India – Ministry Of New & Renewable Energy (MNRE) Revises Dispute Resolution Mechanism For Renewable Energy Projects.

Introduction

The Ministry of New & Renewable Energy (“MNRE”) has issued an order dated June 07, 2023 (“Order”), to bring about important changes to the dispute resolution mechanism for disputes between Renewable Energy Power Developers/ Engineering, procurement, and construction (EPC) Contractors and designated Renewable Energy Implementing Agencies (“REIA”). The Order aims to provide a time-bound, transparent and unbiased platform for resolving disputes in the renewable energy sector.

Background

The MNRE had previously set up a dispute resolution mechanism through an order  dated June 18, 2019, along with subsequent amendments and clarifications (“Old DRM”). However, the Order supersedes the Old DRM and introduces revised guidelines for the dispute resolution mechanism (“DRM”).

Key Highlights of the Order:

1. Establishment of the Dispute Resolution Committee (“DRC”): The revised mechanism aims to constitute an independent, transparent, and unbiased DRC responsible for resolving certain disputes between Renewable Energy (RE) Power Developers/ EPC Contractors and designated REIAs, such as SECI, NTPC, NHPC, SJVN, or any other agency designated by MNRE.

2. Appointing the Dispute Resolution Committee: The DRC will comprise three (3) members chosen from eminent individuals located in the National Capital Region (NCR) of Delhi. These members will be of impeccable integrity and selected in a manner that ensures there is no conflict of interest. The upper age limit for DRC members will be seventy (70) years.

3. Scope of the DRM: The DRC will have jurisdiction over all Renewable Energy (RE) Schemes, Programs, and Projects implemented by REIA. The mechanism will apply to contractual agreements between REIAs and EPC Contractors involved in Renewable Energy Power Projects owned by the REIAs, with the condition that the REIAs commit to abide by the decisions made through this mechanism.

The DRC will consider appeals related to

a. extension of time due to recognised ‘Force Majeure’ events or contractual agreements

b. extension of time not covered under the contract terms and

c. all disputes other than the extension of time between the REIA and RE Power Developers/EPC Contractors.

It appears that tariff-related disputes, including change in law claims, will continue to be addressed and resolved by the respective Electricity Regulatory Commissions (ERCs). Also, the DRM does not encompass the jurisdiction to adjudicate on matters specifically related to determination or approval of tariff, which fall within the purview of the ERCs.

4. Process of Dispute Resolution:

a.) The applicant party shall approach the respective REIA and seek a just solution for the dispute. The REIA will provide a speaking order to address the request, even if it falls outside the scope of contractual agreements.

b.) If the applicant party is unsatisfied with the REIA’s decision, they can appeal to the DRC within twenty-one (21) days of the REIA’s order.

c.)The DRC will consider following appeals:

i. For cases related to extension of time due to recognised ‘Force Majeure’ events or contractual agreements:

• RE Power Developers/EPC Contractors must apply to the REIA for an Extension of Time (EoT) within the specified time in the contract.
• If there is no specified time limit, the application must be made within seven (7) days of the dispute occurring for the first time.
• If the application is not made within the prescribed time limit, it will be summarily rejected by the REIA.
• If the application is made on time, the REIA will examine the request and provide a final decision to the developers/contractors within twenty-one (21) days.
• If the RE Power Developers/EPC Contractors are dissatisfied with the REIA’s decision, they can appeal to the DRC within twenty-one (21) days of the REIA’s order.

ii. For cases related to (i) extension of time not covered under the contract terms and (ii) all disputes other than the extension of time between the REIA and RE Power Developers/EPC Contractors:

• Cases involving unforeseen issues/circumstances not covered by contractual agreements, such as delays in the land allotment or connectivity due to government policies or court orders, will be presented to the REIA within seven (7) days of the issue arising.
• The REIA will provide a final decision to the developers/contractors within twenty-one (21) days from the date of application.
• Overlapping periods of effect caused by multiple reasons will not be granted separate extensions.
• If the RE Power Developers/EPC Contractors are dissatisfied with the REIA’s decision, they can appeal to the DRC within twenty-one (21) days of the REIA’s order.

d.) A fee, based on the nature of the dispute and applicable guidelines, shall accompany the application to the DRC.

e.) The DRC will examine the cases referred to it and submit its recommendations to the MNRE within twenty-one (21) days from the date of reference. It is important to note that no coercive action shall be taken on cases brought before the DRC and MNRE until the final disposal of the appeal, as applicable.

f.) MNRE, along with the comments of IFD, must review and present these recommendations to the Hon’ble Minister of New & Renewable Energy (“NRE”) within twenty-one (21) days of receiving them from the DRC.

g.) The recommendations of the DRC, along with the observations of MNRE, will be presented to the Hon’ble Minister of NRE for a final decision.

5. Remuneration and Expenses: DRC members will receive a monthly remuneration of INR 1,00,000 and INR 20,000 per sitting for each case, not exceeding five (5) sittings. The fees for DRC members will be paid from the funds collected through application fees. In cases where the collected fees are insufficient, REIAs will contribute equally to cover the expenses.

Challenges in the DRM

While the DRM aims to provide an effective resolution process, certain issues raise concerns and warrant further examination.

1. One prominent challenge lies in the interplay between REIAs and Distribution Companies (DISCOMs), as REIAs often enter into back-to-back agreements with DISCOMs. Consequently, the ability of REIAs to agree on extension requests or other adjustments might hinge upon the willingness of DISCOMs to comply. This also raises the question of whether DISCOMs will be bound by the decisions handed down by the DRC and approved by the Hon’ble Minister of NRE.
2. Another critical issue pertains to the implications of a rejected claim by the DRC. Should the DRC reject a project developer’s claims, would the developer retain the right to pursue the same dispute before the Electricity Regulatory Commission (ERC) or through alternate dispute resolution mechanism like arbitration, as laid out in the relevant contract? Additionally, the extent to which the DRC’s adverse order would impact the subsequent adjudication process remains ambiguous. Therefore, the adoption of the DRM by RE Power Developers/EPC Contractors may remain limited due to potential concerns over jeopardizing their chances in arbitration or court litigation if their claims are rejected by the DRC. The ambiguity surrounding the outcome of the DRC’s decisions may deter some developers from opting for the DRM and instead pursue alternative dispute resolution mechanisms.

These issues highlight the need for clarity and comprehensive guidelines within the DRM to address potential challenges and ensure fair and effective dispute resolution. Aligning the interests of REIAs and DISCOMs, and instilling confidence in project developers can enhance the overall effectiveness and adoption of the mechanism.

Conclusion

The rapid growth of solar projects in recent years has brought with it an increase in disputes within the industry. These disputes, ranging from issues of land allotment and connectivity delays to force majeure events, can significantly impact project timelines and hinder the development of renewable energy infrastructure. This in several cases is due to a bottleneck in the resolution of disputes by REIAs. The current mechanism, however, seeks to address this issue through the implementation of a robust DRM, especially considering:

1. the strict timelines provided in the DRM;
2. the provision for appeal to the DRC in case the applicant is not satisfied with the order of REIA;
3. the multilayer process of dispute resolution that instils confidence that disputes will be resolved impartially.

Having said that, while the DRM is a step in the right direction, its effectiveness remains uncertain due to the challenges highlighted above and the complexity of the process. The multiple layers of appeals and references to the MNRE may potentially hinder the efficiency and timely resolution of disputes. It is imperative to closely monitor the implementation of this mechanism to assess its success in practice. The current mechanism, which includes the DRC and the involvement of the MNRE and the Hon’ble Minister of NRE, introduces additional steps in the resolution process. While the intention behind these layers is to ensure fairness and transparency, they may inadvertently prolong te time it takes to resolve disputes. The success of the mechanism will also depend on the smooth implementation and adherence to prescribed timelines. Furthermore, the role of the DRC and its recommendations to the Hon’ble Minister of NRE for a final decision raises concerns about the potential for subjectivity and delays. The efficient functioning of the DRC and its ability to provide impartial and well-founded recommendations will be critical in instilling confidence in the dispute resolution process. The commitment of the authorities involved, including the REIA, the DRC, and the MNRE, to adhere to prescribed timelines and handle disputes efficiently will be key to realiszing the potential benefits of this mechanism.