Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

Though the Order is not final and appealable, CCI in this prima facie order has recognized the sanctity of and has refused to intervene in the long term Power Purchase Agreements (PPA) entered into between prospective generators and their intended customers, normally DISCOMs, even though the PPA may contain some unfair and anti-competitive terms and even though the generator may be dominant in the relevant market. It will be interesting to watch the final outcome of this litigation between the TATA Power and the NTPC.

The CCI vide its order dated 12.10.2017 has dismissed allegation of abuse of dominance and anti-competitive conduct against NTPC Limited, India's largest public electricity generator (the Opposite Party-"OP") at the prima facie stage.

The complaint ("Information") was filed by , Tata Power Delhi Distribution Limited, the informant, an electricity distribution company (DISCOM) in North Delhi , which has been procuring electricity from NTPC Limited (a power generating company) vide a composite , long term , power purchase agreement ("PPA") executed between the parties on 08.05.2008. The validity of the composite PPA for various existing and future power stations of the OP varied from 15 years to 30 years from the date of commercial operation. Further, the composite PPA also pertained to plants that were yet to be commissioned.

Allegations made by the Informant

It was alleged by Tata Power that NTPC has been abusing its dominant position by imposing unfair conditions in the PPAs executed with the Informant which did not provide an exit clause qua the Informant in the PPAs. Further, it was averred that the OP has been inordinately delaying the commercial operation of its plants for which PPAs have already been signed, thereby forcing the Informant to procure power from its old plants leading to an increase in power purchase costs. Accordingly, the Informant prayed for termination of the PPAs.

It was also alleged that NTPC, while using low grade of coal for generating electricity, has been calculating tariff based on higher grade of coal, which resulted in an increase in retail tariff for the end user. The long term PPA coupled with the absence of a termination clause denied market access and created barriers to entry for competitors of the OP in the market for procurement of electricity.

As per the Informant, by imposing unfair conditions and onerous clauses in the PPAs, including absence of exit clause for the Informant and 15-25 years long duration of the contract, the OP has contravened the provisions of Section 4(2)(a)(i) of the Competition Act,2002 (the Act) . Further, delay in commercial operation of plants and charging of higher rates by the OP for supply of electricity in the National Capital territory of Delhi ("NCTD') is also alleged to be violative of Section 4 of the Act.

In addition to the above allegations of abuse of dominant position, the Informant also contended that the PPAs executed between the Informant and the OP contravene the provisions of Section 3(4) read with 3(1) of the Act as they are creating barriers to new entrants and foreclosing the market. With respect to barriers to entry, it is averred that the capital expenditure of entering the electricity generation market is extremely high and the OP by entering into such PPAs has tied up significant portion of the NCTD market for a long term making it very difficult for new players to enter the NCTD market. Further, due to the PPAs, the Informant is being deprived of market opportunities to procure power from cheaper sources. In addition, the Informant has alleged that the OP's conduct is resulting in foreclosure of market for procurement of electricity by DISCOMs in NCTD. The PPAs which were reassigned to DISCOMs prevented the Informant from entering into fresh PPAs with competitors of the OP, even short term PPAs with it are unviable and inefficient as the DISCOMs would have to pay dual procurement charges as and when the OP's plants achieve their date of commercial operation (COD).

For the purposes of establishing dominance of the OP, the Informant delineated the relevant product market as 'supply of electricity by GENCOs' and relevant geographical market as 'NCTD'. With respect to dominance, the Informant has submitted that the market share of the OP in the aforesaid relevant market has been significantly high since the last 10 years. It has stated the market share of the OP in the above relevant market during the period 2009-2017 to be 50-63%.

Counter Arguments made by the Opposite Party

The Opposite Party countered that the PPAs have been consciously executed by the Informant at the instance of the Government of National Capital of Delhi with the knowledge and consent of the Informant. It was contented that in cases of agreements freely and voluntarily entered into, there can be no question of parties not bound by the terms and conditions of the agreement.

With respect to the allegation of delay in commissioning of plants, the OP stated that it has already made significant investments based on the PPA's entered into.

As regards the issue of higher tariffs due to delay in commissioning of the projects, it was submitted by NTPC that it would be filing a tariff petition before the Central Electricity Regulatory Commission (CERC), which will be considered by the CERC in a transparent process. It was submitted that the CERC will not permit a cost overrun, if it is found by the CERC that the delay in commissioning the project is attributable to NTPC. Additionally, it was contented that the issues raised by the Informant which pertain to determination of tariff are within the regulatory control of the CERC.

CCI's findings

The CCI observed that the PPAs were executed between the parties pursuant to the directions issued by the Delhi Electricity Regulatory Commission (DERC) in 2008 and, therefore, cannot be said to have been imposed by the OP. Further, it was also observed that out of the 11 PPAs in respect of which termination was sought by the Informant, only 4 PPAs were part of the composite PPAs reassigned to the Informant.

CCI was of the opinion that even if it is assumed that the OP was in a dominant position in the relevant market as identified by the Informant, a prima facie case of abuse of dominance in terms of the provisions of Section 4(2)(a)(i) of the Act is not made out in the instant matter because, firstly, the Informant has entered into the PPAs with the OP being fully aware of the terms of the PPAs including the long term obligation stipulated thereunder; secondly, there is a rational basis for binding the Informant and other procurers in the long term PPAs as the generating companies invest in establishing the generating stations based on allocation and the PPAs entered into with the parties (which are to be served through period agreed upon); and lastly, the Informant and other procurers have the option to approach the Central Government for reallocation of power allocated to them.

Further, the CCI noted that the Informant was not bound by the terms and conditions of the PPAs can approach the Ministry of Power, Government of India, for reallocation of power to any procurer in case they do not wish to take power at any time during the operation of the long term PPAs. Therefore, it is apparent that the Informant had an option to exit the PPA albeit by approaching the Central Government.

CCI noted that in the electricity sector, the mandate of determination and regulation of tariff is within the domain of the sectoral regulator i.e. Central/ State Electricity Regulatory Commission; a function that the sectoral regulator performs in accordance with the statutory power vested in it by the Electricity Act, 2003 and applicable rules and regulations. Accordingly, there is nothing left in the matter that needs to be looked into by the Commission.

Held:

Accordingly, the CCI held that there was no abuse of dominant position in terms of Section 4 of the Act. With respect to the demonstrable consumer harm, on account of higher tariffs, it was observed that the mandate of determination and regulation of tariff is within the domain of the sectoral regulator i.e. Central/ State Electricity Regulatory Commission, performed in accordance with the provisions of the Electricity Act, 2003.

Regarding the allegations of Section 3(4) of the Act, the CCI held that the allegations have been made without any substantiation whatsoever. Accordingly, the said allegations were dismissed.

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