Ministry Okays Model Power Purchase Pact

A copy of the report, prepared by a team of top consultants, has been forwarded to the power ministry. The finance ministry had initiated the task about a year ago, following the submission of a report by an international consultant.

The Mathrani report, as it came to be called, laid down the basic principles of a power purchase agreement.

It was then felt that with state governments going in for a host of memoranda of understanding with private power producers, a basic framework for a PPA should be laid down.

The model PPA worked out by finance ministry has three basic elements:

 

the obligations of the supplier, in this case the private producer;

the obligations of the consumer, innn this case the SEB; and

the underlying risks relating to the project.

Often, the structuring of the agreements is very complex. As ministry officials explained, in the PPA, besides the tariff rates, it has to be ensured that the contract looks at all liabilities, even the issue of force de jure and third-party liability.

Ministry officials maintain that by employing the PPA, the entire transaction would become more transparent.

It may be recalled that the then government had got embroiled in a controversy over the PPA negotiated with the MSEB for the Dabhol power project. Subsequently, this experience was repeated in the case of Cogentrix in Karnataka and the 420mw project by AES Transpower in Orissa.

Thereafter, the finance ministry employed a team of international consultants along with the services of SBI Caps for vetting the techno-economic feasibility of all future contracts entered into by the government, including PPAs for the remaining counter-guaranteed power projects.

Simultaneously, the group also worked on the model PPA.

The ministry also procured funding for the project under technical assistance from the World Bank. Prior to this, the practice was to occasionally employ private consultants.

This is over and above the internal framework evolved by the ministry to vet the feasibility reports on projects.