The Hindu Business Line : NTPC plans to invoke payment pact as Bihar defaults

NATIONAL Thermal Power Corporation (NTPC) is planning to invoke its payment guarantee mechanism with the State Governments for the first time since it was signed last year.

This follows the default by the Bihar State Electricity Board (BSEB) to the tune of Rs 200 crore since October last year.

NTPC, represented by the Power Ministry, has recently written to the Finance Ministry in this regard.

Last year, as part of a settlement scheme, NTPC waived a portion of the past surcharge dues owed to it and converted the remaining dues into bonds payable over a period of time.

In return, the states provided Central public sector undertakings access to its account with the Reserve Bank of India (RBI) in the event of default in current billings. This mechanism was formalised through the Tripartite Agreement (TPA) whose signatories are the State Governments, the Central Government and the Reserve Bank of India.

The issue of invoking the agreement to make good the default is a sensitive one as it involves touching the state's account with the RBI.

If monies are taken from this account, the State's finances would suffer, and to this account, has political ramifications.

Importantly, ever since the States agreed to the tripartite agreement, the revenue collected by NTPC from the State electricity boards (SEBs) improved.

Prior to the TPA, the collections were around 75 per cent of the billing. Over the last few months, post TPA, the collections have been in the region of 100 per cent.

The confidence in the TPA has risen to the extent that Power Ministry mooted a proposal to allow private power generators to sell their power to the SEBs through NTPC and other such public sector undertakings.

This would insulate the private producer from the risks posed by the bankruptcy of the SEBs due to which there is an issue over revenue collection.

The Power Ministry has suggested the measure for a limited degree of capacity addition (10,000 MW).

The proposal was, however, opposed strongly by the Finance Ministry which saw this as a means of providing back-door guarantees to private power producers in a regime where Government is supporting power generation projects only on the back of power sector reforms and not guarantees provided by the State Governments. The Finance Ministry argued that such investments would not aid the reform process and would weigh on the balance sheets of the public sector undertakings.