Cost-plus cover for NTPC stymies power sector revival

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New Delhi | Updated: October 14, 2019 4:55:25 AM

Private players had cried foul and lodged complaints to the Central Electricity Regulatory Commission (CERC) claiming that PPAs were signed "with a clear intention of bypassing the impending competitive bidding requirements".

public sector power generators india, NTPC, dues on discoms in india, NLC India, THDC India, NHPC, Damodar Valley Corporation, Adani Power, Bajaj Group owned Lalitpur Power Generation Company Ltd, GMRAccording to Union power ministry web portal, as on October 7, Madhya Pradesh procured most power from power plants where fuel costs were between `0.59 per unit — `2.53 per unit.

Even as a dearth of new power purchase agreements is stalling many under-construction and existing private power units, the virtually exclusive regime of cost-plus tariffs for the state-run NTPC is further undermining their ability to commence operations or operate at higher capacities.

In the latest instance, NTPC’s sourcing of coal from mines located 1,100 km away in Jharkhand for its 1,200 MW Khargone plant in Madhya Pradesh is seen to raise its fuel cost, resulting in many states, including MP, having to pay the state-run firm despite them not sourcing electricity from the unit.

According to a recent note by research firm Motilal Oswal, thanks to the `1,500 crore invested by NTPC to ensure smooth rail connectivity from its Pakri Barwadih mines, Khargone’s fuel costs would be around `3-3.3 per unit, resulting in final tariffs of more than `5 per unit. However, responding to FE’s query, NTPC said the variable cost of Khargone unit, based on the linked coal, would be around `2.8 per unit, adding that the total tariff would be lower than `5 per unit.

In FY19, the average rate at which Madhya Pradesh bought non-renewable power was `2.83 per unit.

Madhya Pradesh would buy 50% of the power generated from the Khargone plant, Gujarat 19% and rest would be sold to Chhattisgarh, Maharashtra, Goa. While placing requisition for electricity, discoms follow a ‘merit-order’ — wherein plants with low fuel-cost get top priority — from its own portfolio of contracted stations. However, under contractual obligation, discoms have to continue paying fixed cost to thermal power plants for the recovery of capital expenses even when they do not procure electricity during periods of low demand.

According to Union power ministry web portal, as on October 7, Madhya Pradesh procured most power from power plants where fuel costs were between `0.59 per unit — `2.53 per unit. On that day, it did not procure any electricity from NTPC’s Mauda-1 unit, where the fuel cost is `3.21 per unit.

Ashok Khurana, director-general, Association of Power Producers (APP), told FE that “since NTPC bears no risk from its projects covered under the cost-plus mechanism, apart from consumers who would pay high tariffs for its inefficiencies, the situation is also adversely affecting private power players who are in dire need of power purchase agreements (PPAs)”.

Khurana argued that private power producers recently quoted fuel charges of `2.21 per unit in the Central government’s latest auction for 2,500 MW power capacity, in spite of the bidding conditions being adversely designed to recover coal costs.

The PPAs for the Khargone plant were part of 37,000 MW capacity (21 projects) which NTPC tied up with various states in three months before the January, 2011 deadline, after which it became mandatory for power generators to sign PPAs through bidding.

Private players had cried foul and lodged complaints to the Central Electricity Regulatory Commission (CERC) claiming that PPAs were signed “with a clear intention of bypassing the impending competitive bidding requirements”. They also alleged that NTPC was eager to sign PPAs on a cost-plus basis because it was quoting tariffs much higher than its private counterparts in contemporary competitive bidding instances.

NTPC had denied such allegations arguing that the tariffs were fixed by the CERC on the basis of designated norms, and low quoting bidders often demand tariff revision, which contradicts bidding conditions. The CERC had ruled in 2013 that all the PPAs signed by NTPC were in compliance with the terms and conditions of the tariff policy.

About 8,000 MW of commissioned private power plants are currently stressed due to lack of assured markets via PPAs.

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