Companies

Corporates hail bringing coronavirus outbreak under force majeure clause

Our Bureau Bengaluru | Updated on February 24, 2020 Published on February 24, 2020

The Ministry of Finance.   -  The Hindu

But Finance Ministry’s move does not entirely excuse a party’s non-performance, points out Mercom report

The Finance Ministry has classified the coronavirus outbreak as a natural calamity, and covered by the force majeure clause (FMC). The ministry has said it can invoke the clause wherever appropriate, according to a Mercom Communications India report.

Mercom, a clean energy consulting firm, said extraordinary events beyond human control, such as wars, riots, crimes and natural calamities, can be classified as force majeure. This clause can free both the parties in a contract from contractual liability in fulfilling their obligations.

However, the ministry has clarified that the clause does not excuse a party’s non-performance entirely — it only suspends it for a period.

In a note, Mercom’s Anjana Parikh pointed out that per one condition of the clause, during any such extraordinary event, the firm must notify force majeure as soon as it occurs, and not claim it ex-post facto (retrospectively). The ministry has further clarified that there may be a force majeure situation affecting the purchase organisation only. In such a situation, that organisation needs to inform the supplier of the necessary action, Mercom said.

“If the performance in whole or in part or any obligation under this contract is prevented or delayed by any reason of force majeure for a period exceeding 90 days, either party may at its option terminate the contract without any financial repercussion on either side,” the ministry notified.

Unsure of fine-print

The Mercom report quoted a clean energy developer as saying: “It’s good that the government has recognised the coronavirus outbreak as force majeure. Since there is no dispute about this any more, the developers do not have to approach the regulatory commissions. But it is unclear how the implementing agencies will take this forward and what kind of extensions will be given.”

Another developer commented: “We will approach the implementing agencies and write to them requesting an extension of the commissioning deadline. Based on the project capacity, the extension given could be three months or more. The implementing agencies will then scrutinise the request and take the necessary decision.”

Energy EPC company Sterling and Wilson, in a BSE filing, mentioned the impact of the deadly virus on the execution of its projects, said Mercom. The company had pointed out that as most materials were expected to be dispatched in February/March 2020, the impact on revenue is expected to be significant.

Impact on revenue

“The management is continuously monitoring and evaluating the impact of revenue and profitability. In spite of all the challenges, our revenues for Q4 FY20 would be ₹15-20 billion (₹1,500-2,000 crore),” said the company.

The National Solar Energy Federation of India had also written to the Ministry of New and Renewable Energy, asking for coronavirus to be seen as force majeure. The association also pointed out that most solar projects are interstate transmission system-connected and delays in commissioning these projects would also result in the levy of transmission charges/point of connection charges by the Power Grid Corporation of India due to the operationalisation of long-term open access (LTOA). Considering this, the association had also requested an extension in the date of the operationalisation of LTOA.

Mercom reported previously that the solar industry is plagued by issues such as delays in Discoms’ payments, difficulty in forecasting and scheduling power, and the looming fear of the coronavirus derailing supply schedules.

India installed 7,346 MW of solar capacity in calendar 2019, a 12 per cent decline from 8,338 MW in 2018, according to Mercom India Research’s newly released Q4 & Annual 2019 India Solar Market Update. About 23.7 GW of large-scale solar projects are under development currently.

Published on February 24, 2020
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