Punjab government terminates Power Purchase Agreement with GVK for Goindwal Sahib power plant

The Punjab Chief Minister Charanjit Singh Channi pointed out that this step had been taken to safeguard the interests of consumers by way of reducing the burden of costly power

Goindwal Sahib power plant
Goindwal Sahib power plant
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Bipin Bhardwaj

Echoing his commitment to provide quality and uninterrupted power supply at affordable cost to consumers, Punjab Chief Minister Charanjit Singh Channi on Saturday approved the proposal of Punjab State Power Corporation Limited (PSPCL) to terminate GVK Goindwal Sahib Power Purchase Agreement. Subsequently, PSPCL has also issued a termination notice to the company.

Today, a preliminary default notice was served by PSPCL to GVK for cancellation of the PPA due to high power cost and falling lowest in the merit order, procurement of energy from the company that had been restricted only within the range of 25% to 30% during most of the times of a year resulting in higher tariff of about Rs.7.52 per unit for last year.

The CM pointed out that this step had been taken to safeguard the interests of consumers by way of reducing the burden of costly power.

Punjab Congress chief Navjot Singh Sidhu had been raising the issue of termination of power purchase agreements signed by the Akali-BJP government with private companies.

The Congress-led Punjab government had initiated a process to terminate/ re-negotiate five Power Purchase Agreements (PPAs) — two made with private players and three with National Thermal Power Corporation (NTPC) — supplying costly power to the state.

A spokesperson of the Chief Minister’s Office informed that the basic premise of entering into the PPA by GVK with the PSPCL was to provide cheaper power to the PSPCL. The GVK had been generating energy by arranging coal from Coal India Limited under SHAKTI Policy.

As per the PPA, GVK was required to arrange a captive coal mine, but it failed to do so, even after the lapse of more than 5 years of synchronization with the grid, he added.

The capacity charges are being decided by Punjab State Electricity Regulatory Commission (PSERC) based on capital cost of around Rs 3058 crore, which is equivalent to about Rs 1.61 per unit of fixed cost.

Going against this decision, the spokesperson said, GVK had moved Appellate Tribunal for Electricity (APTEL) for claiming higher fixed cost to the tune of Rs 2.50 per unit based on claims of capital cost of about Rs 4400, crore which is pending adjudication.

As per claims made by GVK, the spokesperson pointed out that variable cost is around Rs 4.50 per unit and fixed cost is around Rs 2.50 per unit. Thus, the total claim of GVK under tariff comes out around Rs 7.00 per unit which increases further due to surrender of its costly power.

Therefore, the intention of GVK is clear that it requires higher tariff which is not the basic premise on which the PPA was entered into with the PSPCL. This made it commercially unviable for PSPCL to continue PPA with GVK.

Moreover, GVK had defaulted by not clearing dues accrued to it timely against the loans taken by it from various lenders. Consequently, it had become a Stressed Asset and a resolution plan was required to be implemented by GVK which it failed to do so.

Accordingly, lenders approached National Company Law Tribunals (NCLT) for a resolution plan for GVK which is under consideration before the Tribunal.

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