NEW DELHI: In an attempt to help revive the beleaguered power sector, the union cabinet on Thursday approved a slew of decisions including a new hydro-power policy and measures such as allowing electricity supply contract cancellations and awarding coal supplies in the absence of a power purchase agreement (PPA). The National Democratic Alliance (NDA) government believes that such measures taken at the near completion of its term will help ease the problems of non-performing assets (NPAs) in the sector.
Briefing reporters after the 30 decisions taken by the union cabinet, power minister Raj Kumar Singh said that the option of cancelling the PPA in the case of non-payment by the state owned distribution utilities will provide flexibility to the generation firms.
This comes at a time when distribution companies (discoms) have not been making timely payments to generation firms. As of 31 January, discoms owe Rs36,134 crore to generation companies. Also, while discoms’ financial losses narrowed from Rs51,480 crore in FY16 to Rs15,049 crore in FY18, book losses rose in FY19. Government data also showed in the first half of FY19, losses rose to Rs15,080 crore from Rs11,071 crore a year earlier.
“The CCEA has approved recommendations of the GoM (group of ministers) mainly relating to grant of linkage coal for short-term PPA, allowed existing coal linkage to be used in case of termination of PPAs due to payment default by DISCOMs, procurement of bulk power by a nodal agency against pre-declared linkages, Central/State Gencos may act as an aggregator of power, increase in quantity of coal for special forward e-auction for power sector, coal linkage auctions to be held at regular intervals, non-lapsing of short supplies of coal," the government said in a statement.
A High Level Empowered Committee (HLEC) headed by cabinet secretary P.K.Sinha set up to address the issues of stressed thermal power projects had submitted its report in November 2018 post which a GoM was set-up to examine them.
“By and large we have tried to address whatever reasons there were for stress in the sector," Singh said.
Non-performing assets in power generation comprise around 5.9% of the banking sector’s total outstanding advances of Rs4.73 trillion, according to the second volume of the Economic Survey 2016-17 issued in August. Of India’s installed capacity of 349 gigawatts (GW), the peak demand is only 177GW.
In the case of delayed payments, the CCEA also made mandatory the levying of a late payment surcharge, and non-cancellation of PPAs and fuel supply agreements post an National Company Law Tribunal (NCLT) scenario.
“With the implementation of these recommendations, many of the issues affecting the thermal power sector are likely to get resolved," the statement added.
As part of the new hydro policy, the union cabinet approved the declaration of large hydropower projects as renewable energy source thereby making them a part of the renewable purchase obligation (RPO).
Under RPOs it mandatory for power distribution utilities to purchase a fixed amount of green power to reduce dependence on coal-fuelled electricity plants and improve the country’s energy security. This will provide incentives similar to those extended to renewable energy and provide a safety net for hydro power developers by guaranteeing the purchase of electricity—making these projects much more bankable.
“The trajectory of annual HPO targets will be notified by Ministry of Power based on the projected capacity addition plans in hydropower sector. Necessary amendments will be introduced in the Tariff Policy and Tariff Regulations to operationalize HPO. Tariff rationalization measures including providing flexibility to the developers to determine tariff by back loading of tariff after increasing project life to 40 years, increasing debt repayment period to 18 years and introducing escalating tariff of 2%," the government said in a statement.
The government is seeking to leverage the advantages of hydro power defined by low life-cycle tariffs, reduce carbon emissions and lower dependence on thermal power. With hydropower holding the key to meeting the country’s peak shortage, the government is worried about the shrinking share of hydropower in the country’s energy basket.
