Uttar Pradesh Power Corp asks operators to cut rates, increase coal stocks

UPPCL has directed generation companies (gencos) to increase coal stocks to meet their requirements

As summer heat approaches its peak in the ongoing election season, the fear of inadequate coal supply has led to an unlikely situation. Uttar Pradesh Power Corporation Limited (UPPCL) has asked private power operators to reduce power rates and use the payment made to them for purchasing coal. 

This has landed several players in a fix as they are unable to repay their lenders putting their accounts under severe financial risk. UPPCL is even looking to amend the power purchase agreements (PPA) it has with these companies and is regulating payment and monitoring their coal stock. 

In a series of letters issued to several power producers over the last month, UPPCL has directed generation companies to increase coal stock to meet the requirement in the coming months. 

“The payment was spread over a month and regular instructions were given to you that sufficient amount should be spent on purchase of coal so as to spruce up the coal stock to cater the requirement of power in the coming months,” said the letter by Chairman, UPPCL to a power producer.

It further said, “It has been observed that the quantum of coal stock has not increased in the ratio of the payment made to you during the aforesaid period. It seems that the payment made to you have not been spent on the purchase of coal adequately.” The letter has been reviewed by Business Standard.

Power producers in the state confirmed the development but requested not to be quoted. A senior executive said the state’s priority is availability of coal for the coming summer season and also the General Elections, as power demand shoots up.

State government officials said UPPCL is paying the gencos for coal purchase to build up stock for coming summer season. “We have urged the gencos to have a minimum of 10 days of stock at their units. Private gencos approach us for payment to buy coal at auctions. Hence, we monitor the coal situation,” said an official. 

Along with pressure on coal purchase, UPPCL is also asking gencos to reduce the tariffs. Hindustan Power Projects has been asked to reduce the rate by 30-40 paisa per unit, while KSK Energy has been directed to reduce by 20 paisa. KSK Energy is facing insolvency threat from its lenders.

Official sources said the UPPCL has formed a committee to reduce the tariff of GVK’ Alaknanda hydro power project in the state, following an order of UP Electricity Regulatory Commission. The regulator asked GVK to reduce frontloading (tariff in initial years of hydro project is higher). There is nil return on equity for four years, said a lender who said they were worried about their exposure to the power plants.

The state government official, however, clarified that no one has been pushed to revise their tariff; it has been done through mutual discussion. “There are several units such as Lalitpur of Bajaj agreed themselves to reduce their tariff as their rate was so high that they were not preferred in the merit order dispatch of power,” said the official. 

Merit order is used for scheduling power as per availability and price where lower priced one is preferred first. 

The 38,029 MW thermal power capacity in UP has coal stock of 10.28 million tonne, translating into average 28 days of stock in the state. Officials said the state government is supporting UPPCL to ensure payment to the gencos. Dues of UP to gencos is among the highest in the country at Rs 4,542 crore. Of this, the highest exposure is to the private gencos at Rs 2,515 crore – indicated in data accessed from central monitoring portal PRAAPTI. 

Regarding payment to the lenders, the official said no one has been restricted to service their debt, “but we have urged them to give priority to coal purchase.” A senior executive in a lending agency said the priority is always debt payment, “so if the state is writing letters to prioritise coal purchase, it is bad for us.” 

Bajaj Hindhustan, which has also been served the directive, has faced cancellation of PPA by the UP government in 2017. When it came to power, the BJP led state government cancelled long term PPAs with leading players, totaling 3800 MW as they were costly. Owing to payment default to lenders, Bajaj Hindusthan’s Lalitpur power project was put for sale by SBI last year to NTPC Ltd. The company denied it and sale process is yet to conclude.