CASE NO. 25 of 1998

IN THE MATTER OF:
An application for permission for direct sale of surplus power by M/s National Aluminium Company Limited (NALCO) from its Captive Power Plant to industries in and outside Orissa.

AND

IN THE MATTER OF:
National Aluminium Company Ltd … Applicant
NALCO Bhawan, Nayapalli,
Bhubaneswar 751 013.

Grid Corporation of Orissa Ltd. ... Licensee/ Respondent.
Janpath, Bhubaneswar.

1. The Present proceeding arises from an application filed by M/s National Aluminium Company Limited (NALCO, for short), Nalco Bhawan, Nayapalli, Bhubaneswar - 751013 for permission for direct sale of surplus power from its Captive Power Plant to the industries in and outside Orissa using the transmission and distribution system of Gridco. In course of the proceeding, a supplementary petition was filed on 09.01.1998 in which it was prayed that if the Commission decided not to allow direct sale of power to industrial consumers including M/S IAPL, Gridco should be directed to buy entire surplus power at the market price or at least to match the price that has been paid by Gridco to NTPC/OPGC. Subsequently, as the proceeding progressed through replies, counter replies and hearing, NALCO sought permission to amend the earlier application and on being permitted to do so filed a consolidated petition on 24.02.1998 in which the following prayers were made:

1. To consider favourably the appeal placed before the Orissa Electricity Regulatory Commission to allow NALCO to effect direct sale of surplus power to industrial consumers in and outside Orissa including IAPL and

2. To advise GRIDCO for utilising its transmission and distribution system, wherever necessary under a mutual techno-commercial agreement and

3. That the exact quantum of power and rates will be decided after receiving response from prospective buyers of power against publication of advertisement in the news papers and by direct contact

4. That alternatively in the event of GRIDCO opting to directly cater to new consumers out of surplus power of NALCO, GRIDCO to buy entire surplus power of NALCO and also for fixation of tariff for NALCO power at the market price or at least to match with that being paid by GRIDCO to NTPC/OPGC to enable NALCO to meet with its commitments to the exchequer. Also continued outstanding is resulting in huge financial loss (interest amount) to NALCO.

2. The petitioner M/s Nalco was represented by advocate Mr. Indrajit Mohanty and Mr. Bigyan Kumar Sharma and also by its officials Mr. N. V. Bali Executive Director (CP & BD) and others. Gridco was represented by its officials Mr. N. G. Nath, Chief Engineer (PP), Mr. T. S. Rao, S.E. (Comm.) and Mr. N. N. Mohapatra, Executive Engineer and also by Advocate Mr. N. C. Panigrahi. Both sides were heard on different dates and written arguments filed by Shri N. C. Panigrahi, learned advocate on behalf of M/s Gridco as well as rejoinder given on the same by learned advocate Shri B. K. Sharma representing M/s Nalco have been taken on record.

3. During the course of the proceeding the learned counsel for M/s Gridco had raised number of questions on maintainability on the petition mainly-on the ground that orders passed under Section 28 of the I.E. Act, 1910 permitting M/s Nalco for sale of power to M/s IAPL has been made inapplicable in the State of Orissa with effect from 01.04.1996 on promulgation of Orissa Electricity Reform Act, 1995. We have considered the issue of maintainability as well as merits of the case.

4. Background of the case is as follows. M/s NALCO has a Alumina Smelting Plant of 2,18,000 tonnes capacity at Angul in Orissa. They were permitted to set up a Captive Generation Power Plant with an installed capacity of 720 MW (6X120 MU') at Balaramprasad for consumption in the proposed Alumina Smelter Plant vice Govt. of Orissa I & P Dept. N. EL-III-75/80-36822 dt.25.10.1980. The Govt. of Orissa by an order issued in July, 1992 accorded sanction to M/s NALCO under Section 28(1) of the Indian Electricity Act, 1910 for supply of energy to the extent of 14 MVA from its Captive Power Plant to M/s Mukand Limited, Angul with certain conditions. The said M/s Mukand Limited has been renamed as M/s IAPL. Before finalisation of arrangements regarding actual sale of power to M/s IAPL there has been change in the regulatory environment in consequence of promulgation of Orissa Electricity Reform Act, 1995. M/s Gridco, the successor of Orissa State Electricity Board intimated to M/s NALCO that upon enforcement of OER Act, 1995 and on functioning of Gridco with effect from 01.04.1996 as the sole licensee for sale of power in the State, the permission granted by Govt. of Orissa for supply of power to M/s IAPL is treated as invalid and that M/s NALCO was not entitled to sell power directly to M/s IAPL unless permitted by OERC. In this background M/s NALCO have submitted the application to M/s OERC which is the subject matter of the present proceeding.

5. In the final application filed before the Commission, M/s Nalco have stated that a number of industrialists have approached Nalco for direct sale of power from their Captive Power Plant (CPP) using transmission and distribution. system . of Gridco. It is stated that even though Nalco had been supplying a good quantum of power to Orissa Grid right from the day of commissioning of CPP, the payment therefor had been very slow, and as on date, there is outstanding of above Rs.100 crores from the Gridco to Nalco on this account. It is claimed that repeated efforts at high level have not yielded satisfactory results regarding settlement of outstanding dues. In order to offset the adverse financial impact of such outstanding dues, M/s Nalco would like to have the permission for the direct sale of power to industrial consumers. It is stated that in a meeting held in June, 1994 between the CMD, Nalco, Chairman, OSEB and Principal Secretary, Department of Energy, Govt. of Orissa, Gridco had committed itself to draw entire surplus generation available from the Captive Power Plant round the year. In reality, Gridco is failing to do the same and for most part of the year 1997-98 Gridco has not been able to organise full drawal of surplus power available at CPP of Nalco. As much as 150 MW of surplus power is available at most of the time; and failure on the part of the Gridco to draw full quantum of surplus power is resulting in substantial loss to Nalco in terms of generation, revenue earning and consequent increase in cost of generation which has not been covered in the agreed sale price. Nalco is apprehensive that with the establishment of more utility power stations of M/s. NTPC and others in the State, Gridco will be under pressure to accept bulk power from such utility and would not be in a position to draw full quantum of surplus power available at Nalco. In the circumstances Nalco would like to find out customers willing to purchase a part of its available surplus electrical power which incidentally would on the one hand relieve Gridco of responsibility to take the surplus power generated by Nalco and on the other Gridco will have substantial revenue earning in terms of transmission charges for transmitting the same through its grid network. While pleading on the merit of the case for general permission to sell power to the industries in and around Nalco through Gridco network, Nalco has put forward specific request for permission to sell power to M/s. International Aluminium Products Ltd., (IAPL) directly without using transmission distribution system of Gridco. In support of its prayer for permission on this specific sale Nalco have relied upon the permission granted by Govt. of Orissa on 23.07.92 under Section 28 of Indian Electricity (Supply) Act, 1910 for supply of 14 MVA power. Nalco have stated that in pursuance of Government sanction it has entered into a long term agreement with IAPL on 21.04.95. According to M/s Nalco, Government sanction still holds good and Gridco is not justified in treating it as void on the ground of coming into force of the OER Act, 1995. It is further stated by M/s Nalco that the whole purpose of investment of as much as Rs.30.82 crores in IAPL made on the basis of sanction for direct supply of electricity will be defeated and Nalco will have an unbearable financial burden.

6. In support of their prayer for permission for sale of surplus power to industrial consumers in and outside Orissa including M/s Indian Aluminium Products Ltd, M/s Nalco quoted the Govt. of Orissa, Deptt. of Energy Resolution No.20396-E dt.09.11.92 where full option had been given to generating companies for selling power generated by them to other industries using the State Electricity Board's transmission and distribution system after obtaining their consent. They have also quoted the permission given by the Govt. of Orissa, Deptt. of Energy in their order No.II.SP.38/92 dt.23.07.92 for supply of 14 MVA power to M/s Mukund Ltd., now called International Aluminium Products Ltd. (IAPL) from Nalco, Angul. On the basis of the aforesaid permission, Nalco and IAPL have entered into a long-term agreement No.Nalco/IAPL/01/95 dt.21.04.95 for supply of Aluminium metal, Electricity and water by Nalco. Based on this agreement with IAPL, Govt. of India, Ministry of Mines, vice their letter No.10/2/94-MET-I dt.02.01.98 permitted Nalco for an investment of Rs.30.82 crores equivalent to 26% equity in the said Company which is a 100% export-oriented unit. It is stated that such direct sale of power to IAPL from Nalco was very much urgent now as all infrastructure has already been developed for supply of power as per the agreement between Nalco and IAPL.

7. Further, M/s Nalco has raised the issue of chronic indebtedness of Gridco and inability to pay for power purchase from Nalco and Gridco's inability to take entire surplus power. They have also sought to be paid for their supply from the Captive Power Plant at the rate of other power suppliers like NTPC.

8. Thus, M/s Nalco has made out the case that it has a valid sanction order for sale of power to M/s IAPL and that it has a contractual commitment from Gridco to take all the surplus power. Nalco wants implementation of the aforesaid sanction and of the agreement. Further, in order to offset the adverse financial impact it wants permission for sale of power directly to industries in and outside Orissa. The least that is wanted by Nalco is permission for sale of power to M/s IAPL.

9. Gridco has objected to the prayer regarding sale of power to M/s. IAPL on the ground that sanction under Section 28 of I.E. Act, 1910 granted by Govt. of Orissa in July'92 as infructuous and cannot be implemented after 01.04.1996 when the Orissa Electricity Reform Act came into force. As M/s. Nalco does not have a valid sanction order for sale of power to any party and has not taken exemption under Section 16 of the OER Act, 1995, it is not entitled to permission for sale of power to any person. Gridco have further stated that as the owner of CPP, M/s. Nalco is entitled to sell power only at variable cost agreed in the MOU dated 01.06.1994. It is stated that Nalco is not a licensee and not even an independent power producer permitted to do business in generation and sale of power. The basic permission to set up a Captive Power Plant is for the purpose of meeting their own requirement. Hence, it cannot claim the right of sale of power to others. Further, Gridco have stated that they have drawn all the surplus power generated by Nalco during the financial year 1994-95 to 1997-98 (upto 11/97). They have also given a statement of payments indicating that they have cleared 93.82% of payments during '994-95, 80.50% during 1995-96, 92.53% during 1996-97 and 94.15% during 1997-98.

10. In their counter reply dt.21.11.97, Gridco have stated that the process of eliminating cross-subsidisation in tariff will be jeopardized if third party sale of power is allowed to CPPs. Further, Gridco have indicated that the proposal for sale of power by CPP to industries would endanger the contractual procurement of power by Gridco in the years ahead. It also stated that such sale of power by CPPs would affect the load projection of Gridco and will result in payment of full charges by Gridco to Independent Power Producers at normative generation of 68.57% PLF even if power actually drawn is below than what was contracted for.

11. We have heard the arguments of the learned counsel representing M/s NALCO as well as of M/s GRIDCO. Though, there has been a series of replies and counter replies we find that the issues to be decided are few and straightforward. We need not discuss and give our findings on the merits various aspects which do not have direct bearing on the issues emerging from the consolidated amended petition which has been admitted.

12. The issue of maintainability and the merit of issues raised in the application are inseparably intertwined. Having heard the parties on all aspects, we have decided to dispose of the case on merits as well. The main issues to be decided are as below :

13. With regard to the first issue, namely, validity of sanction granted under Section 28 of the I.E. Act, 1910 we find strong force in the petitioner's claim that in the absence of any specific stipulation in the Act, 1995 to the effect that all acts undertaken and permissions and sanctions issued earlier are to be invalidated, the specific sanction shall be treated as valid. The learned counsel Mr. N.C. Panigrahi has referred to Article 254 of the Constitution of India and Section 58(1) and Section 14(1) of the Reform Act. He pleaded that provisions of Reform Act will override the provisions of Act, 1910 and hence when there is no power of sanction for sale of power by non-licensee under the Reform Act, the provisions of Section 28 is repugnant to the Reform Act, and hence inoperative. Quoting Section 58(1) of Reform Act, he argues that the State Govt.'s rights under Act, 1910 and Act, 1948 have been whittled down and sanction issued by State Govt. cannot continue to be in force. He argued that in the light of provisions of Section 14 and 58 of the Reform Act, permission for supply of power can be allowed only by the Regulatory Commission either under a licence to be issued under Section 15 or under an exemption to be granted under Section 16 of the Reform Act. As Nalco is neither a licensee nor has been exempted by the Commission under Section 16 of the Reform Act, it has no right to supply power to any one inside the State of Orissa. He has distinguished between sanction under Section 28 of the I.E. Act, 1910 and exemption under Section 16 of the Reform Act to claim that power of sanction has been given a go-bye in the Reform Act and hence no sanction granted earlier can be treated as valid. According to the learned Advocate Section 28 of the Act, 1910 has been made inapplicable specifically by Section 57(3)(iii) of the Reform Act.

14. We do not find force in the aforesaid submissions of the learned counsel for Gridco. As there is no inconsistency between the provisions of I.E. Act, 1910 and Electricity (Supply) Act, 1948 and those of the Reform Act, the reference to Article 254 of the Constitution appears to be inappropriate. The Reform Act has only modified the provisions of the two Central Acts and the extent of modifications and applicability or otherwise are explicitly stated in the Reform Act. It is true that the power of the State Govt. have been modified under the Reform Act. But, it is a well-established principle of law that every statute has prospective operation unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights with retrospective effect. Section 5(c) of the Orissa General Clause Act, 1937 provides that where any Orissa Act repeals any enactment hitherto made, or hereafter to be made, then, unless a different intention appears, the repeal shall not affect any right, privilege, obligation, or liability acquired or accrued or incurred under any enactment repealed. The effect of OER Act, 1995 with regard to the issue in question is that the State Govt. is no more competent to accord sanction to a non-licensee to engage in business of supplying energy. But the sanction accorded in exercise of power under Section 28 of I.E. Act, 1910, continues to be valid and operative. Hence, in the facts of the case M/s. Nalco has an enforceable right to sell power to M/s. IAPL in terms of sanction order dated July, 1992.

15. The second issue relates to general permission for sale of surplus power to industrial consumers in and outside Orissa. The reason for asking for permission as given by Nalco are the inability of Gridco to honour its commitment for lifting entire surplus power, failure to make payments in time and the financial compulsion of M/s. Nalco. M/s Nalco has relied on Govt. of Orissa, Deptt. of Energy Resolution No. 20396-E dtd. 9th November, 1992 as authority for its right to sell. The said resolution speaks about the incentive for private sector participation in power sector. The gist of the resolution is that in order to attract private capital into power sector, the Govt. of Orissa decided to grant some incentive to generating companies in the private sector. It is apparent that the resolution is a policy statement and not a blanket permission automatically conferring a right to every generating company and generating station to sell power. Secondly, the incentive is meant for entrepreneurs who would be prepared to invest capital for setting up generating companies in the private sector. In the instant case M/s. Nalco received permission only to set up a Captive Power Plant. No general permission to sell surplus power to any party has been given to M/s Nalco under Electricity Act, 1910, Electricity (Supply) Act, 1948 and under any Govt. order except the specific sanction for sale to IAPL.

16. Under the Reform Act, the following categories can engage in the business of supplying electricity:

1. any one authorised by licence issued under Section 15 (1) of the Reform Act.

2. those who are exempted under Section 16 of the Reform Act and

3. those who have been authorised or exempted by any other authority under the Supply Act, 1948.

Nalco has neither applied for licence nor has applied for exemption under Reform Act. It has not been authorised or exempted by any authority under Electricity Act, 1910 or Electricity (Supply) Act, 1948 except with regard to the specific sanction for sale of power to M/s. IAPL.

17. We also note the averment made by M/s GRIDCO that they are the sole licensee in the State of Orissa and if NALCO is allowed third party sale of surplus power to industries inside and outside the State, Gridco as a licensee working in a regulatory regime will face severe financial crisis and may face liquidation. We are not going into the details of this at the moment. For reasons stated earlier we have to uphold Gridco's objection that NALCO has no right for sale of power to anyone within Gridco's licensed area by using Gridco's transmission and distribution system or in other manner except with specific sanction or exemption.

18. Having given our findings on the main issues arising out of the petitioner of M/s Nalco, we may briefly refer to other aspects arising out of the petition. M/s. Nalco have complained regarding the failure of Gridco to take all surplus power and delay in payment for the supply made to Gridco. Nalco has also claimed that tariff for Nalco power should be settled at market price or at the price paid by Gridco to generators such as NTPC and OPGC. These have been mentioned by Nalco as justification for sale of power to industries in and outside Orissa. Nalco have not pressed these aspects during the hearing nor we deem it appropriate to deal with these issues in this proceeding. In any case, these are actual matters between the Gridco and Nalco and have to be dealt accordingly.

19. In the above facts and circumstances before us and the position of law as indicated by us, we order that while the sanction order of Govt. of Orissa during July, 1992 permitting Nalco for sale of power to M/s. IAPL has to be honoured, M/s Nalco cannot be permitted to sell power to anyone else within Gridco's area of license.

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