Generating cos cant pull plug over non-payment

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Feb 15 2013, 06:21am hrs
In a move that exposed a key regulatory lacuna in the power sector, the Power Grid Corporation of India (PGCIL), the central transmission utility, stymied the attempt by some generating companies, including NTPC and Tata Power, to snap supplies to discoms failing to honour the payment security mechanism under the power purchase agreements (PPAs). According to official sources, the regional load dispatch centres (LDCs) under PGCIL have informed the generating companies that until and unless the buyer refuses to lift power, it would not disconnect supplies to the non-compliant discoms.

This has put power producers in an unenviable position and one of them, a source privy to the matter said, has approached the judiciary for remedy, although the company concerned did not confirm this to FE. On its part, the Central Electricity Regulatory Commission said the matter was yet to reach it, while the power ministry has refused to intervene. The power ministry is not party to the PPA, Ashok Lavasa, additional secretary in the ministry, told FE.

It is not possible for the generators to cut production and refuse to give power to errant discoms because under the relevant regulations, even if they reduce generation, the LDC would proportionately distribute power to all the allocatees.

The problem is that while the PPA does have provisions for disconnecting supply to an existing allocatee and making third-party electricity sales in the event of payment default, it does not have any explicit provision to force LDCs to disconnect power supplies even in case the generator wants to snap supplies.

Apart from NTPC and Tata Power, public sector Damodar Valley Corporation (DVC) and and Lanco have of late put pressure on discoms delaying payments. While Lanco has stopped generation at its plant in Udupi, Karnataka, DVC is planning to issue a notice to Delhi discoms BSES for payment delays.

As reported earlier, Tata Power, which bid aggressively for the Mundra ultra mega power project on the assurance of a guaranteed payment security mechanism, has discovered to its surprise that the PPA signed for the project is not as effective as it was advertised. The private developer has failed to get the LDC concerned to act on its request to snap electricity supplies to Rajasthan government-owned power distribution companies. The LDC, to Tata Power's dismay, asked for the consent of the discoms, a move that experts say could render the entire payment security mechanism in the PPA inoperable.

The PPA provides a three-tier payment security mechanism a letter of credit or LC, escrow account and state government guarantee to ensure timely payment to power producers.

But Rajasthan discoms have neither opened LCs nor have they an escrow account in place, sources said.

Tata Power has sought the intervention of the power ministry to ensure implementation of its power regulation notice, issued on January 3. The LDC was required to disconnect power supply by midnight of January 6. This is the first time the PPA was tested on payment security and failed, said an industry source.

This could also weaken the case of NTPC, which recently issued a similar supply termination notice to BSES.

When contacted, CERC chairman Pramod Deo said: We can hear the matter (implementation of pending power regulation notice to Rajasthan discoms) only when they (Tata Power) bring it to us.

In a plea to the power ministry, Tata Power had contested the LDC's contention that even to initiate the power regulation process, the consent or approval of the defaulting discoms must be secured. Such a policy would render the PPA invalid, said the company. We have given notice regarding discontinuation of supply to Rajasthan discoms with a copy to the LDC. We are waiting for the LDC to act as per our letter,a Tata Power spokesperson told FE.

The experience of the Mundra UMPP brings out the lacuna in meeting the intent of PPA. We need to provide a mechanism to ensure that once the process of termination has been set in motion and the aggrieved party approaches the LDC, the supply to the defaulting party should be suspended, said Ashok Khurana, director general, Association of Power Producers, who has written to the power ministry in this regard on behalf of private power companies. The CERC (Regulation of Power Supply) Regulations, 2010, provide for regulating power supply to discoms in the event of payment default. But Tata Power will have to petition the regulator.

Most discoms in the country are in dire straits due to their inability to hike tariffs in a timely and adequate manner. The combined losses of discoms are estimated to have crossed Rs 2 lakh crore. All the promises of power distribution reforms have slipped to the background in last few years, resulting in chaotic conditions. As a result, the confidence of developer and lender is at the lowest, said RV Shahi, former Union power secretary.