Monday, 21 September 2015

GISPS: INSIGHT FOR GREENTREPRENEURS ON CONTRACTUAL TERMS





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With India aiming to achieve 1,00,000 MW Grid Connected Solar Power Systems ("GISPS") by 2022, the state of urgency and requirement to act fast need not be mentioned separately. GISPS being comparatively a new area in renewable energy, it is quite important that India's budding greentrepreneurs acquaint themselves with certain key contractual aspects. As of now, GISPS are pursued through Ministry of Renewable Energy or its designated agency (e.g. Solar Energy Corporation of India) through bids. Following are some of the key contractual points in GISPS which I am sure will help the greentrepreneurs.

SCOPE OF WORK 

Normally for a company installing and operating GISPS in India, the following scope of work is expected:

1.    Obtaining no objection certificate (NOC) from respective distribution company (DISCOM) for grid connectivity of the GISPS [Notes: There is no format or procedure for NOC has been laid down yet. One application in plain paper by the project operating company should be sufficient].

2.  Complete  design, engineering, manufacture,  supply,  storage,  civil  work,  erection,  testing  & commissioning  of  the  GISPS.

3.  Operation and maintenance (O&M) of the GISPS for a given period (e.g. 25 years) after commissioning.

LEVELLISED TARIFF

1.       Levellised tariff (“LEVTAR”) is a concept that is recently introduced for Indian GISPS.

2.     Simply it means fixed tariff offered by the project operator over a number of years (e.g. 25 years for a given GISPS).

3.     LEVTAR is inclusive of all duties and taxes, insurance etc. and LEVTAR needs to be quoted on a “single responsibility” basis covering all obligations in the scope of work e.g. design, supply, erection, testing, commissioning, warranty, operation & maintenance, goods & services, spares etc. for the given period (e.g. 25 years).

4.   The operation & maintenance of GISPS would include wear, tear, overhauling, machine breakdown, insurance, and replacement of defective modules, invertors/ Power Conditioning Unit (“PCU”), spares, consumables & other parts for a given period (e.g. 25 years).

INSURANCE REQUIREMENTS

1.       Insurance policy for transit-cum-storage-cum-erection for all the materials to cover all risks for supply of materials on site basis, storage of materials at site, erection, testing and commissioning.

2.    Appropriate insurance during O&M period, if required [Notes: Normally Commercial General Liability and Professional Indemnity policies are obtained. However, please consult an insurance company for any other specialized insurance products for GISPS].

3.       Third Party Liability to cover risks of damage to the third party/material/equipment/properties during execution of the GISPS.

4.    Before commencement of execution, all employees and representatives need to be covered under suitable insurance policies [Notes: Workman compensation insurance policy should be proper. However, please consult an insurance company for any other specialized insurance products for GISPS].


WARRANTIES

1.    Project operator to warrant that goods supplied will be new, unused, of the most recent or latest technology and incorporate all recent improvements in design and materials. In other words, state of the art requirements from project operators.

2.       Project operator to rectify all defects in the design, materials and workmanship including spare parts for a given period (normally equivalent of LEVTAR period).

STANDARDS

1.     The   design,   engineering,   manufacture,   supply,   installation,   testing   and performance of the GISPS needs to be in accordance with latest appropriate IEC/Indian Standards [Notes: Relevant IEC/IS will normally be specified in the bid documents].

2.       Where appropriate Indian Standards and Codes are not available, other suitable standards and codes as approved by the MNRE need to be used.

OPERATION & MAINTENANCE

1.     Project operator is responsible for operation and maintenance of the GISPS a given period (“O&M Period”).

2.       During the O&M Period, Government of India representative (e.g. Solar Energy Corporation of India) will monitor the GISPS’ performance.

3.       During O&M Period, the project operator will be responsible for a number of activities like (i) supply of all spare parts as required from time to time for scheduled and preventive maintenance; (ii) major overhauling of the plant; (iii) replacement of defective modules, inverters, PCU’s etc. (iv) maintaining log sheets for operation detail; (v) deployment of staff for continuous operations and qualified engineer for supervision of O&M work; (vi) complaint logging and attending.

METERING AND GRID CONNECTIVITY

1.       Metering and grid connectivity of the GISPS will be the responsibility of project operator;
 
2.       Connectivity will be as per prevailing guidelines of the concerned DISCOM and / or CEA (if available by the time of implementation) [Note: For example please refer http://www.teda.in/pdf/Specification_Grid_Tie_SPV_plant.pdf]

PLANT PERFORMANCE EVALUATION

1.       Project Operator shall be required to meet minimum guaranteed generation with Performance Ratio (PR) at the time of commissioning and related Capacity Utilization Factor (CUF) as per the GHI levels of the location during the O&M Period. 

2.     When a project involves performance bank guarantee or government’s commitment reimburse some of the project cost, the PR and CUF level are predetermined (e.g. PR should be minimum of 75% during initial commissioning acceptance to qualify for 30% subsidy. Minimum CUF of 15% should be maintained for a period of 5 years to release performance bank guarantee to the operator).

PROGRESS REPORT AND INSPECTION

1.     Depending on the project, government may ask project operator to submit periodic progress reports in prescribed formats.

2.    Further, government may depute its own experts for inspection, verification, monitoring the project operators, manufacturer’s facilities, system integrators to check the quality of products, technical capabilities as and when required.

APPLICABLE LAW AND DISPUTE RESOLUTION

1.       As the GISPS will be implemented and operated within India, the contracts are governed by laws of the Union of India.

2.    Normally, the first attempt to resolve dispute will be mutual consent.  If mutual consent does not yield result, the dispute will be referred to binding arbitration. Normally, the contract will prescribe the proposed composition of arbitration panel which in ordinary cases will be each party appointing one arbitrator, and these two arbitrators jointly appointing a third arbitrator as chairman of the arbitration panel. Arbitration proceedings will be conducted as per Arbitration and Conciliation Act, 1996 at a predefined place (e.g. New Delhi).

3.       Cost of arbitration is equally shared between the parties.

FORCE MAJEURE

1.       "Force Majeure" is a clause that benefits the GISPS operators.

2.     "Force Majeure" means an event beyond the control of the GISPS operator not involving its fault or negligence and not foreseeable. "Force Majeure" events include Acts of God, wars or revolutions, fires, floods, epidemics, quarantine restrictions and fright embargoes etc.

3.    But for government sponsored GISPS, whether a “Force majeure” situation exists or not, is normally decided by the government whose decision is final and binding on the project operator. If project operator is unable to operate the GISPS due to force majeure, it is relieved of its obligations during the force majeure period. However, some contracts stipulate that if a force majeure extends beyond a given period, the government gets a right to terminate the contract in which case the performance bank guarantee will be refunded.

ASSIGNMENT, SUB-CONTRACTING, SUCCESSION

1.      Normally there will be a restriction that project operator shall not transfer, assign or sublet its rights and obligations. This is more in case of government awarded contract where GISPS will be awarded based on the project operator’s financial and technical credibility. Any sub-contracting or assignment can defeat the purpose. However to avoid any breach of this restriction, the project operator should have in-house capability to perform the scope of work without involving or depending on any sub-contractor.

2.    If the project operator undergoes  any  merger  or amalgamation  or  a  scheme  of  arrangement  or  similar  re-organization, the contract will be  binding  on the successor entity.

COMPLETION TIMING/LIQUIDATED DAMAGES

      For government initiated projects, the project operator needs to start operating the GISPS within a given period following allocation of project sanction letters. If there is any delay, other than by way of “force majeure”, the project operator will have to pay liquidated damages to be calculated in a pre-determined formulae.

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