34 power projects in distress; Centre not to bear NPAs 

34 power projects in distress; Centre not to bear NPAs 

Context

Chhattisgarh accounts for 10 of the projects; government says contracting parties must honour the PPAs even if conditions turn difficult

Backdrop

Last week, the Ministry submitted a list of 34 such projects to a parliamentary panel on energy. Ten of them are in the BJP-ruled Chhattisgarh.

Detailed questionnaire

The panel had posed a detailed questionnaire to the Union Ministries of Power, Coal and Finance, the Reserve Bank of India, the lender banks and the developers. While many of the questions were answered, the government continued to refuse to reveal the exact amount that these projects owe to the banks.

Government’s Reply

In its reply, the government has all but shrugged off the responsibility of the high levels of non-performing assets (NPA) in the power sector.

• The decision to set up a power plant is taken by concerned developer based on his own assessment
• The developer has to arrange all inputs like land, water, necessary clearances, sale of power under the power purchase agreement.
• In case of power sector, over-projection of demand of electricity accompanied with the aggressive bidding decision were made by the developers and hence some of them are running in profit and a few are in loss

Blaming the bidders

The government was vociferous in blaming the bidders of such projects, saying they should have known about the costs and efficiencies prior to bidding and quoting the low tariffs that they did.

Coal not available

The government accepted that one of the top reasons for financial stress in thermal power projects is the unavailability of fuel arising due to the cancellation of coal blocks

Contracting parties obliged to adhere to PPA

It has been observed that the contracting parties are obliged to adhere [to] the terms and conditions of the PPA even if it becomes onerous to one of the parties to perform the contract due to change in market or other parameters subsequent to the signing of the PPA if such change is not covered by the provisions of the PPA

Developers beg to differ

In their answers, they have almost uniformly stated that the delay in the projects is due to reasons beyond their control

Example

• In its reply, IDFC Bank, which has financed R.K. Powergen in Chhattisgarh, says that though the plant was initially to be set up in Tamil Nadu, it was shifted to Chhattisgarh on the Ministry’s recommendation.
• The company signed an MoU with the Chhattisgarh government in 2005
• The company was allotted a coal block in 2008. This allocation was later cancelled by the Supreme Court
• The Chhattisgarh government also refused to honour the PPA. “The government has been resorting to coercive measures pressuring the company to cancel the PPA,” the bank said.

SHAKTI

The Ministry says SHAKTI, or Scheme for Harnessing and Allocating Koyla (Coal) Transparently in India, will provide “substantial relief” for six of the 34 projects.