The central government has put forward a proposal whereby states can buy electricity from projects that are currently stuck without any power purchase agreements (PPAs), but are able to quote low rates. Under the plan, existing suppliers will get paid assured rates, states will get power cheaper and new projects will become operational, thus helping them generate a cash flow.
According to a report by a parliamentary committee, there are 34 stressed coal-based power projects. These include projects of JP Power, GMR and Essar. The 34 projects have a total capacity of 40,130 MW — 24,405MW commissioned and 15,725 MW under construction. The total outstanding debt in these 34 stressed projects is Rs 1,74,468 crore.
According to government sources, the Centre plans to put forward a scheme that will enable stressed power plants to enter into PPAs and sell electricity in state auctions. The more efficient among these power plants can compete by quoting a single variable rate. States will agree to buy from them if this single rate plus the fixed cost that states pay to existing suppliers is less than their existing cost.
This is a departure from the standard PPA where the state pays a fixed and variable component. The fixed component is paid irrespective of whether the state buys the power or not. It is expected that new projects that are close to coal pit heads and are more efficient will be able to sell electricity at rates that are competitive even after states pay out the assured return that they have promised existing suppliers.
One of the key challenges right now is the RBI’s February circular, which prevents banks from changing the terms of existing loans through restructuring in order to give borrowers more time to repay. Under the new norms, banks classify a borrower as a defaulter even if the final deadline is missed by a day. These defaulters cannot sign PPAs with states and, without PPAs, they cannot get coal supplies.
Without a solution, all these projects would have to be put on the block. The power ministry has been seeking a meeting with the RBI to thrash out a solution. However, a meeting planned for last week was rescheduled.
