The Yogi Adityanath government in UP has decided to press the ‘undo’ button for power purchase agreements (PPAs) with a clutch suppliers to reduce discoms’ costs but the move could open Pandora’s box for lenders by adding to their NPAs (non-performing assets) as other states pick up the cue.
In its first salvo, Uttar Pradesh Power Corporation Ltd (UPPCL) has served termination notice for Bajaj Energy Pvt Ltd’s 90 MW Kundarhki station in Gonda district. The PPA was signed in December 2010 and the station supplied 422 million units in 2016-17. Sources in the know told TOI more such notices are in offing, including to state-run NTPC’s gas-fired plants at Anta, Auraiya and Dadri.
This is the latest stroke by the Yogi government in its ongoing spring cleaning of the state’s power sector and focuses on purchase of power from plants set up through the MoU (memorandum of understanding) route. As first reported by TOI on June 1, the state has pulled the plug on projects aggregating 7,000 MW capacity that were yet to take off and cash bank guarantees worth Rs 350 crore.
UPPCL notice says Kundarhki power cost an average of Rs 7.11 per unit against an average Rs 3.80 procurement tariff approved by the regulator. The notice says UPPCL cannot buy power at this rate since it has signed the Centre’s ‘Power for All’ document, binding it to reduce costs.
The move to scrap PPAs with projects that were set up through the MoU route during a period of shortage comes as part of the Yogi government’s efforts at limiting power purchase cost to Rs 4 per unit. The sources said UPPCL has been pressing all suppliers to reduce tariff through measures such as taking a haircut on ROE (return on equity) and forgoing margins.
Industry representatives told TOI such large-scale cancellation of PPAs will render unviable the power projects that are still servicing their debt and could easily end up adding Rs 1-2 lakh crore to the banks’ NPAs. The termination, without any provision in the agreement, runs contrary to the Supreme Court’s view, taken in the tariff revision case for Tata and Adani group’s Mundra projects, on the sanctity of PPAs.
Government officials said the promoters should see the writing on the wall as the country is surplus in power and ther’s plenty of cheap power on the exchanges. But industry representatives countered, saying the periodic “surplus” on power exchanges cannot ensure long-term supply security and the government should come out with a uniform policy for periodic revision of all PPAs — for both upward or downward tariff revision — and simultaneous reduction in interest as well as extension of repayment period wherever required.