Indian Bank's Association (IBA) has sought the power ministry's intervention to ensure that electricity tariffs are not renegotiated as that would hurt economic viability of projects and may lead to rise in bad loans.
Indian Bank’s Association (IBA) has sought the power ministry’s intervention to ensure that electricity tariffs are not renegotiated as that would hurt economic viability of projects and may lead to rise in bad loans. “Cancellation/renegotiation of power purchase agreement (PPA) is contrary to basic premise of long-term loans extended on the strength and security of PPA at fixed price. Banks have assessed the viability of projects at the price contracted in PPA. “If state governments back track on their PPA commitments, related projects would be become unviable and the underlying loans may not be services rendering useful productive assets to be wasted,” IBA said in a letter written to Power Secretary earlier last week.
It draws attention toward states-owned power discoms which are looking to cancel or renegotiate the PPAs with coal based and renewable energy developers on the ground that tariffs contracted earlier were very high. Citing an example, it said that Uttar Pradesh has recently cancelled a few PPAs and also there were instances in the past where the developers were asked to voluntarily offered discount over the quoted tariff to facilitate of offtake from their plant. It further said the risk related to such tariff revision in the renewable sector is much higher and pointed out that in the recent auction for wind power projects some states have started renegotiating for downward revision of tariffs.
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The IBA has asked the power ministry to take up issues concerning power sector with the state government and discom and ensure that PPAs are neither cancelled nor renegotiated. “Tariff including feed-in tariff should not be revised downwards after signing PPAs or after a project is set up under the state policy,” it stated. States, IBA said, should be asked to honour commitments to renewable projects implemented under the state policy by executing PPAs/procuring power in a timely manner. It said that developers should not be pressurised to voluntarily offer reduction in tariff as it affects loan repayments decided on the basis of agreed price.