Apseb In The Dark

It is known that Andhra Pradesh is close to bankruptcy and the state desperately needs investment. However, this has not prevented the state from shooting down eight short gestation independent power projects (IPPs), totalling 1623mw of power generation.

The APSEB has forwarded final and non-negotiable power purchase agreements (PPA) to the independent power projects. The conditions laid down in the power purchase agreements were such that they were bound to be rejected.

One of the condition was that the independent power projects would be required to pay liquidated damages of Rs 50,000 per day for the first 180 days of delay and Rs 3.5 lakh per day for any delay beyond this period for each 100mw of the plant capacity.

 

This is fair enough as power is one sector where highest number of mega-projects have been announced and very few have gone beyond the drawing board stage.

The first point of dispute relates to the zero date independent power projects are insisting that the zero date should begin from the date of fuel linkage but the Andhra Pradesh State Electricity Board insists that it begins on completion of six months from the date of signing the PPA.

The argument is not fair. Neither gas, naphtha or coal is available. Since fuel linkage can take a very long time, the actual period can never be predicted.

The Andhra Pradesh State Electricity Board also insists that escrow account facility will be provided only at the time of financial closure.

Here also, no agency (not even financial institutions which are not choosy about finance) will ever finance power projects in Andhra Pradesh without the guarantee that payment will be made for power.

The enviable record of the state electricity boards has ensured this.

The IPPs demand that in the event of grid failure the lost time should be considered as deemed generation is a fair one. For instance, the PPA signed by the Gujarat State Electricity Board with the Gujarat Industrial Power Company clearly states that the extent of backing down as ordered by the state electricity board should be treated as deemed generation. However, APSEB is against this demand.

Furthermore, APSEB states that a rebate of 2.5 per cent should be granted on early payment by the state electricity board . However, the IPPs have nothing to fear on this front. Considering the track record of the state electricity boards, an early payment is unlikely. But to be on the safe side, the IPPs have insisted that the rebate should be restricted only to the fixed costs as the fuel cost is almost always adjusted through fuel adjustment charges. The APSEB also needs to realise that fuel consumption is on a normative basis under a two-part tariff formula.

It may be recalled that even the Hindujas have threatened to pull out of the 1,040mw Vizag project due to delay in finalisation of the power purchase agreement. The state it seems is gearing itself to be like Calcutta of the early 80s.