Flawed PPAs doom addl power generation

• Both govt and private players blame each other
• Govt not in a position to supply gas
• Without gas supply private Cos can't supply power at govt rate
• Most of the nine PPAs have landed in courts on various counts
• The problem is attributed to 25-year tenure of PPAs
• There is no provisionA to review the PPAs periodically as in Gujarat

Patan Afzal Babu

Hyderabad: Despite the state government's efforts to promote power generation in a big way in the private sector, power purchase agreements (PPAs) being entered into with the developers for the purpose have become a major impediment for the success of the initiative. Contrary to AP's experience, Gujarat succeeded in achieving surplus power generation through PPAs.

It had become an uphill task for the government to address growing litigation in the implementation of PPAs. The implementation of nine gas- based power plants that were intended to augment the power generation by 2,700 mw was scuttled as the PPAs concerned were challenged in the courts on different counts.

It is feared that the fate of the PPAs for the solar power generation, which the government had initiated as a pet project, may not be different. Experts have been faulting the move for signing the solar power PPAs for a long 25-year tenure. Such agreements, they say, would be more prone for litigation.

The PPAs entered with private developers (Independent Power Projects) by the state government during the last 19 years had provided no significant relief to the state from the even aggravating power crisis. Instead, the private power generation companies have become a burden for the state as well as power consumers.

All the nine gas-based power companies, which signed PPAs with the government, had challenged the agreements in the courts and AP Electricity Regulatory Commission (APERC). The managements of power units were insisting additional payments for power supply from the government giving a strong reason that the cost of power generation escalated with the increase of fuel prices.

The privatisation of power sector began in 1995 in the state when the then Chief minister N Chandrababu Naidu brought reforms in the energy sector by strictly following the World Bank's conditions and taking advantage of the economic reforms introduced in the country in the early 1990s.

Those came forward to join the initiative included GVK, BSES (now Reliance Power), Spectrum and Lanco companies. They entered PPAs with the government and established gas- based power plants by adding 500 mw to the existing 7000 mw capacity in 1995. The companies which enjoyed all facilities, including road, water and other infrastructure, free of cost from the government, started violating the PPAs by not supplying required power when the government informed the units that adequate gas will not be supplied to them due to depleting gas reserves and increased gas demand from different sectors.

Taking advantage of the government's inability to supply gas, the companies violated the PPAs and stopped power supply and diverted power to other states at higher prices. As the issue of PPAs created huge political fight between the government and the opposition, after the change of guard in the state in 2004 election, the then Chief minister YS Rajasekhara Reddy ordered a CID probe into the PPAs with private power generation companies entered during Naidu's rule under pressure from left parties. But, the inquiry report and its findings were not disclosed even after nine years.

The GVK had petitioned to AP Electricity Regulation Commission (APERC) urging to renew the PPA following the increased power generation cost. It informed the Commission that the company would not supply power unless the purchase power is increased. In the PPA, the GVK had agreed to supply power at Rs 3 per unit.A When it comes to implementation, it informed the government that it will not be possible to supply power at that rate. This was all done after the company established the generation unit with the help of the government. Now, the government has no option but to increase the power purchase price.

Energy Expert M Timma Reddy said, every company which entered into PPA was creating trouble to the government in the supply of power. The main objective behind the motive was to cancel the agreements with government and turn the units as merchant power plants which have every right to sell power at the management's discretion.

The PPAs had not helped to tide over crisis anyway but put financial burden on the government which was paying Rs 400 crore additionally to the companies for power supply. Lanco, Konaseema , Vemagiri and Goutami gas power plants approached the courts every time before they were paid money and get orders for additional payments. He said lack of transparency during entering the PPAs was a big stumbling block for the government.

Another Energy sector expert Raghu said that the fixation of solar power price at Rs 6.49 per unit was a welcome move. But, the question is whether the private players will come forward to set up the plants at the government's fixed power cost. A The experts said the only option before the government to streamline the power sector is to encourage APGENCO to set up more plants including solar units through huge public funding and discourage the establishment of private generation units.

In the case of Gujarat, the most industrialised state in Western India, though the power prices are much higher than any other states, it adopted new initiatives achieving speedy completion of project works. It has a re-gasification facility established on the coast ensuring regular availability of RLNG ( Re-gasified Liquefied Natural Gas ). An extra measure of transparency in the execution of PPAs has put Gujarat on top in the country in power generation.

The experts said that In Gujarat, the government and private partners will review the PPAs every two years and enter into fresh agreements depending on the availability of gas and coal to generate power. Whereas in AP, the government had not put any time frame to review the PPAs. The government will review the agreements only when the private companies complained about non- availability of fuels in the market and the government's failure to supply gas and coal as per the PPAs.

They said the power sector in AP has entered a vicious circle of 'power shortages, costly purchases and tariff hikes' with the lopsided policies adopted and the agreements entered by the government. A In Gujarat, no power subsidy was being provided by the government. The whole cost of power generation will be collected from the consumers. This helped a lot to the government and companies in avoiding PPA violations. Whereas in AP, the subsidised power supply put heavy burden not only on government but also consumers in the form of Fuel Surcharge Adjustment (FSA).