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Tuesday, Sep 21, 2004

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Centre bars Kerala from entering into direct PPAs

C. Shivkumar

Bangalore , Sept. 20

KERALA'S attempts to sign direct power purchase agreements (PPA) with mega power projects have come a cropper in view of its dismal record in power sector reforms.

Sources said that the Union Ministry of Power disallowed at least two projects from entering into direct power purchase agreements with Kerala. The two projects were the 1000 MW Tuticorin thermal station and the 1015 MW Mangalore Power Project.

The Rs 4,500-crore Tuticorin power project is jointly promoted by the Centrally-owned Neyveli Lignite Corporation, the Tamil Nadu Electricity Board and the Tuticorin Port Trust. The Mangalore Power project, estimated to cost Rs 4,500 crore, is promoted by the Nagarjuna group.

Both these project promoters have already sent draft PPAs to Kerala. In the case of the NPCL, it was estimated at 100 MW. From Tuticorin, Kerala was expected to have a share of at least 250 MW. Kerala had sought these arrangements in view of the high peak deficit by 2006-07. Peak deficit by the Power Ministry was estimated at 1509 MW and the energy deficit at 7,213 million units.

The sources said that the Ministry's opposition stemmed from Kerala's non-compliance with the guidelines for power sector reforms. Under these guidelines, power-purchasing States are to undertake in principle to privatise distribution in all cities having a population of more than one million within a fixed time frame.

While most States in the country have already unbundled their power utilities or were in the process of doing so, Kerala is one of the few States that has so far not yet initiated the reform process.

Despite the Ministry's resistance, however, Kerala would still be in a position to obtain additional power supplies to meet its requirements. Kerala would now have to enter into a long-term power purchase agreement with Power Trading Corporation of India Ltd.

For purchases from PTC, the tariffs would be higher in view of the trading margins. These margins are determined on a per unit basis. Besides even in the case of PTC, potential buyers would have to enter into a payment support mechanism, which includes, a State Government guarantee and assignment of high quality revenues up to 125 per cent of the monthly billing cycle.

Project promoters, had sought the involvement of neighbouring State in the PPA, in view of the Ministry's guidelines stipulating that all mega power projects would have to supply power to more than one State.

In accordance with these guidelines, the sources said both the project promoters have now begun negotiations with the PTC for long-term power selling agreements. So far neither Tuticorin nor Mangalore projects have gone into full financial closure. The first unit of the Mangalore power project is slated to be commissioned only by the terminal year of the current financial year. The Tuticorin project on the other hand is still at the conceptual stage d.

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