New Delhi: Jyotiraditya Scindia, minister of state for power with independent charge, admitted to the difficulty in getting companies that have been allotted captive coal blocks to sign the so-called power purchase agreements (PPAs) with state-owned power distribution companies (discoms) due to the weak financial status of the discoms.
Power distribution companies are finding it difficult to raise working capital and owe Rs.2.46 trillion to banks and financial institutions.
The power ministry proposed the signing of PPAs to ensure that power generation companies that are allotted coal blocks do not profiteer by selling the so-called merchant power at high market prices.
In a typical PPA, pre-identified customers get electricity at a cheaper price for a long period.
The plan hasn’t made much progress as state discoms are not offering PPAs due to their weak finances.
“I am very clear that if anyone has been provided a captive coal block for power generation, a PPA should be signed. But, however, there are no PPAs that are being offered,” Scindia told reporters on Friday. “It is easier said than done because the state governments have to put out the tenders for competitive tariff-based biddings. As you have seen that Uttar Pradesh and Rajasthan have done so in the recent past.”
The power ministry’s demand to make block owners sign PPAs or lose the mines comes in the backdrop of the Comptroller and Auditor General’s (CAG) report alleging a notional loss of Rs.1.86 trillion to the exchequer from irregular allocations of coal mines for captive use.
“All of this is a vicious circle. In the conference of the state power ministers, I have said that at least 80% to 90% of our base load should be in the form of PPAs,” Scindia said.
“Now the reason that doesn’t happen is because the financial health of the discoms are in a precarious stage, which means that the states would prefer in general to resort to loadshedding or for intermittent needs for power contract and buy short-term power rather than contracting long-term power. So I think you need to get to the genesis of the problem. The genesis of the problem is eventually the financial health of the discoms,” he added.
To help the discoms, the government has planned a bailout package for debt-laden discoms through a revamp of short-term loans.
A transitional funding mechanism for the bailout will be finalized shortly.
Analysts also blamed the delay in finalizing the standard bid documents (SBDs) for power plants that are being developed through the so-called case 1 or case 2 routes, which, in turn, have delayed the PPAs.
“The delay in issuing revisions to SBDs has lead to a hiatus of case 1 and case 2 bids, which, in turn, has affected the signing of PPAs,” said Shubhranshu Patnaik, senior director-consulting (energy and resources) at Deloitte Touche Tohmatsu India Pvt. Ltd.
The government plans to finalize the SBD for case 2 projects shortly.
The bids for power procurement are sought in two ways.
In case 2 bidding, such as the one for ultra mega power projects, or UMPPs, resources such as land, fuel and water linkages are identified and, in some situations, also provided to the developer quoting the lowest power tariff.
In the case 1 model, the quantity and time of power procurement is identified, but fuel type, sources and the location of the plant are not specified.