The Hindu Business Line : Plan panel opposes `back-door' guarantees to pvt power projects

THE Planning Commission has strongly opposed the Power Ministry's proposal to secure payment for power sold by new private power generation projects to bankrupt State electricity boards (SEB).

The commission has written to the Power Ministry about its proposal to help kick start around 10,000 MW generation capacity in the private sector. The proposal is currently under review by the Government.

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

The Planning Commission has said that the proposal amounted to "back-door" guarantees for private generators and is against the spirit of the new Electricity Act, 2003.

Earlier, the Finance Ministry wrote to the Power Ministry terming the proposal as one having "explicit and implicit sovereign guarantees of payment" and argued that it "goes against the policy of not providing any sovereign guarantees for private power generation projects."

The Power Ministry, in its proposal, has said, "Payments by 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 to the Power Ministry, 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 it holds. .

"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 noted.

Justifying the `private-public sector partnership', the Power Ministry argued in a 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 argued, "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 added, "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."