PPA norms for debt-ridden discoms may be eased
Move to help suppliers ink deals with generators, get fuel linkages

In a fresh initiative aimed at reviving stressed power projects, the government is planning to ease power purchase agreement (PPA) norms for debt-ridden state discoms. It will enable discoms to sign pacts with the generators. The move

will also help several stressed projects to get fuel linkage, which is crucial for power plants. 

While discoms were not signing PPAs with generators because of their losses and indebtedness, the absence of a purchase pact prevented coal suppliers to offer fuel linkage to projects. This has become the prime reason for stress for more than a dozen coal-fired projects worth about 16,000 mw.  Sources said as per a proposal, allowing discoms the flexibility to discontinue payment of fixed cost to generators if no power is being purchased, might ease PPA terms. 

Under the current terms of long-term PPAs, discoms have to pay fixed cost determined for a power project by the Central Electricity Regulatory Commission (Cerc) even if they do not buy power at any point of time.


This provision has been introduced to protect investment made by generators. Power plants take a longer period to recover investment for their developers.

“This is good move from the Centre, as it will ease pressure of stressed power projects and even give relief to banks that have a high exposure to the sector and fear that several of these assets would turn NPAs. But is needs to be seen whether the changes in the PPA clause pushes states to start buying power aggressively again,” said a power sector expert not willing to be named.

Under the terms of changed PPA, the government also proposes to give some comfort to project developers by seeking commitment from states to declare their minimum purchase commitment to allow optimal functioning of power plants. Sources said that the issue has been discussed at a recent meeting of power ministry officials with representatives from states where discoms have high levels of debt.

It was suggested that stressed power projects should voluntarily come forward with proposals foregoing fixed charges if contracted amount of power was not purchased. This, it is felt, would encourage states to issue tenders for PPAs.
The government is also planning a fund with initial corpus of $1 billion to enable alternative financing options for power assets that are stalled due to shortage of capital and lack of fuel linkages and power purchase agreements (PPAs).

As per the list provided by department of financial services (DFS), the power ministry has assessed status of 34 stressed thermal power projects (over 30,000 mw) that have an estimated debt of about Rs 1.77 lakh crore. In addition, 20 hydro projects with a capacity of over 6,500 mw have been categorised as stressed that could be revived with minimum intervention.

The PPA easing will largely help stressed coal-fired projects worth 16,000 mw that are complete but could not run as Coal India (CIL) is not providing fuel linkage in the absence of long-term power purchase pact.

The changes will also aid states coming out with more PPAs that will assist the entire power sector. While India has added over 80,000 mw of new generating capacity in the last four years, lack of commensurate pick up in demand from discoms has caused rising stress in the sector. However, the situation has allowed India to reduce its power deficit and claim having a power surplus status.

Lower demand has also pushed down electricity prices at power exchanges that are quoting tariff as low as Rs 2.5 a unit. This is also pushing discoms to renege existing PPAs in favour of new contracts for low cost power.

In fact, in UP the newly elected BJP government has cancelled PPAs with seven coal-fired power plants worth 7000 mw (investment of about Rs 35,000 crore.) and another 4,000 mw worth projects in favour of cheaper power available in the market.