Reliance Power (RPWR) announced that it has terminated its 25-year power purchase agreement (PPA) with 18 discoms to supply electricity from its 3960MW Tilaiya Ultra Mega Power Project (UMPP) in Jharkhand. RPWR was awarded the Tilaiya UMPP in February 2009 via tariff-based bidding; the UMPP was allocated Kerandari B/C coal blocks for sourcing fuel.
RPWR states that in this context, the entire project (3960MW) cannot be completed before 2023-24, and accordingly in accordance with the provisions of the PPA, it has decided to terminate the PPA. The termination will reduce RPWR’s future capex by R36,000 crore.
According to management commentary the PPA termination becomes effective seven days from the date on which the termination notice is served. As with any contract, both parties have the right to seek legal recourse, but it is emphasised that the PPA termination notice has been served as per the provisions of the PPA.
There will be no penalty / liability on RPWR as the PPA termination was triggered by the procurers’ non-performance of stipulated obligations.
The project SPV will be taken over by the procurers, who will refund RPWR’s investment to date (R300 crore) in the SPV and release the bank guarantee submitted by RPWR for the project.
The decision to terminate the PPA is a well-considered move; it is not a ploy to force procurers to expedite and fulfil their obligations.