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New PPA of Bhadravati Power rattles Maharashtra government

The revised power purchase agreement for the Bhadravati Power Project in Maharashtra is causing the state government concern. Although it could reduce the project cost and the cost of per mega watt of power, it had to compromise on equity participation.

According to the Central India Power Company's revised PPA, the project cost has been scaled down from Rs 46.31 billion to Rs 45.58 billion. As a result, the cost per MW of power produced has come down from Rs 43.5 million to Rs 42.1 million.

At the same time, the state government had to make a few compromises over the project which proved controversial over the allegation of using coal from the defence department land. Deputy Chief Minister Gopinath Munde's proposal to offtake 30 per cent equity in power project in the state would stand rejected.

The state government and the Maharashtra State Electricity Board cannot avail of 30 per cent equity of the Bhadravati Power Project; as the Union government has reduced the rate of returns on new private power projects. The Central India Power Company had requested the state government not to press for equity participation. The state government has accepted it.

A paper prepared for state government's perusal while accepting the request also states that the state government should not press for 30 per cent equity participation in Bhadravati Power Project as it could not raise Rs 7.8 billion required for 30 per cent equity offtake in Enron's Dabhol Power Project.

The Union government had suggested various revisions when the PPA was referred to it for approval. The Union government by that time had already issued new notifications on the private power projects.

The state government and the CIPC readily accepted the Union government's objection that the project cost was already bloated. Accordingly, global tenders had to be invited anew for the project. But since CIPC had already arranged for loans from foreign financial institutions, the company has accepted to scale down the project cost.

The company also accepted the Union government's suggestion to not pass on the sales tax levied on power produced beyond the maximum capacity of 68.5 per cent on to the consumer changes will be made accordingly into the new PPA. As the rate of return has been reduced by 12 per cent and the earlier PPA had no such mention of a guarantee fee, the company feels the entire burden of the guarantee fees will not be borne by it. The working group on power production appointed by the state government has recommended that the state government and CIPC should equally share the outgo of guarantee fee to the Union government.

Compiled from the Marathi media by Prasanna D Zore