Renegotiate high-cost power purchase agreements, says power reforms committee

Recommending formulation of a decadal State Energy Policy and establishment of a State Energy Planning Council and Energy Directorate to bring in professionalism, the Gurucharan Committee has suggested re-negotiation of high-cost power purchase agreements and creation of agriculture development fund to take care of farm subsidies to IP sets. It has also recommended setting up of a holding company, and treat KPCL, KPTCL and ESCOMS as subsidiaries with ESCOMS becoming only service provider companies.

Pointing to payment of ₹5,032 crore in 2020-2021 without purchasing power, the committee that submitted its report to the State government on Monday has said that such payment in the last three years totalled to ₹10,174 crore. It said that the PPAs amount to 78% of the total cost, and the State has signed an agreement with PPAs for 25 years. The committee said that for 2022-2023, the total power purchase cost stood at ₹39,223 crore for 71,646 MUs at an average cost of ₹5.48 per unit. “This includes 18,073 MUs from 12 sources which account for 25% of the average cost coming at ₹7.37,” the committee noted, and suggested re-negotiation of high cost PPAs.

The Gurucharan Committee was set up to recommend restructuring of the State power sector and advance second generation distribution reforms. The committee has identified flight of HT consumers due to exorbitant tariff, high power purchase cost, inefficiencies in operation, free power supply, unmetered/unbilled energy and inequitable tariffs among the constraints and challenges in power distribution business. The report was submitted to Chief Minister Basavaraj Bommai.

It said that free power supply for 30 lakh IP sets (10HP and below) is a matter of concern for the government, the committee has recommended conversion of IP set subsidy into a funded liability and reduce burden on the State budget besides introducing direct benefit transfer system. Further, it has recommended creation of agriculture development fund and complete separation of agriculture feeders.

The committee also noted that the adverse impact of cross subsidy has resulted in flight of high value consumers resulting in negative growth of HT sales in ESCOMS. “Negative trend is an alarming signal for the government and ESCOMS and if the same trend continues without any immediate intervention, ESCOMs will lose more such high value consumers in future. As a result, ESCOM’s finances would further deteriorate,” the committee warned. Recommending limiting the cross subsidy level of industrial and commercial consumers to 20% of the average cost, the committee said that a price intervention scheme should be launched to woo back the HT consumers to the grid.

On the tariff side, the committee has suggested rationalisation of tariff structure to remove asymmetries, and said tariffs must enable recovery of full fixed and variable costs of power. It has also recommended viability gap funding for the ESCOMS through power sector bonds. The tariff concerns have to be addressed through State government’s sovereign policy and also through consultative dialogue with KERC for regulatory or legal remedy.

Though there is surplus power, the committee noted trading is on low scale and trade wing is not equipped with domain specialists staff and tools. It also urged the State government to enable KPCL to sell power directly to consumers outside the State. It has also estimated an additional resource mobilisation to a tune of ₹6,624 crore price intervention, administrative, efficiency and new stream measures.

Energy Minister V. Sunil Kumar and Chief Secretary Vandita Sharma were present when the report was submitted to Mr. Bommai.

Panel term extended

Chief Minister Basavaraj Bommai on Monday has extended the term of the one-man committee headed by retired IAS officer G. Gurucharan that has been set up to recommend power sector reforms.

A release from the Chief Minister’s Office said that Mr. Bommai has instructed for extension of the term of the committee to guide and assist the government in implementing the recommendations of the report. The Chief Minister has asked officials to prepare an action plan to implement the report.

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Printable version | Jun 28, 2022 8:32:25 am | https://www.thehindu.com/news/national/karnataka/renegotiate-high-cost-power-purchase-agreements-says-power-reforms-committee/article65573241.ece