Private power producers seek meeting with M Veerappa Moily

NEW DELHI: Private electricity producers have sought a meeting between Power Minister M Veerappa Moily and industry bodies CII, Ficci and APP to discuss various issues related to proposed power purchase agreements, which they feel, will discourage global players from entering the sector.

"We request for meeting of joint delegation of APP, Assocham, CII and Ficci to highlight structural issues pertaining to the draft power purchase agreements (PPAs) proposed by the government," Ashok Khurana, Director General, APP (Association of Power Producers) said in a letter to Power Minister M Veerappa Moily.

APP comprises top heads of over 20 private power companies.

"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," the communication said.

"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," it said.

These entities are of the view 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 said.

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," it added.

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.