MP plays safe with safeguard duty for solar tender, revises conditions

With the safeguard duty recommended on July 16, the state had to push its bid submission date from July 19 to August 23.

In what could set the template for other state governments that find themselves facing the hump of safeguard duty on solar gear, the Madhya Pradesh government has revised the conditions for its rooftop solar tender.

The state was in the middle of a tender when the Centre on July 30 notified a safeguard duty ranging from 15-25 per cent on solar cells and panel. The state has amended Clause 3.29 of the request for proposal (RFP), dealing with tax and duties, through a corrigendum to the tender. The Madhya Pradesh government had floated a tender to put up 28 MWp of rooftop solar projects through renewable energy service company (RESCO) model.

The amended clause specifies how changes in tax would be passed on in the tariff. This adjustment in tariff because of change in capital cost can be done till three months before the project’s scheduled commissioning specified in the power purchase agreement (PPA).

“The ‘Change of Law’ clause in contracts usually states the legal position, but is silent on how to implement it. Our RESCO tender provides absolute clarity on how the expected imposition of safeguard duty would translate into impact on tariff. This would give complete clarity to bidders, as also free the bid authorities of the challenge of deciding on a contentious issue post-bid,” Manu Srivastava, principal secretary, renewable energy in the Madhya Pradesh government told Business Standard.

With the Directorate General safeguard recommending the safeguard duty on July 16, the state had to push its bid submission date from July 19 to August 23. For now, the bidders have been asked to presume no safeguard duty while placing their tariff bid on Thursday.

The corrigendum to the tender says power producer would be entirely responsible for all taxes, duties, license fees, etc., however, “if any new change in tax/duty and cess is effected in the period after the financial bid submission deadline and any time during the period of agreement, the same will be passed on by the power producer to the procurer”. It specifies the evaluation method for this change.

Capital cost is taken as 80 per cent of the total project cost of which cost of solar cells is taken as 26 per cent in accordance with the benchmark set by the Union ministry of renewable energy.

According to the calculations specified by the state government, the benchmark cost of 100kW system is Rs 55, 00, 000, the approximate cost component of solar cell in the capital cost would be Rs 14,30,000. The increase in cost of solar cell as a result of 25 per cent safeguard duty translates to Rs 3,57,500 which is 6.5 per cent. “Since the above variation is more than 2.5% threshold as allowed in the RFP and PPA, increment of 6.5 per cent will be considered for tariff adjustment due to change in the capital cost,” said the corrigendum. The adjustment in tariff would translate to 5.20 per cent since the capital cost is taken to be 80 per cent.

The Odisha High Court on July 25 stayed safeguard duty on a petition filed by Vikram Solar. Following this, the government asked importers to deposit the amount equivalent to the duty till a final order from the court. The government plans to levy 25 per cent safeguard duty from July 30, 2018 to 29th July, 2019, 20 per cent fromJuly 30, 2019 to January 29, 2020 and 15 per cent from January 30, 2020 to July 29, 2020.