The Chhattisgarh government has gone back on its commitment to buy 30% of power generated from new plants, which comes as a jolt to private power producers such as GMR Infrastructure and DB Power that have invested heavily in the state.
The state government's move will jeopardise the financial viability of projects being set up at a total cost of about 42,000 crore to generate 7,000 mw power.
"We do not want to buy power from them anymore as we are a power-surplus state," a top official of Chhattisgarh State Power Trading Company (CSPTC) said. "We had planned that we would buy the power and trade it for profit. But since we signed the agreements, coal prices have gone up, so trading margin would be under pressure. Therefore, we now want to get out of the agreements," said the official, who did not wish to be named.
In 2006, the state government had sought private investment by committing to buy 5% of output at a nominal cost that would account for only cost of fuel, and another 30% of output at a tariff determined by the Central Electricity Regulatory Commission. The government signed a memorandum of understanding with power companies that would have translated into projects totalling 60,000 mw. But due to issues such as unavailability of coal, land acquisition and environment clearance, only 20,000-24,000 mw of projects actually took off.The state, through its power trading arm CSPTC, signed power purchase agreements (PPAs) with 21 different power companies, including GMR, DB Power, Visa Power, Moser Baer and SKS Ispat. Over the past few months, the government has been informing these companies individually that it would buy only the 5% power at nominal rate but not the balance 30% at regulated tariff. Executives from some of these companies confirmed the development but declined to comment officially.
"We have put our project on hold after the Chhattisgarh government said it would not buy power from the project. There is no fuel and no market for power, so it makes no sense going ahead with it," said Sanjay Sagar, joint managing director and chief executive of JSW EnergyBSE 2.05 %.
GMR, which was scheduled to commission its project in 2014, and DB Power, which starts operations in October this year, may find it difficult to find new buyers for the power produced by their units given that most of the loss-making power distribution companies are resorting to load-shedding instead of buying power. The price of long-term power on new contracts has increased almost 50-60% in the past two years to about 5 for every unit due to increased fuel prices.
"Chhattisgarh has backed out of PPAs with at least five projects, with a total capacity of around 7,000 mw. It is an arbitrary decision by the state and will distort the pricing of power from these projects and hurt their competitiveness," said Ashok Khurana, director general of the Association of Power Producers.
If these companies sell 5% power to Chhattisgarh at a nominal rate, they will have to make up for the loss incurred on it by passing on its burden to the balance output, making power more expensive and less competitive, industry experts said. India faces a power deficit of about 10%, yet power producers are finding it difficult to sell their output. Beleaguered power distribution companies are refraining from signing new PPAs and managing shortfall by load-shedding.
Source -Economic times