Power sector ‘change in law’ disputes see faster resolution

The Indian infrastructure story has been a mixed bag in the last five years. While there is a boom in infrastructure projects, private investment in the sector has fallen short of earlier estimates. One of the principal reasons for the shortfall in private investment across the sector was issues in financing of projects. Another possible deterrent was that investments made so far have been marred by disputes. Time and cost overruns in infrastructure projects due to disputes are critically considered in risk assessments done by the lenders.

One other major issue troubling the power sector specifically is the change in law during the life cycle of a power project. In most infrastructure agreements, a change in law provision exists, which is a standard agreement issued by the Ministry of Power. This provision is important as it deals with changing laws of the country and how it impacts the cost of the power project. If the governing law is amended after the execution of the contract, the parties are obliged to align the contract with the changed law, as held by the Supreme Court in the matter of PTC Ltd v CERC (2010).

Poonam Verma is a partner at J. Sagar Associates. Views are personal.