The leaders of the power industry, private power producers and business chambers have sought an immediate meeting with Power Minister Veerappa Moily to discuss the various crises impacting the power sector including the issues related to power purchase agreements (PPAs) which is likely to pose risk to development of power projects in the country.
Warning that the new changes will not only lead to erosion of investor confidence, but will also deter global investors from investing in India’s growing power sector, Associated Power Producers director-general Ashok Khurana, in a letter to Mr. Moily said an immediate meeting of joint delegation of APP, Assocham, CII and FICCI is required to highlight structural issues pertaining to the draft PPAs proposed by the government. Mr. Khurana heads the APP that has top 20 private power companies as its members.
“The competitive bidding framework experience since 2005 has indicated issues like inequitable allocation of fuel availability and pricing risk, no provision to handle change in law in coal source countries and also for material adverse conditions through an enabling provision for reopening of contracts. We have observed that in the new model PPA the overall structure of the PPA has been changed in its entirety and it is evident that many provisions of the proposed PPA completely change the balance of risk in development of power projects,” the letter states.
The APP states that the proposed PPA would only add to contract failures and deter investments in the sector. The Design Finance Build Operate and Transfer (DFBOT) framework proposed in the new PPA requires the developers to bring in finance, technology, operations skills, a part of the fuel required, and a host of other inputs, but thereafter relegates the developer to the status of a BOT contractor. “The proposed DFBOT framework greatly affects the ability of banks to finance the project,” it states.
Private power firms fear that in the proposed structure, the land continues to be owned by the utility, and there is no provision for the developer to create charge on the project assets. This results in banks treating such loans as unsecured loans, which reduces availability of bank financing. “This model virtually rules out international financing in Indian power sector, since international banks require security on land and project assets before lending. Further, there are several provisions in the model PPA which are at variance with CERC norms and are operationally unworkable, thus undermining the operationalisation of the model PPA,” it adds.
