Tn To Reopen All Power Purchase Agreements

The Tamil Nadu State Electri-city Board (TNEB) is re-opening all power purchase agreements (PPAs) signed with power producers in order to allow a larger number of projects access to safeguards provided by the state government.

The re-opening of the PPAs has taken power developers in the state by surprise. The process, which has already been initiated, includes the re-opening of PPAs already signed as also those which have only been initialed by the Board and developers.

The move is aimed at reducing the escrow cover (wherein TNEB revenues have been pledged to the power producers) that has been extended to power projects. The state governments strategy is to spread the escrow facility such that 4,000 mw worth of power projects can now be covered as against the earlier figure of only 2,200 mw.

 

Sources said that the Board also wanted to extend uniform escrow cover to all the power projects in the state. While some projects like PPN Power and the Basin Bridge project have been given an escrow cover of 60 days receivable as buffer revenue, other projects like Videocon Power promoters of the 1,000 mw North Madras power project have only been given a 37-day receivable.

An escrow arrangement bet-ween the promoters of a project and the Board is made to mitigate the risks involved in ensuring a regular cash flow towards the project for the sale of power.

The TNEB has also raised objections on issues such as the heat rate, which is a crucial figure that appears in all PPAs and indicates the amount of fuel that would be required to generate a unit of electricity from the project.

The heat rate, in turn, has a bearing on the final tariff at which the Board buys power. A higher heat rate would mean that larger quantities of fuel would be required to generate power which then increases the variable cost of the project.

In the case of the Apollo Hospital-promoted 330 mw PPN Power project the PPA for which has already been signed the Board wants to renegotiate not only the heat rate but also the escrow cover and forex risk factor.

On foreign currency cover for the project, the Board wants to restrict it to just three days from the date of payments instead of from the date of actual remittance to the developer. The board had initially agreed to absorb the entire exposure.

The Union ministry of power had, in one its earlier notifications, set a maximum ceiling on the heat rate (at 2,500 kcal per unit for coal-based projects). This meant that power producers could recover fuel charges up to the level of the ceiling.

The Board, however, feels that the heat rate specified in the notification was set at a very high level, providing developers with the undue advantage of leveraging an over-charge on the variable cost component, thereby increasing returns.

The CEA had later issued a notification indicating a lower heat rate (around 2,010 kcal/unit) for all new projects initialed since October 1, 1997. Based on these figures, as also the NTPC rates of around 2,200 kcal per unit, the Board now feels that the heat rate should be reduced in the PPAs of projects which had been contracted on the basis of the earlier notification.