UP cancels 'costly' power agreements inked by SP govt

While average power price in country has gone below Rs 3 a unit, UP sources power at higher rates

The Yogi Adityanath-led Uttar Pradesh government has cancelled the long-term power purchase agreements (PPAs) for 3,800 megawatts (Mw) as the cost of power under these pacts was higher than the spot market prices, official sources said.

The previous Samajwadi Party government signed the 15-year contracts with Jindal Power, JP-Nigeri, Lanco, Adani Power, GMR and JSW. Against the 3,800-Mw demand, the SP government had received bids for 6,652 Mw in the price range of Rs 3.9-5.5 a unit. The state was currently procuring 3,882 Mw at Rs 4.06 a unit.

Business Standard reported last week how the power distribution companies in UP were making huge losses due to high cost of power procurement.

While the average power price in the country has gone below Rs 3 a unit (including short-term market), UP continues to source power at higher rates. It sourced around 4,000 million units (MUs) in the last year for Rs 4.2-4.9 a unit from costlier power stations. This is half of the monthly power demand of the state.

“Long-term power purchase agreement assures long-term procurement of the power from the power station as well as its financial viability. Cancellation of the bids, in our opinion, is a setback to the power sector, which is facing problems on several fronts,” Angel Broking said in its report.

The total variable cost paid by UP during April-December 2016 was close to Rs 1,690 crore to procure 3,962 MUs at an average cost of Rs 4.5 a unit from various power units. All the cost is passed on to the consumers.

Shrikant Sharma, state power minister, told Business Standard: “We would participate in the bidding on DEEP (Discovery of Efficient Electricity Price, the Union power ministry’s e-bidding and e-reverse auction portal for procurement of short-term power by discoms). The benefit would be passed on to consumers.”

Of its total power drawn of 9281 MW, UP sources 4,225 Mw from inter-state generating stations, 228 Mw from long-term agreement, 364 Mw from medium-term agreement, 150 Mw through bilateral trade, 26 Mw as shared agreement. 

The state currently procures no power from power.