The Hindu Business Line : Power developers worried as States go back on contracts

A spate of incidents involving State Governments annulling big-ticket power project pacts and changing parameters midway is raising concerns among project promoters and lenders.

While the Meghalaya and the Arunachal Pradesh Governments have rescinded pacts signed with private and PSU firms, the Orissa Government has chosen to amend key norms after having already signed MoUs with 13 private developers for setting up projects.

“Sanctity of contracts is absolutely critical from any investor’s point of view, be it the project developer or the lending institution. The signing of a contract must reflect the finalisation of negotiations and not the beginning. “Unfortunately, the Dabhol experience is still to fade and State Governments are already turning their backs on contracts inked with potential investors,” an executive with a private sector firm with interest in hydropower projects in the north-eastern region said.

A decision by the Meghalaya Cabinet to scrap power deals inked by the previous administration with private companies Jai Prakash Power Ventures Ltd and Athena Projects Private Ltd, which were supposed to develop the Umngot and the two-stage Kynshi project, is the latest in the series of such moves by States.

The agreements signed with the former Congress Government in the State were recently abrogated by the new Meghalaya Progressive Alliance (MPA) administration on the ground that the deals were in “violation” of the State’s policy.

The proposed investment in these two projects was around Rs 6,600 crore, with combined capacity of 1,100 MW.

The Meghalaya Government has decided to invite fresh expression of interests (EoIs) for the projects.

The Arunachal Pradesh Government had earlier cancelled NTPC Ltd’s contract to build two hydroelectric power projects — the Etalin (4,000 MW) and Attunli (500 MW) projects — in the State at an estimated cost of Rs 22,500 crore.

This is amid feelers that the State Government has received from private players on taking up these projects and NTPC’s refusal to pay an upfront advance payment sought by the Arunachal Government.

“Other companies which complied with the demands for advance payments have managed to get on with their projects… The Power Ministry is taking up the case with the Arunachal administration on our behalf,” an NTPC executive said.

The Orissa Government, earlier this week, announced that MoUs signed with 13 independent power producers (IPPs) for a total capacity of 14,990 MW would be amended in line with a change in policy announced by the State. The State Government made sweeping changes and has done away with the policy that power generated in excess of 80 per cent plant load factor from the power plants will be made available to the State at a variable cost along with incentives. Instead, the IPPs will be now be required to make 5-7 per cent of the power available to the State at a variable cost determined by the State regulator, an official involved in the exercise said.

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