The Hindu Business Line : State power generating cos to enter into purchasing pact with DisCos

STATE power generating companies (GenCos) have initiated steps to enter into direct power purchase agreements (PPA) with the electricity distribution companies (DisCos).

Power generating companies were created by separating integrated State electricity boards. Sources said that among the States that have taken the lead in pushing for such PPAs include Karnataka and Andhra Pradesh.

These States have taken the measure, since transmission companies are barred from power trading from June 2005.

Alternatively, some States instead of direct PPA with the DisCos are also planning to set up separate power trading companies. GenCos would be allowed to enter into PPAs with the trading companies. These trading companies in turn would sell power to the distribution companies. But the new Electricity Act also allowed DisCos to trade.

Sources said that the move to enter into direct PPAs ahead of the June 2005 deadline would help most of the GenCos improve their cash flows and cut their outstandings.

Presently, in almost all the States, transmission and distribution companies have large overdues to the GenCos. The sources said after June 2005, the outstandings would be considerably curtailed.

This would be done by entering into payment security mechanisms with each of the distribution companies. In fact, companies like the Karnataka Power Corporation were already working out the mechanisms for tying up directly with the DisCos and reduce their outstandings.

With a tripartite agreement with Central generating stations in place, State GenCos, the sources said, would get the last priority for settlement of dues. Overdues between State-owned generating companies, transmission and distribution entities were as high as 50 per cent. This implied that only 50 per cent of the billed amount was realised by the generating entities. The payment security mechanism with the DisCos would help in improving their respective realisation, the sources said.

But they added that such arrangements would also help the State Governments. Presently, none of the State-owned generating entities were in a position to obtain the same valuation of either their Centrally-owned peers or the private sector entities. High realisation of dues would allow for better valuation of State Government holdings in GenCos as they prepare for diluting their stakes. Karnataka and Andhra Pradesh have plans to eventually divest their stakes in the State-owned power utilities and retaining only the transmission companies.

Only the transmission sector would remain fully owned by the State Governments and function as a monopoly entity. For the generating utilities, the source said that new arrangements would considerably enhance their credit worthiness in the financial markets, without the support of covenants and guarantees from the respective State Governments, the sources said.