Withholding payments to IPPs goes against intent of the package: power ministry tells UP

In a strongly worded letter to Uttar Pradesh Power Corporation (UPPCL), the Ministry of Power has urged it not to link early payments to independent power purchasers (IPPs) with the rebates they are requested to offer and advised it to follow the payment system suggested by the ministry earlier.

Stating that the high financial losses of the distribution companies (discoms) cannot be a pretext to demand rebate beyond what is contractually admissible, the letter goes on to say that the commercial interests of the parties are decided as per the power purchase agreement (PPA). The PPA, it noted, is a legally enforceable document and “promoting one’s interest at the cost of another, in contravention of a contract cannot be justified — legally or morally, and that too by a government agency. The ministry added that “reneging on a contract or unilaterally changing it for short term gains would impact the investment climate adversely and not be in the long-term financial interest of the country, including the UP discoms.”

Maintaining that the loans provided to UPPCL under the Atma-Nirbhar Bharat scheme were for payment of the amounts due to gencos and transcos as they existed on March 31, the letter states that the dues had been mounting steadily in UP discoms much before the onset of Covid. “The reasons for which include non-payment of the government department dues to discoms and the inability of the UP discoms to follow the AT&C trajectories under UDAY and those set by the SERC”.

Uttar Pradesh will receive around Rs 21,000 crore from the Centre’s Rs 90,000 crore liquidity infusion scheme to clear the outstanding dues owed to IPPs as on March 31. According to the design of the scheme, the funds are scheduled to be disbursed in two equal tranches and similarly the dues are to be cleared in two equal halves.

While Uttar Pradesh has used the fund to clear 50% dues to CPSU generators (including NTPC), Power Grid Corporation and renewable energy plants, it has only paid 12.5% of the outstanding to IPPs. Private thermal power plants which have considerable outstanding from the state include Tata Power’s Bara unit (Rs 1,249 crore), Bajaj Lalitpur (Rs 3,370 crore), KSK Mahanadi (Rs 1,676 crore) and Hindustan Power’s Anuppur (Rs 1,306 crore).

It may be mentioned that government departments’ due to UP discoms against the electricity supplied stood at a staggering Rs 15,241.9 crore as on March 31, out of which the irrigation department’s dues were Rs 3,049.7 crore, urban development department’s Rs 4,013.6 crore and Jal Nigam’s Rs 609.3 crore. The total outstanding from central government departments stood at Rs 7,672.71 crores, from decentralised government departments Rs 2,707.5 crore and Rs 4,861.6 crore was receivable towards bunker (weavers) subsidy.

Asserting that the intent of the liquidity infusion to discoms has been to “ensure infusion of the much-needed liquidity in the complete power sector value chain to keep the electricity flowing in the grid during Covid-19 outbreak,” the letter says that “withholding the payments to the creditors would go against the intent of the package.”

Moreover, it said that the CPSU gencos and transcos had offered rebates to the discoms on their own accord without any quid pro quo, the UPPCL’s proposed methodology links rebates to early payments, which it says cannot be termed as voluntary in view of the inducement of early payments. “In fact, it will be treated as coercive as the IPPs, starved for funds to buy fuel to keep the plants running and make payments to banks to keep their accounts standard, would be in no position to refuse offering rebate,” it says, adding that the courts are bound to take an adverse view if the matter were to reach the judicial system at any stage.