The Hindu Business Line : Mega power producers may have to sell 25% to more than one State

THE Government is planning to make it mandatory for `mega' power producers to sell a minimum of 25 per cent of their project capacity to more than one State.

The move, which the Power Ministry is in the process of piloting as a Cabinet note, is aimed at minimising the risk perceived by financial institutions (FIs), which fund 70 per cent of the project cost.

The risk for generation companies is intrinsically high since power is being sold to State electricity boards and their successors, whose ability to pay for power is suspect owing to lack of adequate reforms.

The FIs have sought this comfort of a minimum 25 per cent offtake by another State, as this distributes the risk posed by an otherwise single buyer. The current mega power policy allows a power producer to qualify for the `mega' status even if it sells one megawatt to another State, which FIs see as an inadequate safeguard.

Projects with a minimum capacity of 1,000 MW in the thermal or gas generation business or 500 MW in the case of hydel projects qualify for the `mega' project status, which allows them Customs duty waiver that reduces the tariff by around 10 paise per unit, thereby making the power price more competitive.

Although, no `mega' power projects have been commissioned as yet, several are in the pipeline.

The proposed policy move has already tingled the appetite of Power Trading Corporation (PTC), a publicly traded company and the market leader in the power trading business.

This is because power producers are comfortable in doing business with PTC, which has an enviable track record in ensuring payment for power sold by them.

According to PTC officials, several `mega' producers have already made enquiries and in one case, an MoU has already been signed. PTC, which sold 11 billion units of power (2 per cent of the country's power generation last fiscal), is in the process of contracting long-term power sale deals.

The Torrent Group has entered into an MoU with PTC for long-term power sale from its proposed 1,050-MW Akhakhol project in Surat.

"Several mega project sponsors, including the Nagarjuna Group-promoted 1,000-MW project and Chennai Power Corporation Ltd have made preliminary enquiries for long-term sale," a senior PTC official told Business Line.

The Cabinet note also seeks to dilute the pre-conditions for qualification for the incentives under the mega power policy. Currently, the State purchasing power from a `mega' power project must allow the power generator access to the Central Plan Allocation in the event of default in payment of power bills.

Since several States have objected to this provision, it is being done away with.

Another issue is that of phasing of projects. Sponsors such as the Essar Group have told the Government that they would like to set up their proposed 1,200-MW projects at Vadinar in two phases.

The current policy does not allow grant of mega status for such a project.

The Government is in the process of formulating safeguards to ensure that the project is set up the entire project in a limited span of time.