8 March 2019: The union cabinet has allowed power producers, saddled with ₹36,000 crore of unpaid dues, to end supply contracts with defaulting power distribution companies (discoms), as Prime Minister Narendra Modi’s government, in possibly its last cabinet meeting, addressed a pressing concern for the industry.
On Thursday, the Cabinet Committee on Economic Affairs approved recommendations made by a ministerial panel that allowed power generators to retain coal allocations linked to a supply contract even if the agreement is terminated because of payment defaults by power discoms.
The cabinet also cleared a new hydropower policy aimed at making purchase of electricity from such projects mandatory and offered financial incentives to make hydropower tariffs competitive with those using rival fuel sources.
The measures largely aimed at coal-fuelled power projects come at a time when power discoms have defaulted on payments to generation firms. The Modi administration believes that these steps will help ease some of the problems facing the sector. Non-performing assets (NPAs) in power generation comprise around 5.9% of the banking sector’s total outstanding advances of ₹4.73 trillion, according to the second volume of the Economic Survey 2016-17 issued in August.
CCEA also approved coal allocations for short-term supply contracts.
“Allowing domestic coal linkage for short-term PPAs (power purchase agreements) is positive for the independent power producers (with aggregate capacity of about 25GW who do not have long-term PPAs), also given the higher preference for short-term PPAs by many of the distribution utilities,” said Girishkumar Kadam, vice-president and sector head (corporate ratings) at ICRA Ltd, in a statement.
Briefing reporters on the decisions taken by the cabinet, power minister Raj Kumar Singh said the option of cancelling a supply contract in case of non-payment of dues by state-owned distribution utilities would offer flexibility to power generators. In the case of delayed payments, CCEA also made mandatory the levying of a late payment surcharge on discoms.
A high-level panel, headed by cabinet secretary P.K. Sinha, set up to address the issues of stressed thermal power projects submitted its report in November, after which a group of ministers was formed to examine them.
As part of the new hydro policy, the cabinet approved declaration of large hydropower projects as a renewable energy source, thereby making them a part of the renewable purchase obligation, which requires power discoms to purchase a fixed amount of renewable energy to cut dependence on fossil fuels.