LM: Tata Power unlikely to agree on lower tariffs for Prayagraj Power Generation

11 March 2019: Tata Power Ltd will not agree to lower tariffs for its proposed acquisition of Prayagraj Power Generation Co. Ltd as suggested by the electricity regulator in Uttar Pradesh,a company executive said on the condition of anonymity. 

The regulator recently said Tata Power would receive the plant without any associated debt and interest costs; so it can afford to reduce the power tariff by 40 paise once the transaction is completed.

During a hearing on 6 March, the UP Electricity Regulatory Commission observed: “There is no denying the fact that now with zero debt, the element of interest on loan, which would be part of the fixed cost, becomes zero. As a result, enough headroom is available for the new incumbent to share this saving with consumers… If power sector assets are sold by financial institutions at much less than the book value without a corresponding adjustment in tariff, it will create a perverse incentive to buy these assets at the cost of the public. This will also create a possibility of undue arbitrage.”

The commission also said a “reduction in fixed charge by a reasonable amount” is necessary to safeguard the consumer’s interest and directed State Bank of India the petitioner, to offer a nearly 40 paise/unit discount in tariff.

In November 2018, Resurgent Power—a joint venture of Tata Power, ICICI Bank and a few global investors—successfully bid for a 75.01% stake in Prayagraj Power, making a one-time settlement offer. Prayagraj Power owns and operates a 1,980 MW power plant in Uttar Pradesh’s Bara district. Resurgent Power agreed to pay around 6,000 crore to the plant’s lenders and give them 14% equity stake in the plant after the acquisition. It also agreed to settle tax dues and not pursue disputes with the state power distribution company.

In order to transfer the asset to Resurgent Power, SBI reached out to the electricity regulator in UP, which later suggested the tariff cut.

A spokesperson for Tata Power said, “The sale has happened under the IBC process and the regulator cannot intervene. It is for banks to take a call. The current petition is for an ownership change in the asset; we cannot modify the PPA. It is not within the purview of the regulatory commission to decide this.”

He said no stressed asset within the power sector will be resolved under the IBC process if PPAs are subject to modification. “We have made the offer to SBI; we will not change anything,” he said.

While a Supreme Court directive on 16 November gives interim relief to debt-laden power firms from bankruptcy proceedings, banks are hurrying to settle cases under one-time settlement offers.

The case will be next heard on 25 March.

The Livemint reported

Categories: General News, India Bankruptcy

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