Power Producers Can Use Existing Coal Linkage In Case Of Termination Of PPAs, Says Power Ministry
Power plant chimneys stand at the Vedanta Ltd. aluminium smelter in Jharsuguda district, Odisha. Photographer: Dhiraj Singh/Bloomberg

Power Producers Can Use Existing Coal Linkage In Case Of Termination Of PPAs, Says Power Ministry

The Ministry of Power has issued an order allowing thermal power generators to use coal linkage for a period of two years even if they terminate a power purchase agreement on defaults by distribution utilities.

Earlier, a power producer’s fuel supply would be terminated if it cancelled a power purchase agreement.

As per the order issued on Tuesday, a generator which terminates PPA in case of default by distributors may be allowed to use existing coal linkage for sale of power through short-term PPAs using DEEP portal or power exchange for maximum of two years until they find another buyer under long- or medium-term PPAs.

The Union cabinet had approved a slew of measures to resolve stressed thermal power projects in March, which was one of the measures to streamline the glut in coal supply—a major reason for stress in the sector.

34 power plants with a total capacity of 40,130 megawatts and Rs 1.8 lakh crore worth of loans were stressed, according a list shared by the finance ministry in 2017.

This is a step in the right direction by the government to maintain discipline in payments by discoms and also resolve coal supply issue, Prashant Jain, joint managing director and chief executive officer at JSW Energy Ltd., told BloombergQuint over the phone. “However, I’m not sure if a generator will procure a long-term or medium-term PPA in two years. This time frame should be done away with or must be increased to five years.”

Agreed Girish Kadam, vice president of corporate sector ratings at ICRA Ltd. “For the past three-four years, utilities are not signing long term PPAs because they are not in a strong financial position to pay fixed charges to a generator for 35 years as per a power purchase agreement,” he BloombergQuint told over the phone.

Outstanding payments of distribution companies to generators as on June 2019 stood at Rs 67,907 crore, according to the government’s Payment Ratification and Analysis in Power Procurement for Bringing Transparency in Invoicing of Generators portal.

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