In a significant ruling that has implications for power procurement processes in Kerala, the Supreme Court recently dealt with the challenges faced by the Kerala State Electricity Board Limited (KSEB) in procuring power through competitive bidding. The Court’s decision, delivered on 26 July 2024, follows a complex series of events that began with KSEB’s attempts to meet the state's growing electricity demands.
Background: KSEB's Power Procurement Bidding Process
To address power shortages, KSEB initiated two separate tenders under Section 63 of the Electricity Act, 2003, inviting bids for the procurement of 450 MW and 400 MW of electricity. The tenders attracted multiple bids, but the situation became complicated when the highest bidders (L1 bidders) did not offer to supply the full amount of power. The first L1 bidder agreed to supply only 200 MW of the 450 MW required, while the second L1 bidder committed to just 100 MW out of the 400 MW requested.
Faced with this shortfall, KSEB turned to the lower bidders (L2 to L5) to fill the gap. In the first tender, no other bidder was willing to match the L1 bidder’s price, so KSEB accepted an offer from the L2 bidder for 115 MW at a slightly higher tariff. In the second tender, the L2 to L5 bidders all agreed to match the L1 bidder’s tariff, and KSEB accepted their offers, leading to a total procurement of 550 MW, well beyond the original 400 MW requirement. In total, seven power supply agreements (PSAs) were signed for 865 MW of power.
However, the process raised regulatory concerns. The Kerala State Electricity Regulatory Commission (KSERC) observed that KSEB had deviated from the Ministry of Power’s standard bidding guidelines and had failed to obtain the necessary prior approvals from the government for these deviations. As a result, KSERC only approved the tariffs for the L1 bidders and deferred approval for the rest, citing the need for further scrutiny by the central government.
KSERC’s Initial Rejection and Subsequent Review:
Despite the provisional procurement of power under the unapproved PSAs, KSEB continued to face issues with tariffs, especially concerning the fuel surcharge rates for some of the agreements. In 2020, when the issue came before KSERC, the Commission did not approve the fuel surcharge and directed KSEB to limit payments to the rates of the L1 bidders until formal approval was granted.
This dispute eventually reached the Appellate Tribunal for Electricity (APTEL), and in parallel, KSEB filed a petition for final approval from KSERC. On 10 May 2023, KSERC rejected the PSAs, citing that the bidding process lacked transparency and was in violation of standard bidding guidelines, which led to an unjustified tariff structure.
Kerala Government Steps In:
In an attempt to resolve the deadlock, the Government of Kerala invoked its powers under Section 108 of the Electricity Act, directing KSERC to reconsider its decision. The state government emphasized the public interest in approving the PSAs, warning that rejecting them would result in KSEB having to procure power at much higher rates, leading to financial hardships and an impending power crisis. The government’s policy directive effectively sought to override the procedural concerns raised by KSERC.
Following the directive from the state government, KSEB withdrew its appeal before APTEL, which allowed the withdrawal but also gave KSEB the liberty to seek review jurisdiction from KSERC. In December 2023, KSERC reviewed its earlier decision and, in line with the government’s directive, approved the four PSAs, citing public interest as a key factor.
The APTEL Challenge:
Two power generators, Jhabua Power Limited and Jindal India Power Thermal Limited, challenged the revised approval before APTEL, arguing that KSERC had acted beyond its powers in revising its decision solely based on the government’s directive. APTEL agreed with the petitioners, finding that KSERC’s review had failed to meet the legal threshold for review under Order XLVII Rule 1 of the Code of Civil Procedure (CPC). The Tribunal pointed out that KSERC’s review lacked any substantive error in its previous order and was based solely on the state government’s policy direction, which could not compel KSERC to alter its quasi-judicial decisions.
APTEL further reinforced that the KSERC is an independent regulatory authority and is not bound by state government directives when exercising its adjudicatory functions. It also emphasized that the tariff-setting functions of KSERC under Sections 62 and 63 of the Electricity Act must be carried out transparently and in accordance with standard bidding guidelines, which was not the case here.
The Supreme Court’s Ruling:
The Supreme Court upheld APTEL’s decision, agreeing that the Kerala government’s directive under Section 108 could not override the independent quasi-judicial functions of KSERC. The Court clarified that while the state government can issue policy guidelines, it cannot interfere with or compel KSERC’s tariff-setting functions, which are governed by the Electricity Act. The Court also stressed that a policy directive cannot displace the need for a transparent, fair bidding process.
However, while agreeing with APTEL’s findings, the Supreme Court allowed KSEB’s original appeal to be restored, clarifying that the appeal filed by KSEB against the original order of KSERC (dated 10 May 2023) could still be pursued. The Court made it clear that the appeal would be considered on other grounds not previously covered by the APTEL ruling, ensuring that the matter would continue to be heard in detail.
Implications for Power Procurement in Kerala:
This case highlights the complex intersection of regulatory authority, government policy, and public interest in the energy sector. While the Kerala government’s push for power procurement in the state’s interest is understandable, the Court’s ruling reaffirms the importance of maintaining transparency and fairness in the bidding process, especially when it involves public resources and long-term financial commitments.
As KSEB’s appeal is now restored for further consideration, it remains to be seen how the regulatory and judicial bodies will navigate the balance between urgent power procurement needs and adherence to established procedures and guidelines.
ELECTRICITY ACT, 2003
