The Hindu Business Line : Finance Ministry against payment security to pvt power generators

THE Finance Ministry has strongly opposed the Power Ministry's proposal to secure payment for power sold by new private power projects to bankrupt State electricity boards.

According to the proposal, the power produced by the private players will be bought by public sector power undertakings on a committed basis. Thus, insulating the private player from the risk of collecting its revenues from bankrupt state electricity boards or their successor entities.

The Finance Ministry in a recent letter to the Power Ministry has termed the proposal as one having "explicit and implicit sovereign guarantees of payment" and has argued that it "goes against the policy of not providing any sovereign guarantees for private power generation projects."

The Power Ministry has said, "payments by State electricity boards (SEBs) to Central power sector companies like National Thermal Power Corporation (NTPC), are fully covered by a legally enforceable power purchase agreement with current payments reaching close to 100 per cent." The Finance Ministry, in a critical note, has elaborated on the legally enforceable agreement - a tripartite agreement between the State electricity board, the Reserve Bank of India and NTPC, whereby in case of payment default, the RBI directly pays NTPC from the State Government account held by it.

"The tripartite agreement is a special arrangement conceived to discipline the SEBs, and is confined only to Government entities. ... It was never envisaged that the scope would be extended to cover payments for power sourced by central public sector undertakings from private power projects under the proposed build own operate transfer (BOOT)/build lease operate transfer (BLOT)/build own operate (BOO) options," the Finance Ministry has noted.

The Power Ministry has proposed that the private sector could set up projects up to a capacity of 10,000 MW under this route through the BOOT, BLOT or BOO process.

Justifying the `private-public sector partnership', the Power Ministry has argued in the Cabinet note that given the weak SEB position, "there is danger that a part of the target of 7,121 MW expected from the private sector may not materialise during the Tenth Plan period."

In this regard, the Finance Ministry has critically argued that "private power projects should base their projects on the power sector reforms and should bear the normal commercial and revenue risks attendant in such projects". It has further added that "The proposal (Power Ministry's) seeks to tackle the supply side problem while the real problem is at the distribution end. Hence, instead of forcing the pace for generating more power, the appropriate course of action would be to focus on distribution reforms which in turn will automatically result in augmentation in power supply."

In regard to the involvement of the Central power sector undertakings, the Finance Ministry has said, "The proposal envisages an unnecessary role for Central sector power generating companies, who would purchase power from private sector and sell the power to SEBs. Central sector power companies would not benefit in any manner, but would instead expose their balance sheet to revenue risk, which may adversely affect their borrowing capacity as well as future investments."