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PPA renegotiation: NLC ultimatum to Rajasthan govt on two projects

M Ramesh Chennai | Updated on January 08, 2018

Power factor The ultimatum is to either come to an agreement by January 10, or face claims T Singaravelou

Cheap wind/solar power is leading to demands of PPA rethink

In an yet another instance of re-opening signed power purchase agreements by State governments, things are coming to a head in the tussle between the government of Rajasthan and the government of India-owned power producer, NLC India Ltd.

The PSU has issued an ultimatum to Rajasthan to either come to an agreement by January 10, or face claims by it.

The heart of the matter is two coal-fired power projects of 250 MW each — Barsingsar Extension and Bithnok — which the ₹8,600-crore NCL plans to put up in Rajasthan and the PPA for which was signed in 2010 and reconfirmed in 2012. It is understood that the tariff was around ₹4.50 per kwh. The project cost of Barsingsar and Bithnok are ₹2,635 crore and ₹2,710 crore, respectively.

Now, after seeing it can procure wind and solar power cheaper, the BJP-run government of Rajasthan wanted to renegotiate the agreement.

Tariff Revisal

Though miffed at the development, NLC, in consultation with its parent Ministry, the Ministry of Coal and Mines, agreed to bring down the tariff by taking a cut in its return on investments. A Bloomberg report of September 2017 said that NLC offered a 50-paise reduction in tariff. But Rajasthan wanted more.In a letter dated January 4, seen by BusinessLine, NLCasked the government of Rajasthan for its “expeditious response” by January 10, to its earlier letter of December 20, 2017, which gave the revised tariff proposal.

Pointing out that it has spent ₹597 crore on the projects and the EPC contractor (Reliance Power) would have spent over ₹1,000 crore, the letter says if the State does not reply by January 10, “NLC may be constrained to prefer its claims for the closure of the projects.”

Policy regime

It further adds that “Parting of ways at this stage by two government agencies — one in the Central sector and the other in the State — will also set a bad precedent in the power industry.”

In recent times, with the fall in the prices of wind and solar power, various State government-owned electricity distribution companies have been asking for renegotiating tariffs of existing contracts. The international community has taken due note of this.

For instance, in an interview with BusinessLine a few months back, the Director-General of the Abu Dhabi-headquartered International Renewable Energy Agency, Adnan Amin, said investors would expect a reasonable assurance that “there will be no disturbance in the policy regime, which they agreed to when they made the investments.”

Published on January 08, 2018

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