including those specified in (a) and (b) related to Dollar

Denominated investments will be paid in Rupees without any foreign exchange

rate protection. The interpretation that the ‘balance’ means remainder OF 0.04

after covering all Foreign protected payments is not at all comprehensible.
                                    50




Hence the claim of US $ 0.01587/Kwh for combined cycle model towards

Dollar protected Fixed Charges along with rs.145/Kwh towards Other Fixed

Charges should be sufficient to meet the components of Fixed Charges of the

project. Hence the KPTCL is unable to appreciate the claim of Balance Fixed

Charges of USD 0.01946/Kwh for simple cycle and USD 0.02413/Kwh (first

year for combined cycle which were simply deducted from the ceiling amount

of USD 0.04/Kwh provided in the PPA.



On 29th September, 2001 a notice was issued to the Claimant that a meeting

would take place on 3.10.2001 to discuss the issue relating to fixed charge.

On 1.12.2002, the Principal Secretary to Government Energy Department

issued a communication to the chairman and Managing Director of KPTCL

to make payment of fixed charge at US $ 0.04/Kwh. Along with that letter

was enclosed the opinion of the Advocate General of Karnataka dated

27.11.2001. There upon, the claimant wrote to the Chief Manager of State

Bank of Mysore at Bangalore to make the payment of all disputed amounts.

An order to enable the Bank to process the bill, the Chief Engineer was

required by the claimant through letter dated 7.2.2002 to issue a letter.

On 9.2.2002 the Karnataka Electricity Regulatory Commission
                                              51



      sought certain clarification from KPTCL.       On 15.2.2002, the Chief Engineer

      (ERA) wrote to KERC taking a stand that the fixed charge is US $ 0.04/Kwh as

      per the correct interpretation of the Power Purchase Agreement. On 18.2.2002 a

      hearing took place before the K.E.R.C.       on 5.3.2002, the Under Secretary to

      Government. Energy Department writes to the Chairman and Managing Director

      that KPTCL can make full payment of the fixed charges at the rate of US $

      0.04/Kwh and these payments could be suitably adjusted towards future payments

      to the claimant in case the payments at the rate of US $ 0.04/Kwh were found to be

      excessive. On 8.5.2002 Karnataka Electricity Regulatory Commission passed an

      order as follows:



            “This requirement to purchase power through a transparent power

            purchase process would require that where disputes are raised as to the

           interpretation of certain clauses of PPAs, KPTCL should seek an appropriate

           judicial determination of the same through the self contained mechanisms

           envisaged under the PPA”.



No further action without following the disputed ceiling mechanism including the

PPA need be taken by KPTCL. Thereafter
                                         52


some correspondence took place between the parties. Ultimately, the Arbitrators

have been appointed. Thus the matter came up before the Arbitral Board.



Issue No.1



      The claimant produces electricity and sells that electric power to the State of

Karnataka. Therefore, the relationship primarily is that of a seller and buyer. The

said transaction is covered by a contract which is styled as Power Purchase

Agreement. This contract undoubtedly binds both the parties.



      The events leading to the Power Purchase Agreement may be briefly looked

at:



      Suffering from acute power shortage, the State of Karnataka desired to set

up a barge mounted power plant. The above barge mounted plant came to be

commended by Government of India as seen from the letter from the Ministry of

Power dated 5.2.1996 which runs as follows:

“The barge mounted power projects have the inherent advantage of making

available power in a short period to the coastal States and also such project would

reduce the burden of inland
                                           53




      transportation of fuel. As such it has been observed that such power

      plants may be encouraged in the Coastal States to meet the immediate

      energy shortages for a short time”



      This is the competitive bid method. The reason why this method was

resorted to can be gathered from the following Government of India instructions:-



             “The initial batch of projects were awarded generally on the basis of

      negotiations between the State Electricity Board (SEB) and a single

      developer. With effect from 18.12.1995, competitive bidding for award of

      power projects to private sector has been made mandatory”



      From the above, it is clear that the method of awarding projects on the basis

of negotiations which were earlier provided had been given a go-by.      As to the

tariff to be quoted by the bidders in this process of competitive bidding,

instructions have been issued by Government of India stating a two part tariff for

sale of electricity through competitive bidding shall contain.
                                          54




(a)      Fixed charge

(i)      a component on which foreign exchange escalation shall be payable

          at actuals

(ii)      a component, which shall be indexed to domestic inflation;

(iii)     a component on which n o escalation shall be payable;

(b)      Variable charge

         Variable charge covering the fuel cost for each unit (Kilo watt hours) of

         Energy supplied, shall qualify for indexation on fuel price changes as per

         details.

        It is in accordance with this that invitations to bid dated 8.12.1995 also
        required the bidders to quote the tariff under two structures (A) and (B).
          What is important for purpose of the present case is structure B.

          Structure B: This structure includes a Fixed Charge payment and a Variable

charge payment. The Fixed charge payment is further divided into Foreign Debt

Service charge and other Fixed charge. The tariff under this       structure is payable

in Rupees. For this
                                       55




purpose, the bidder would be required to quote tariff per Kwh at an annual PLF of

85% under following heads:

        (i)      Fixed charge:

               a) Foreign Debt Service Charge (US $ / Kwh).

               b) Other Fixed Charge (Rs./Kwh)

(iv)    Variable charge (Rs. / Kwh)

        The bidder is required to quote tariff is an important point

        The right to set up one Barge Mounted Power Plant was awarded in favour

of the Chicago Power Inc., (M/s. Tanir Bavi Power Company Pvt Ltd. Bangalore) and

another to M/s. Smith Cogeneration International to be set up at Bengere (Gurpur).

This was by Government Order dated 26.10.1996. Thereafter Chicago Power Inc.,

formed an Indian Company viz., M/s. Tanir Bavi Power Company Pvt. Limited, which

set up the Power Plant at Tanir Bavi, Bangalore.

        This method of competitive bidding and the quotation of tariff are relied on

by Mr. Andhayarujina, the learned Senior Counsel for the Claimant as that will be of

held in interpreting the two relevant Articles of the Power Purchase Agreement i.e.,

Articles 7.3 and 7.4   However, Mr. Harish N. Salve would urge that routing through

which
                                           56




    the invitation came to be made is immaterial.       We are of the view that the

   contention of Mr. Andhyarujina carries force.

           Our reasoning is as under.   The bid method comprises of construction cost

   + presumable return on investment which is called MOU route.

           In this method, for the Fixed cost what is material is the determination of

   reasonableness of

           (i)      Capital cost

           (ii)     Approval of interest rates

           (iii)    Local investment

           (iv)     Foreign debt

           (v)      Period of loan

           (vi)     Extent of Foreign Exchange protection

           They form the issue of protracted negotiations.

           However, in the MOU route when finalized these elements of Fixed Charge

are specified in the Power Purchase Agreement itself. Based on these elements tariff is

calculated. Therefore in the bid method the important factor is Fixed charge. There is

no scope for deviation.
                                             57




           On 8.12.1998 the Government of Karnataka issued Proceedings in Ref. No.

DE 75 PPC 96, guaranteeing the payment obligations of Karnataka Electricity Board.



           On 4.2.1999 the Industrial Development Bank of India issued a letter of

intent for financial assistance for the project in question with a condition that the

capacity should be increased from 200 MW to 220 KW.

           The Chairman of Karnataka Electricity Board wrote a D.O. letter in

D.O.No. KEB/SEE(Proj)/PC/1241/98-99 dated 15.2.1999 to the Energy Secretary

of Government of Karnataka stating that in view of the confirmation by IDBI to

extend financial assistance for the project on a specific pre-condition.                It is

proposed that the Other Fixed Charge is reduced from Re. 0.175 to Re. 0.145/Kwh,

the relevant portion of which is extracted here below:



           “Based on the request of the Company for an increase in capacity

           from 200 MWs to 220 MWs and keeping in mind the earlier reduction

           offered by the company due to increase in capacity, though this time

           extension of period for commissioning of the
                                             58




    plant beyond 9 months           was    not    sought   by   the   company,

    negotiations were held with representative of M/s. Tanir Bavi Power

    Company for possible reduction of tariff because       of increase of the

    capacity of the plant from 200 MW to 220 MW. During           initial round

    of negotiations. M/s. Tanir Bavi Power Company stated that          as the

    returns based on 220 MW has been evaluated by IDBI to be at the

    minimum threshold level for lending loan to the company, it will not be

    possible for them to offer any reduction of tariff.



    On 3rd April 1999, the Government of Karnataka executed a Guarantee Agreement in

favour of M/s. Tanir Bavi Power Company Pvt. Ltd.,



    On 12.7.2000 the State Support Agreement came to be executed by the State of

Karnataka undertaking to prevent breaches of the PPA.



     There are two important reasons for referring to these proceedings at this stage.
                                        59




(i)     The Government of Karnataka was fully alive to the nature

        And the terms of contract entered into. Otherwise, it would

        not have furnished guarantee. The letter of Karnataka

        Electricity Board dated 15.2.1999 throws considerable light on

        the interpretation of Fixed Charge which came to crystallize in

        Articles 7.3 and 7.4 of the Power Purchase Agreement.

(ii)    KPTCL being the successor to Karnataka Electricity Board will

        Have to stand by their obligations arising under the contracts.



        The salient provisions of the Power Purchase Agreement may now be taken

up for consideration.



        The original Power Purchase Agreement is dated 15th December 1997. That

underwent three amendments, one dated 29th May, 1999 then on 30th September

1999 and the third on 25th January, 2001.



        The Financial Closing as contained in Article 1 of the PPA, after the third

Amendment reads thus:
                                         60


        “Financial Closing means the signing of the Financing Documents ( as

defined in the PPA) for project financing and fulfillment



of all conditions precedent to the initial availability of funds there under and the

receipt of commitments for such equity as required by the Company in order to

satisfy the requirement of the Lenders, provided however that the Company has

immediate access to funds (subject to giving the required draw down notices)

regarded as adequate by the company.



        Fixed charge’ shall have the meaning set forth in Article 7.4 Other Fixed

charge’ shall have the meaning set forth in Article 7.4



        Total Fixed charge, means the sum total of the Fixed charge and Other

Fixed charge”.



Article 1.2: Interpretation:

a)      Unless otherwise stated, all references made in this Agreement to “Articles’

        ‘Sections’ and ‘Appendices’ shall refer, respectively, to Articles of, Sections

        of, and Appendices to, this Agreement. The Appendices to this Agreement

        form part of this Agreement and shall be in full force and effect as through

        expressly set forth in the body of this Agreement.

b)      In this Agreement, unless the context otherwise requires:
                                               61


          (i)        the singular shall include the plural and vice versa.



                                     56

          ii)              words denoting natural persons shall include partnerships,

   firms, companies, corporations, joint ventures trusts, associations, organizations or

   other legal entities.

        iii)    the words ‘include’ and ‘including’ are to be construed without limitation;

               and

        iv)     a reference to any party to any document includes that

                party’s successors and permitted assigns’

      Having regard to the above definitions necessarily one has to refer to Article 7.4

which deals with the total fixed charge. In fact, a deeper analysis of this particular

provision is necessary to find out which of the interpretations – whether that of the

claimant or that of the respondent is correct.



      In the opening paragraph of this Article it is stated, Total Fixed Charge for the

Tariff period is fixed price per kilo watt hour of electricity delivered and deemed

generation upto 85% PLF for the available tariff period as set forth in the Tariff Table of

Article 7.3. The above components set forth above being total fixed charge is for a

Fixed Price p/Kwh (sic. Article 7.3). That may be extracted now.
                                           62




7.3   Tariff. In consideration for the Electricity supplied by the company to

      The Board and Deemed Generation pursuant to Article 7.6, the Board

      Shall pay the company the Tariff Payment. The Monthly Tariff

      Payment shall equal the sum of the Monthly Total Fixed Charge payment,

      Monthly variable charge payment and payments pursuant to supplementary

      invoices.

      The basis of monthly fixed charges payment and monthly variable charge

      payment will be the individual tariff components as given in the following table.

      Tariff Period   1         2          3           4       5       6    7
      Variable        In accordance with provisions of Article 6.5, 6.6 and
      Charge          This Agreement.
      Total fixed     At 85% plant load factor.
      charge
      1.      Fixed   .04      .04       .04       .04   .04   .04 .04
      charge          (Rs.1.40 (Rs.1.40) (Rs.1.40) (Rs. (Rs. (Rs. (Rs.
      (USD/Kwh)-                                   1.40) 1.40) 1.40 1.40)
      FC
      2.      Other   0.145     Rs. 0.145 plus escalation in accordance with
      Fixed      Ch             Article 7.4
      (E/Kwh)-Fo
** At conversion rate of Rs. 35 to one US Dollar

Thereafter Article 7.4 runs thus:

‘The Total Fixed Charge shall comprise of Dollar Denominated Fixed Charge

component expressed in USD per Kwh and a Rupee
                                          63




denominated Other Fixed charge component expressed in Rupee per Kwh. The dollar

denominated fixed charges shall provide exchange rate protection (a) upto 16% Return

on Foreign Equity component and (b) foreign debt service charges. The total equity

component shall not exceed 30-% of the Project Cost. The company shall be required

to demonstrate that the Return on Equity and Debt Service Component of the dollar

denominated equity or dollar denominated debt are paid to service the dollar

denominated debt or dollar denominated equity invested in the project.       The fixed

charge shall be determined at the time of Financial Closing and shall be subject to a

ceiling of $ o.04 per Kwh.     In case there is any balance in the Fixed Charge after

meeting (a) and (b) above the balance will be paid in Rupees for which there will be no

foreign exchange protection.



From the above it follows that total fixed charge shall comprise (emphasis supplied)

two components, (1) Dollar Denominated Fixed Charge component expressed in

American Dollar/ Per Kwh, and (ii) Rupee denominated Other Fixed charge and

expressed in rupees per kwh.



      Of these two components the Dollar denominated Fixed Charge shall provide

(emphasis supplied) exchange rate protection:
                                          64




a)      upto 16% of Equity Component and

b)      Foreign Debt Service Charge.

     However, the tariff additionally prescribes that the Total Equity Component shall

not exceed 30% of the Project cost.

     There is further requirement that the Company shall demonstrate as to the

actual Return on Equity components and also the Foreign Debt Service Components,

i.e., elements (a) and (b) forming part of Dollar Denominated Component. The next

sentence is crucial;

     ‘The Fixed Charge shall be determined at the time of Financial

     closing and shall be subject to a ceiling of $ 0.04 per Kwh’

What exactly is to be determined?

     The determination must relate to elements (a) and (b) which talks of

Debt/Equity, as above, i.e., the Return on Foreign Equity at 16% and Foreign Debt

Services.



     The Dollar denominated Fixed Charge comprises of two portions, one of which is

protected, being Foreign Exchange variation and the other unprotected.        That is

clear from the next sentence. – ‘ In case there is any balance in the Fixed Charge

after meeting (a) and (b) above, balance will be paid in rupees for which there will

be no Foreign Exchange Protection”
                                                65


     Therefore, it is obvious that the protected portion shall provide 16% protection on

     Foreign Equity components. It is to be noted that the Total



     Equity component shall not exceed 30% of the Project cost and foreign debt service. If

     the Company demonstrates the actual elements of (a) and (b) upto that extent, it can

     claim Foreign Exchange protection.     Therefore the Dollar denominated Fixed charge

     shall be determined at the time of Financial Closing and shall be subject to a ceiling of

     US $ 0.04/ Kwh. In case there is any balance in the Fixed charge after meeting 16% of

     Foreign Equity and the Foreign Debt Services (elements (a) and (b)} the same will be

     paid in rupees for which there will be no Foreign Exchange protection. Therefore two

     aspects are to be noted here, i.e,

i)    In the Dollar denominated portion, the portion i.e., (a) and (b)

     Claiming Foreign Exchange protection and

                   ii)   the balance after deducting the above for which the Company is

                         not entitled to Foreign Exchange projection.

     This is also clear from the method of working out of the Monthly Total Fixed charge

     payment, which is as follows:

         Dollar Denominated Monthly Fixed Charge Payment in Rupees would be computed

     as follows:

          KFCn = MFC$n – Reference Exchange Rate
                                            66


 The fact that Reference Exchange Rate       is mentioned clearly spells out that the two

elements of Exchange Rate Protection are available and to

the other portion to which Exchange Rate protection is not available which has to be

converted into rupees at the prevalent exchange rate.          Therefore the method of

calculation of Monthly Total Fixed Charge also makes the position clear.

      We shall now advert to the respective arguments advanced on the interpretation of

Article 7.3 and 7.4 Mr. Andhyarujina, the Learned Senior Counsel would submit that Article

7.3 read with Article 7.4 unequivocally states the figure of US $ 0.04 for Fixed Charge (FC)

and Re. 0.145 per Kwh for Other F Fixed Charge (OFC) are flat or absolute figures. This is

clearly stated in the beginning of Article 7.4 which speaks of Total Fixed Charge, as fixed

price per Kwh as set forth in Tariff Table in Article 7.3. The meaning of the words ‘Fixed

Price’ is ‘settled price’ as stated in the Ramanatha Iyer’s Law Lexicon at Page 733.

 The sample tariff calculation given in Appendix 6 of the Power Purchase Agreement as

‘Fixed Charge’ at $ 0.04 / Kwh and the figures for seven years is shown to be constant.



      The words, ‘at the rate of’ signified by the notation @ shows that the Fixed Charge is

a flat figure of 0.04$.   Similarly the Other fixed charge of Re. 0.145 is also constant for

seven years. There are no words of
                                           67




qualification such as the Fixed Charge will be determined or calculated in the table in Article

7.3 or in Appendix 6.



       In view of the definition in Article 1.2, this Appendix 6 becomes an integral part of the

Agreement. The word ‘balance’ used twice in the last but one line of Article 7.4 i.e., ‘In case

there is any balance in Fixed Charge after meeting (a) and (b) the ‘balance’ would be paid in

rupees for which there will be no exchange rate protection. This shows that Fixed Charge is

payable only at $ 0.04/Kwh. Any other concept of determination of Fixed Charge is repugnant

and inconsistent with the clear statement of US $ o.o4 and hence this will have to be

disregarded.



      There is no enumeration of Dollar denominated Fixed Charge and Rupee Denominated

Other Fixed Charge in any part of the Power Purchase Agreement.            The Power Purchase

Agreement hence does not provide for any mechanism for ascertaining and determining the

so-called element of Fixed Charge or providing requisite details etc. In any part of the PPA.



      The contention of the other side that the Fixed Charge is to be determined, is illogical.

There is no reason why only the Fixed Charge at $ o.04 should be subject to determination of

its element, but not the Other
                                         68


Fixed Charge of Re.0.145.    The parties could not have adopted such an inconsistent or

illogical approach.



       The wording ‘Fixed Charge shall be determined at the time of Financial Closing

and shall be subject to a ceiling of US $ 0.04/Kwh’ must receive contextual meaning with

what precedes this sentence and what follows the said sentence. The sentence must

therefore be interpreted as the protected part of Fixed Charge shall be determined at the

time of Financial Closing. It is only at the time of Financial Closing that the Fixed

Charge i.e., under (a) and (b) (Return on Equity at 16%) and the Foreign Dept Service

charge can be and is required to be determined. Hence the documents shall be read as

above to avoid inconsistency and disharmony and to give consistent meaning. In support

of this submission, the Learned Counsel relies on:



    The Odger’s Construction of Deed and Statutes (Pages 55-56):

    Halsbury’s Laws of England (1975 Vo.12) Paras 1463 and 1469;

    (1994) 2 S.C.C. Page 10 (Keshav Kumar Swarup Vs. Flowmore

    Private Limited):



    AIR 1989 SC. Page 1834 (Para 9 at P.1838) (Provash Chandra Dalui and another

Vs. Biswanath Banerjee and another);
                                           69


 AIR 1985 SC 1293 ( at Page 1345 Para 117) (State of Orissa and others Vs. Mangalji

Mulji Khara and others);

   AIR 1959 S.C. Page 24 at 59 (Radha Sundar Dutta Vs. Mohd. Jahadur Rahim and

others) and

   (1988) 2 SCC page 513 at 515 (Hameedia Hardware Stores by Partner S. Peer

Mohammed Vs. B. Mohan Lal Sowcar).

      According to Mr. Harish Salve, the Claimant in the bidding, quoted US 0.04/Kwh

of Foreign Debt Service Charge which clearly identified a component and not a general

Fixed Charge or a ‘Fixed Price’

      Accordingly, the ‘Fixed Charge’ referred to in Articles 7.3 and 7.4 relate to

Foreign Debt Service Charge and not, that they are Fixed Charge. Otherwise, in the bid

what is mentioned Foreign Debt Service Charge will be meaningless.          Accordingly,

Articles 7.3 and 7.4 will have to be construed in the light of the invitation to bids and

bids submitted and not in derogation of the same.



      US $ 0.04 is not an absolute norm.        Any such interpretation would mean in

addition to the components of Foreign Debt and Equity Service Charge specified in the

bid, further sum is required to be paid which is not so.
                                            70


       That gets equalized by the fact that the Other Fixed Charge at 0.145 mentioned

in the bill is not qualified as with reference to any particular component.            If the

contention of the other side is accepted, the Respondent will be obliged to pay not only

Foreign Debt and Equity Service Charge but also the other sums which have no relation

to Foreign Debt Service Charge. Article 7.4 says “shall comprise of”.     Kit cannot mean

“shall include”. That kind of interpretation as is done by the Claimant is incorrect

       ‘Article 7.4 specifically provides that the Company (Tanir Bavi) shall demonstrate

the requirement to pay in Dollar the debt and equity to claim foreign exchange

protection as provided in Clauses (a) and (b). This obviously means that to the extent

the debt/equity are not demonstrated for payment in foreign currency, the same shall

not have the exchange rate protection and be paid in Rupees’.

       ‘The debt and equity incurred in Indian Rupees shall not be allowed to be

serviced in foreign currency with exchange rate protection as the same would fall

outside the sum to be serviced in foreign currency. Accordingly clauses (a) and (b)

referred to in Article 7.4 which is entitled to exchange rate protection is restricted to

those incurred in US $ i.e., 54.24 million and 124.23 million. The balance, namely Rs.

26.40 crores and Rs.88 crores incurred in Indian Rupees do no enjoy exchange rate

protection.
                                            71


The aggregate of US $ debt and equity and Indian Rupees debt and equity constitute

Fixed Charge determined at the time of the Financial Closing.



      If the interpretation of the claimant is accepted there is no meaning in stating,

subject to a ceiling of $ 0.04/Kwh.

      A plain and simple reading of the provision is, that

      a)     the overall ceiling is US $ 0.04’

      b)     within the said ceiling the Fixed Charge which consists of

             the debt and equity shall be determined; and

      c)     Fixed charges so determined shall have the exchange rate

             protection to the extent it relates to foreign debt /

             foreign equity and will have no exchange rate protection

             to the extent it relates to domestic debt and domestic

             equity. There can be no ambiguity in this regard.

             The attempt made by Tanir Bavi is to bring in various charges

             Which have noting to do with the competent ‘Foreign Debt’

             And ‘Foreign Equity’ under the Foreign Debt Service Charges,

             Bid by them’

             Appendix 6 to the Power Purchase Agreement need to be

             Read with Article 7.1 ( c ) which states as under:
                                           72


     (c ) Illustrative Examples Appendix 6 set forth, for illustrative purposes.

Sample calculations of the Monthly Tariff Payment t determined in accordance with

the principles of this Article 7’.



             Accordingly, Appendix 6 can only be construed as illustrative Examples

and not as a finally determined Fixed Charge.



             The interpretation of the Claimant would amount to rewriting Article 7.4.

It is not correct to contend that ‘subject to a ceiling’ has been introduced by way of

abundant caution. ‘Fixed Charge’ has been the ‘Fixed Price’.



             The important question is, which of the interpretations is correct?

     ‘PPA is the result of invitation to bids in which the bidders are asked to

     give a flat figure for Fixed Charge expressed in Dollars and Other Fixed

     Charge expressed in Rupees. After prolonged negotiations the PPA

     Was finalized with Fixed Charge 0.04 dollars and Other Fixed Charge of

     Rs. 0.145 per Kwh., with the Claimant Company.
                                           73


The bid method is in direct contrast to the ‘Cost Reimbursement plus permissible

return on investment’ method or what is called the MOU route.



In this method, fixed costs are matter of determination of reasonableness of the

capital cost, approval of interest rates on local and foreign debt, the period of loan,

the extent of foreign exchange rate protection etc., which become issues of

protracted negotiation. In the MOU Route when the PPA is finalized these elements

of fixed charge are specified in the PPA and tariff is calculated on these elements.

In contrast, in the bid method, a single figure of Fixed Charge in USD and Other Fixed

Charge in Rupees is quoted and accepted and there is no scope for further

determining or ascertaining the Fixed Charge.



Article 7.3 read with Article 7.4 unequivocally states that the figure of $ 0.04 for Fixed

Charge and Rs. 0.145 for Other Fixed Charge are flat figures. This is clearly stated in

the beginning of Article 7.4 which speaks of the Total Fixed Charge as ‘Fixed Price’

per Kwh. As set forth in Tariff Table in Article 7.3
                                          74


The sample Tariff calculations given in Appendix 6 of PPA gives ‘Fixed Charge at 0.04

USD per Kwh’ and the figures for the seven years is also shown to be constant.



The words ‘at the rate of’ signified by the notation @ shows that the Fixed Charge is a

flat figure of 0.04 $.   Likewise, the Other Fixed Charge in Rupees is at Re.0.145 per

Kwh and the figures is constant for seven years.



There are no words of qualification such as that Fixed Charge will be determined or

calculated etc., in the Table in Article 7.3 or Appendix-6. Appendix 6 is made an

integral part of PPA by reason of definition of ‘Interpretation’ in Article 1.2 which

states that ‘Appendices to this agreement form part of this Agreement and shall

remain in full force and effect as though expressly set forth in the body of this

Agreement’.



The word ‘balance’ is used twice in the last but one line of Article 7.4 i.e., ‘in case

there is any balance in Fixed Charge after meeting (a) and (b) above, the balance

would be paid in Rupees for which there will be no foreign exchange rate protection.

That clearly shows that the full sum of Re. 0.0.4/Kwh for theFixed Charge is payable.

The concept of
                                          75


‘balance’ necessarily brings in a portion of the Dollar denominated Fixed Charges,

which requires a different treatment i.e., not receiving foreign exchange protection.

Any concept of determining or ascertaining the elements of Fixed Charge is repugnant

and inconsistent with the above mentioned clear statement regarding a flat sum of US

$ 0.04/ Kwh and hence must be disregarded, as rightly urged by the learned counsel

for the claimant.



The PPA does not give any mechanism for determining / ascertaining the so-called

elements of Fixed Charge or of providing requisite details etc., any part of the PPA. It

is to be noted that even items (a) and (b), namely 16% ROE and foreign debt service

charges are mentioned in Article 7.4 only as items of Fixed charge which are eligible

to Foreign Exchange protection.



     The contention of the KPTCL that the Fixed Charge is to be determined may not

be considered.



     ‘Financial documents’ are defined at Page 7 of the PPA as including loan

     agreements and equity participation agreements.
                                            76


 It is only at the time of Financial closing that the protected part of the Fixed

      Charge viz. (a) and (b) can be and is required to be determined

      This is an additional reason why the words ‘Fixed Charge shall

      Be determined’.

      The effect of the Amendments has now to be brought out since the important

 aspect emerges from the same i.e., ‘Dollar denominated Fixed Charge comprises of

 both protected and unprotected portions’.



      A careful reading of Article 7.4 clearly indicates the Dollar denominated Fixed

 Charge has two components;



      i)     that it enjoys Foreign Exchange rate protection; ‘Dollar Denominated

             Fixed Charge’ shall be provided Exchange rate protection.

             a)     upto 16% of Equity Charges.

             b)     Foreign Debt Service Charge.

      Then again it also indicates the component which does not enjoy the Foreign

Exchange rate protection stating ‘In case there is any balance in the Fixed Charge after

meeting (a) and (b) above, the balance will be paid in rupees for which there will be no

Foreign Exchange protection.
                                           77


      ii)    Payment of Dollar denominated Fixed Charge is to be made in rupees

             since it says, ‘Dollar denominated Monthly Fixed Charge payment in

             rupees, would be computed as follows:-



             MFCn = MFC$N * exchange Rate prevailing on the date of payment

             In the unamended PPA, Fixed Charge is to be multiplied by the

             Exchange rate Fixed rate Fixed Charge, i.e.,



             MFCn = MFC$n = Reference Exchange Rate



      In the unamended PPA Fixed Charge is to be multiplied by the Exchange rate

prevailing on the date of payment. In the Amendment this formula is changed. The

multiplier used therein is ‘Reference Exchange Rate’ which obviously will mean the

Exchange Rate as on the date of Financial Closing.



      The formula in Article 7.4 (last but one portion) in the unamended Agreement,

as found at page 27, reads as follows:



      ‘Upon receipt by the Company of any payment with respect to the

      MFCn, the Company may, at its option elect to convert to Dollars

      All or any portion of Rupees received’.
                                           78




      In the Amendment to the PPA, the formula of Article 7.4 read as under:-

      ‘Upon receipt by the Company of any payment with respect to the

      Protected Dollar denominated fixed charges (i.e., ROE on Dollar Equity

      And FDSC on Dollar debt), the Company may, at its option elect to

      Convert to Dollars all or any portion of Rupees received’.



      The change brought about by the Amendment in the formula also is a clear

indicator that Dollar Denominated Fixed Charge has two components i.e., (1) that was

protected and the other which does not enjoy protection.



      The original Article 7.4 did not contain the correct formula as it did not

bifurcate the protected and unprotected portions of Dollar denominated Fixed

Charge. Therefore in order to bring out the intention the amendment was carried

out by providing a new formula in Article 7.4 clearly indicating that Dollar

denominated Fixed Charge carries within it the two components, i.e.,



      i)     that which has Foreign Exchange Protection, and

      ii)    that which has no Foreign Exchange protection
                                     79




In Appendix-6 of the PPA, the 4th column also speaks of protection towards

Foreign Exchange Variable or ROE and Debt Services (rupees as per Table-

1). These are to two elements, which are spoken to as (a) and (b) in Article

7.4.    This again clearly postulates that the two components in the Fixed

Charge, i.e.,

       i)       that enjoys Foreign Exchange protection and

       ii)      the other that enjoys Foreign Exchange prevailing

                on the date of payment

       The first argument advanced on behalf of the Respondent is that in the

bid what was quoted by the Claimant was only under Structure ‘B’. As

against Fixed Charge only element (a) Foreign Debt Services Charge alone

was stipulated. It is further contended, by adopting Structure ‘B’ of the

offer, the Claimant confined to only Dollar Debt Service in view of the

investment made by it as

       i)       Dollar Equity and

       ii)      Dollar Debt

       Therefore there is no scope for any domestic debt or equity.

       On a careful consideration it has to be held this argument does not hold

water. Whatever might have been the bid and the offer of
                                    80




the Claimant, there were negotiations and the PPA came to be signed on

15.9.1997. Admittedly it is a hard bargained contract.      In fact, only as a

result of that bargain the Other Fixed Charge came to be reduced from Re.

0.175 to Re. 0.145 in view of the enhancement of capacity of the Project to

220 MW.     Hence, the conclusion should be what really governs is the Power

Purchase Agreement and not any other document or transaction earlier to it.



        Coming to Article 7.3 read with Article 7.4 it is unequivocally stated

in the beginning of Article 7.4, the Total Fixed Charge is Fixed Price per Kwh

as set forth in Tariff Table to Article 7.3. The meaning of the words ‘Fixed

Price’ can be gathered from the Black’s Law Dictionary (7 th Edition at Page

321) It states that ‘Fixed Price Contract’ means:

        ‘A contract in which the buyer agrees to pay the seller a definite and

        predetermined price regardless of increases in the seller’s cost or the

        buyer’s ability to acquire the same goods in the market at a lower

        price’

 P.Ramanatha Aiyar’s Law Lexicon, Second Edition at Page 733 says,

 ‘Fixed Price’ means: ‘Settled price’
                                          81




      In this case, the Claimant as             observed above is the producer of

electricity and it sells electricity under the Power Purchase Agreement (emphasis

supplied) quoting the Fixed Charge (FC) of US $ 0.04/Kwh and Other Fixed

Charge of Re. 0.145. As rightly contended by Mr. Andhyarujina these are flat or

absolute figures as mentioned in Black’s Law Dictionary.            The Claimant

stipulates a definite predetermined price irrespective of its cost or the buyer’s

ability to acquire electricity in the market at a lower price.   This aspect leads

undoubtedly to Article 7.3 While stating so, no doubt reference has to be made

to Article 1.9 (definition) which defines fixed charges specified in Article 7.4

But that Article cannot be read in isolation without referring to Article 7.3

because of the first paragraph to Article 7.4



Therefore, the contention of Mr. Harish Salve limiting the definition only to

Article 7.4 cannot be accepted, nor again his contention that Table in Article 7.3

merely specified the components of tariff forming basis for the Monthly

payments which is confused with the quantum.

     Lastly it has to be added, although in the bid documents Foreign Debt

Services alone was quoted, Article 7.4 recognizes the Fixed Charges towards two

elements, i.e., (a) Return on Equity at
                                       82


16% ( not more than 30%) and (b)Foreign Debt Services. Therefore, this alone

governs. The fact that the parties intended to have an absolute figure of Fixed

Charge is evidenced by looking at Appendix-6 of PPA, it states the Fixed Charge

at US $ 0.04/Kwh and for all the seven years, the figures is shown to be constant.

The words ‘at the rate of’ signifies the flat rate.    Similarly the Other Fixed

Charge is at the rate of Re. 0.145/kwh. Here again, this figure is constant. This

Appedix-6 as per the definition of Article 1.2 forms part of the Agreement and

shall remain in full force and effect as though expressly set forth in the body of

the Agreement. Accordingly the contention of the respondent that this is only a

sample tariff calculation, is rejected. Appedix-6 must be read as an integral part

of the PPA on which the rights of the parties have to be worked out.



 The next contention of Mr. Harish Salve is that US $ 0.04/Kwh is only a

 ceiling. In other words, as long as elements (a) and (b) are within the gap of $

 0.04 cents on the date of Financial Closing the charges relating to domestic

 equity would be paid out of the Foreign Exchange protection.          This is the

 meaning he asserts because there is a clause. ‘In case there is any balance in the

 Fixed Charge’ after
                                       83


meeting (a) and (b) above, the balance will be paid in Rupees for which there will

be no foreign exchange protection.



    It has to be carefully noted, the word ‘balance’ occurs twice in Article 7.4.

When it says ‘balance’ will be paid in rupees for which there will be no Foreign

Exchange protection, it clearly establishes that full sum of US 0.04 per Kwh, for

the Fixed Charge is payable.     The concept of ‘balance’ necessarily implies a

portion of Dollar denominated Fixed Charge. It had already been pointed out as

a to how in this Article two components are dealt with:-



    i)     The component receiving Dollar protection, i.e., elements (a) & (b)

    ii)    The component not receiving Equity Return Protection i.e., balance

           after meeting elements (a) and (b) from US $ 0.04, that has to be paid

           in rupees.

           The whole of this comprises the Dollar denominated component of the

           Fixed Charge. The fact that it is paid in rupees has no connection

           whatever with the Other Fixed Charge expressed in rupees, i.e., Re.

           0.145 /Kwh, No doubt all the payments might be

           Made in Indian rupees as urged by Mr. Harish Salve, but what is
                                           84


Crucial is the interpretation of this Article 7.4 which brings out the intention of the

parties entering into the contract.



      If the argument of the respondent that elements a) and (b) exhaust the Dollar

denominated components is true, then there is no need whatever to provide for

payment of the balance. Nor again is there any need to provide for Dollar Equity

protected portion and unprotected portion.



      At this stage it is relevant to make a reference to Article 9.7 as well –

currency of Payments:-



      (a)     The company shall be entitled to foreign exchange protection only in

              respect of Fixed charge pursuant to Article 7.4 and any variable

              charge denominated in Dollars / pursuant to Article 7.5 (collectively,

              the Protected Rupee Components’)

This entitlement of the claimant is significant. The question of over compensating

of the Claimant does not arise at all since it is “Fixed Price”.

      Once the conclusion is reached that US $ 0.04/Kwh is a flat sum, there is no

question of determining or ascertaining the elements of Fixed Charge as rightly

argued by Mr. Andhyarjuna. That would be
                                       85




repugnant or inconsistent to the tenor of Article 7.4.        The parties never

contemplated the Claimant determining the elements of Fixed charge with all

requisite details and supporting documents and providing them to KPTCL. What

is determined at the time of Financial closing is, in the light of the documents

provided by the claimant in relation to elements (a) and (b) those figures are

determined. That part of it comprising elements (a) and (b) will be entitled to

Foreign Exchange protection. The balance if any out of US $ 0.04/Kwh has to be

paid in Indian Rupees on the basis of reference Exchange rate in view of the

amendment to Article 7.4 on 29.05.1999 deviating from the original PPA which

provided for Exchange Rate protection prevailing on the date of payment. This

aspect has been discussed earlier in dealing with the changes brought about by the

Amendments. To this residual payment i.e., balance there is no Exchange rate

protection. It has already been noted as to how Article 7.4 provided Exchange

Rate Protection for elements (a) and (b) and the balance carries no foreign

Exchange protection.



      There is no enumeration of elements of Dollar denominated fixed charge and

Rupee denominated other Fixed charge in any
                                          86




Part of the PPA. Nor again does the PPA provide any mechanism for ascertaining

the so-called elements of fixed charge or of providing the requisite details

anywhere in the PPA. The arguments of Mr. Harish Salve that the Fixed charge is

to be determined, cannot be accepted. If really that is to be determined there is no

logic or reason why the only Fixed charge of US$ 0.04/Kwh. Should be subjected

to determination of elements and not the Other Fixed Charge in Rupees at Rs.

0.145/Kwh. Certainly the parties would not have intended to adopt such an

inconsistent or illogical approach.



      The submission of Mr. Andhyarujina in this regard is that the meaning of the

12th sentence, i.e., ‘Fixed Charge’ shall be determined at the time of financial

closing and shall be subject to ceiling of dollar 0.04 per Kwh’ must receive

contextually a meaning with what precedes this sentence and what follows this

sentence must be read to avoid repugnancy, inconsistency and absurdity. The

sentence must therefore be interpreted as ‘ the protected part of Fixed charge shall

be determined at the time to Financial closing ……… ‘ the interpretation is borne

out by the definition of Financial closing.

 Financial closing is defined in the Third Amendment dated 25.1.2001 ‘Financial

Closing means signing of all the financial
                                          87




documents ….. ‘financial documents’ are defined at page 7 of the PPA as including

loan agreements and equity participation agreement…… that is only at the time of

Financial closing that the protected part of the Fixed Charge i. e., (a) and (b) can be and

is required to be determined. This is an additional reason why the words ‘Fixed charge

shall be determined’ must necessarily mean, ‘the protected part of the Fixed Charge

shall be determined’. The submission is sound.



      In opposition to this, the argument of Mr. Harish Salve that there is no scope

for construing this clause as providing for residual payment in rupees arrived at

after converting the balance between the actual Global Service Charges and the

Cap prescribed, from Dollar to rupee on a sum of national Foreign equity Return,

is not acceptable, because it clearly gives a go-by to the words, ‘the balance if

any’. There is no possibility of any payments, even rupee segment as outside the

formula.



      Equally the contention of the Respondent that the balance which is payable

in rupees is not a part of the formula given in Article 7.4 has to be rejected in view

of what is stated above.
                                         88




 It is urged in the written submission of Respondent that the difference between US

Dollar 0.04/Kwh and the Fixed Charge fixed at the financial closing is payable in

rupees converted into Reference rate, is untenable, inter alia for the following reasons:



      a)     It makes the entire exercise of calculated Fixed Charge irrelevant.

             The figure of US $ 0.04/Kwh in foreign currency stipulated in PPA

             introduced in and Tariff payable in rupees only to be dealt with in

             moiety of the charges in respect of which payment has to be linked to

             Foreign Exchange rates:

      b)     It makes the concept of ceiling unworkable;

      c)     It is wholly inconsistent with the language of the original as well as

             amended Article 7.4.

      This proceeds on an incorrect interpretation of Article 7.4. when the said

Article contains the words ‘shall be subject to a ceiling of US $ 0.04/Kwh.’



      The stand of the claimant that the words ‘Shall be subject to the ceiling of $

0.04 per Kwh’ are put in by way of abundant caution to obviate any claim of

Foreign Exchange protection components of 16% RDFE and Foreign Debt Service

Charge being claimed in excess of
                                        89




0.04/KWh, if at the time of Financial Closing, the figures of items (a) and (b)

worked out to a figure in excess of $ 0.04/Kwh carries conviction. The above

words would not in any way cut down or limit the absolute figure of $ 0.04/Kwh

for the Fixed Charge found in Articles 7.3 AND 7.4 IS FULLY JUSTIFIED AND

REFLECTS THE CORRECT INTERPRETATION.



      Mr. Andhyarujina has cited cases relating to the principles of interpretation,

from Halsbury’s Laws of England (vol.12)



1469, Instrument constructed as whole it is a rule of construction applicable to all

written instruments that the instrument must be construed as a whole in order to

ascertain the true meaning of its several clauses, and the words of each clause must

be so interpreted as to bring them into harmony with the other provisions of the

instrument, if that interpretation does no violence to the meaning of which they are

naturally susceptible. The best construction of deeds is to make one part of the

deed expound the other, and so to make all the parts agree. Effect must, as far as

possible, be given to every word and every clause’
                                         90


      In fact, this principle has met with the approval of the Supreme Court as

seen from AIR 1985 SC page 1293: (State of Orissa and other Vs. Titaghur Paper

Mills Company Ltd., and another with State of Orissa & Others Vs. Mangalji

Muliji Khara & others).

      ‘117, we are unable to agree with the interpretation placed by the Court on

the document in the Orient Paper Mills’ case (AIR 1977 SC 687). We find that in

that case this Court as also the High Court adopted a wrong approach in construing

the said document. It is a well-settled rule of interpretation that a document must

be construed as a whole. This rule is stated in Halsbury’s Laws of England, Fourth

Edition (Volume 12) (cited supra).

      In Air (1959) S.C. Page 24 (Radha Sundar Dutta Vs. Mohd. Jahadur Rahim

and others) in paragraph 11 @ page 29 of the judgement the Supreme Court held:



      Now, it is settled rule of interpretation that if there be admissible two

constructions of a document, one of which will give effect to all the clauses therein

while the other will render one or more of them nugatory, it is the former that

should be
                                          91


adopted on the principle expressed in the maximum ut res magis valeat quam

pereat’

      Therefore applying this principle, the contract, namely the Power Purchase
Agreement if construed as a whole and given effect to Articles 7.3 & 7.4 and with
reference to Article 9.4 will carry such meaning as urged by Mr. Andhyarujina and
that has to be preferred. Otherwise, if the construction sought to be placed by Mr.
Harish Salve is accepted the works ‘balance if any’ will stand ignored causing
violence to the meaning of the clause as well as the intention of the parties.
      In arriving at this conclusion, endeavor is being made to consider the

contract on the basis of the principles adumbrated in the Halsbury’s Laws of

England and the Case Law cited above. Reliance by Claimant on proceedings

from which it draws support is looked at only for purpose of deciding as to how the

parties is looked at only for purpose of deciding as to how the parties conducted

the affairs; not that one could draw succour for interpreting the contract.

      The High Power Committee recommended acceptance of the Fixed Charge

at US $ 0.04 / Kwh.          The Government of Karnataka approved the said

recommendation to which agenda was placed for the Board meeting of Karnataka

Electricity Board on 15.9.1999 to
                                        92


Consider $ 0.04/Kwh.        The Board Notes dated.8.6.2001 put up by the

Superintending Engineer (Project) specified US $ 0.04/Kwh. The letter to KPTCL

approved the computation of tariff of the Fixed Charge at US $ 0.04/Kwh.

      The letter of the State Government dt.1.12.2001 approves the payment at the

said rate, after accepting the opinion of the Advocate General of Karnataka, which

reads as follows:

      ‘It is hereby clarified that the fixed charge is US $ 0.04 per Kwh. As set

forth in the table of Article 7.3 of the PPA. The Portion of the dollar denominated

fixed charge, which has foreign exchange rate protection, is to be computed in

accordance with the provisions of Article 7.4 of the PPA and the balance of the

fixed charge is to be paid in rupees for which there is foreign exchange protection.

The Government, therefore, directs that the fixed charge at US $ 0.04 per Kwh,

may be paid to TBP as per the calculations furnished by them at the time of

financial   closure   and   accepted    by    the   KPTCL      vide    their   letter

No.SEE/Proj/IPC/655-56 dated 28.06.2001.



      The Advocate-General is of the categoric opinion that the Fixed Charge

payable is at 0.04/Kwh. In the revised CRC filed by KPTCL
                                         93


an affidavit has been filed by the Chief Engineer stating that Fixed Charge payable

is at US $ 0.04/Kwh. In the letter dtd.15.12.2002 written by the Chief Engineer

(Electrical) KPTCL to the Karnataka Electricity Regulatory Commission when a

clarification was sought on the quantum, it is stated that Fixed Charge payable was

at $ 0.04/Kwh. Therefore, the parties have understood and have gone about the

working out their rights on the basis that the Fixed Charge payable to the Claimant

was at $ 0.04/Kwh. In view of the above findings, issue No.1 is answered in

favour of the Claimant.

ISSUE NOs. 2 & 3:

In view of the answer to issue No.1 it follows that the Claimant is entitled to a sum

of Rs. 190.31 Crores,



       In respect of the issue No.2, the stand taken by the respondent as seen from

their letter dated 2.8.2001 (vide page 108 of Volume C.3) that, “as per the PPA

clause the Dollar Denominated fixed charge component admissible is $-0-

0205/Kwh considering the above, which is subject to the maximum ceiling limit of

$ 0.04 Kwh is clearly incorrect. Hence the Claimant rightly invoked the escrow

mechanism . Consequently, the Respondent is not entitled to claim any sum

purported to be over paid to the Claimant.
                                         94




      As regards interest, reference has to be made to Article 9.10 (as amended)

i.e., at Page 95 of Vol.C-2. The default rate is found in Article 1.1 which reads as

under;-



       Default Rate ‘means, as at the date of determination thereof; (1) with respect
to any late payment by the Company, the weighted average annual cost to the
Board for its working capital plus two percent (2%) per annum, and (ii) with
respect to any late payment by the Board, twenty four percent (24%) per annum.
In no event shall the Default Rate exceed the highest interest rate permitted by law.

      In the instant case, notwithstanding the direction of the State Government on
1.12.2002, KPTCL did not make the payment. Normally one would expect the
matter to come to a close at that stage. But that was not to be. Payments have
been with held without any justification. In fact, Article 9.8 of the PPA enjoys the
State not to with-hold payment to the Claimant. Accordingly, interest at 24% p.a.
for the delayed payment is awarded in favour of the claimant.


ISSUE No.4


      Each party is directed to bear its own costs of these proceedings.
                                         95




FINAL ORDER
In the result there shall be an award as under: -


1. The claimant is entitled to the fixed charge at the rate of US$ 0.04 per kilo watt
   hour, for the electricity supplied by it to the respondent as per the terms of the
   power purchase agreement dated 16.07.1997 and subsequent amendments .

2. The Claimant is further entitled to the amount of fixed charge of Rs. 191.31
   Crores together with interest at the rate of 24% per annum from the date of
   default to the date of payment.

3. Each party shall bear its own costs of these arbitral proceedings.

Since there is no dispute as regards payment of other fixed charge at Rs. 0.145 per
kilo watt hour that is not dealt within this award.


Pronounced this 11th day of May 2003 at Bangalore.

ARBITRAL TRIBUNAL
                                          Sd/-
                              1) JUSTICE Y. V. CHANDRACHUD
                              2) JUSTICE S. MOHAN
                              3) JUSTICE G.N. RAY
                                       96



                                                          ANNEXURE “ B”
Statement showing the calculation of the Additional Bulk Supply Tariff to be
                       claimed from the ESCOMs

As per Hon’ble Commission Tariff Order – 2003 the BST determined for FY-04 is
as follows: (Para-5.2.8 (3) page 90)
Bulk Supply cost (Rs. In Cr)             5439.04
Add: %% of the employees cost (Rs. in 6.15
Cr)
Add: 5% of A&G expenses (Rs. in Cr)      1.23
Total bulk supply cost (Rs. in Cr)       5446.42
Energy input to ESCOMs & Hukkeri 28,137 MUs
society
Bulk supply Tariff (Paise per unit)      193.57


Consequent on Arbitration Award on the payment of USD $ 0.04 Fixed charge,
upholding the contention of the supplier (TBPCL), the additional fixed charges
disallowed in Tariff order 2002 in para 8.5.22 page 123) and the projected amount
of Rs. 147.34 Cr. for FY-04 is now required to be considered for passing on to the
ESCOMs and finally to the end consumers. The details of additional PPC required
to be passed on to the ESCOMs and finally to the end consumers due to the said
award is as follows:


For FY-02 (actuals)                         Rs. 113.50 Cr
For FY-03 (actuals)                         Rs. 158.10 Cr
Total for FY-02 & FY-03                     Rs.271.60 Cr
For FY-o4 (Estimated)                       Rs.147.34 Cr
Total additional Power Purchase cost        Rs. 418.94 Cr
Interest                                    Rs. 34.10 Cr
Total                                       Rs. 453.04 Cr
                                       97


Consequential effect on Bulk supply Tariff is as follows:
Bulk Power Purchase Cost (Rs. 5439.04 Cr+418.94      Rs. 5857.98 Cr
Cr)
Add: 5% of employee Cost (Rs. in Cr)                 Rs. 6.15 Cr
Add: 5% A&G expenses (Rs. in Cr)                     Rs. 1.23 Cr
Interest on delayed payments of USD $ 0.02           Rs. 34.10 Cr
Total Bulk Supply Cost (Rs. in Cr)                   Rs. 5899.46 Cr
Energy in put to ESCOMs & Hukkeri Society            28137 MUs
Bulk Supply Tariff (Ps. Per unit) (Revised)          Ps. 209.67
The additional Bulk supply Tariff to be allowed in   Ps. 16.10/Kwhr
FY-04 (Ps. Per Kwh Ps. 209.67 – Ps. 193.57=Ps.
16.10)

          Additional Power Purchase Cost to be borne by ESCOMs
      1   BESCOMS          1283      MUs         Rs.206.46 Cr
          X16.10ps/Kwhr
      2   MESCOMS 5635 MUs X 16.10               Rs.90.73 Cr
          ps/Kwhr
      3   HESCOMS 5683 MUs X 16.10               Rs. 91.50 Cr
          Ps/Kwhr
      4   GESCOMS 3858 MUs X 16.10 MUs           Rs. 62.12 Cr
      5   Hukkeri Society 138 MUs X 16.10        Rs. 2.23 Cr
          MUs
      Total 28137 MUs X 16.10 Os/Kwhr            Rs. 453.04 Cr
                               98


                                             Annexure - C



                     Int. billed by TNB Co

       Month       Amount
       Jan-02      4282204
       Feb-02     45252336
       Mar-       32044098
02
Total FY-02        81578638
        Apr-02     25438159
       May-02      29654679
        Jun-02     32954843
         Jul-02    35878892
       Aug-02      30020168
       Sep-02      26380592
       Oct-02      22809885
       Nov-03      20332303
       Dec-03      15434351
       Jan-03      10559003
       Feb-03       5638084
       Mar-03       4283234
 Total FY-03      259384193
 Grand total      340962831
99

								
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