Power Dues To Be Deducted From State Plan Funds
The Union power ministry has decided to drop the Power Bond route for funding escrow guarantees for mega-projects and will deduct defaulting states' dues from their annual plans. The group of ministers has approved this proposal and it will shortly be sent to cabinet.
The cabinet is also expected to clear the proposal for creating the Power Trading Corporation, jointly promoted by Power Finance Corpo-ration, PowerGrid Corporation, NTPC and financial institutions.
Under the policy for mega-projects (multi-state power projects with more than 1000 mw capacity), power from these projects will be sold to the Power Trading Corporation that, in turn, will sell it to states. The power ministry had constituted a standing independent group for framing the policy for mega-projects. One of the primary objectives of the group was to work out a mechanism for tariff payment. Although the power producer, by selling power to the Power Trading Corporation, is isolated from risks involved in supplying power to states, the government still has to ensure payment to the Power Trading Corporation.
On a suggestion by the standing group, the ministry was earlier working on a plan to sell power from mega-projects, routed through the Power Trading Corporation, to industrial consumers. These consumers, in turn, would subscribe to the Power Bonds that would fund the escrow guarantee mechanism.
The proposal, however, faced resistance from state governments, especially Tamil Nadu, because the industrial consumer base used to calculate the escrow requirements for the mega-projects was the same as that used by states to calculate their escrow capacity.
Under the new proposal mooted by the power ministry, the Power Trading Corporation, which will supply power to state electricity boards, can recover states' outstanding dues from the devolution from the central pool.
The standing group is working on a model power purchase agreement that will have all the approvals from the state and central government before it is offered to the power producers. The standing group has also recommended the lifting of customs duties for import of equipment for these projects as well as extending the tax holiday from five to 10 years. The mega-projects are in Gujarat (Pipavav), Andhra Pradesh (Krishnapatnam) and Tamil Nadu (Cuddalore), adding to a capacity of around 5000 mw.