Are there terms in the section of the power purchase agreement (PPA) between Adani and Bangladesh Power Development Board (BPDB) concerning the calculation of the power tariff that may lead to BPDP being able to legally void the PPA, as raised by online portal Adaniwatch.
According to Adaniwatch, the PPA defines the reference tariff as having two components -- Reference Capacity Price and Reference Energy Price.
Capacity price is charged by the power producer to recover its investment in the plant, machinery and maintenance.
Even if the procurer is not buying power from the generating company, it is bound to pay capacity charges to the company until the end of the contract.
Energy price is the price of the electricity sold, which includes the price of fuel and other variables.
According to the PPA, applicable taxes in India for the procurement, construction, financing, operation and maintenance of the project and “environmental norms which are in force in the Republic of India” have been taken into account for the calculation of the Reference Tariff.
The document provides a chart detailing the “taxes, levies and norms” taken into consideration while calculating the Reference Tariff under the heading List of Assumptions.
The list included: 12.5% Excise Duty, Customs duty for imported goods, 15% service tax (0.5% Swachh Bharat import tax and 0.5% Krishi Kalyan import tax included) on construction activities, 2% Central Sales Tax on goods purchased from outside Jharkhand, Value Added Tax on Equipment (depending on equipment VAT varies from 5.5% to 14.5%), Composite Tax on civil construction (15% on 40% of total amount charged for works contract), 4% work contract tax, 1% Building & Other Construction Workers' Welfare ‘Cess' (a form of tax), water charges payable to Jharkhand government, Income tax payable in India as per the applicable slab etc.
But, according to Adaniwatch, there are major issues with these assumptions.
First, the PPA, signed on November 5, 2017, mentions VAT (value-added tax) and other state taxes separately. But the union government of India rolled out a comprehensive Goods and Service Tax (GST) regime in the country on July 1, 2017, four and a half months before the PPA was signed.
The new GST regime subsumed almost all state taxes, including central excise duty, services tax, additional customs duty, surcharges, state-level value-added tax, Octroi (a type of tax pertaining to transport of goods) and levies which were applicable for interstate transportation of goods.
So the question can be asked: why were these obsolete provisions included in the PPA?
Then, the project was declared a Special Economic Zone in February 2019, 15 months after signing the PPA.
SEZs in India have a different set of tax rules applicable and enjoy a lot of tax exemptions. APJL doesn't have to pay taxes on almost every imported item and gets a waiver of Income Tax for many years.
The PPA stipulates that APJL must inform BPDB of any changes in law that might affect these assumptions within 30 days of such an occurrence, and any variation shall be adjusted in the Reference Capacity Price.
Was the Bangladesh government informed, at the time of signing the PPA, that the GST regime was in place, and VAT and other state level taxes had been subsumed by it?
Was it informed subsequently of the changes brought into play by the project being declared an SEZ?
If it wasn't, the agreement may well be legally voidable by BPDB for breach of contract, according to Adaniwatch.
The PPA also says that the parties “expressly agree that no adjustment shall be applied or paid due to a change in assumption resulting from any change in taxes impacting the construction contract price until the project has been commissioned and the impact of such change in taxes is to the company's account.”
