No private power for central PSUs

The power ministry has dropped a proposal, which seeks to allow private projects to sell power to central power utilities like NTPC and NHPC, following opposition from the finance ministry and the Planning Commission. "The proposal has been dropped for now," an official said.

In a bid to attract private investment in bigger power projects, the power ministry had proposed that the power generated by new independent power projects (IPPs), with a capacity of over 1,000 Megawatt, be bought directly by central power utilities like the National Thermal Power Corporation (NTPC) and the National Hydroelectric Power Corporation (NHPC).

In its response to the proposal, NTPC had written to the finance ministry saying such an arrangement would be detrimental to its finances and lower its credit ratings.

The power ministry's Cabinet note to provide for an assured offtake machinery to IPPs subsequently met with stiff resistance from the finance ministry and the Planning Commission.

In its response, the finance ministry said such a measure would just be another form of a counterguarantee, which was against the government's policy.

According to the power ministry's proposal, private developers had been given the option of setting up their projects on a build-own-operate-transfer (BOOT) basis.

If power from the project was to be bought by a central utility like NTPC, the promoters of the projects were required to transfer the ownership of the plant to the central utility after the concession period of 20-25 years.

The proposal was mooted with the view that it would ensure the bankability of private sector projects.

According to the power ministry, the logic behind forcing NTPC and NHPC to buy power from IPPs was that the central public sector undertakings (CPSUs) were equipped with tripartite agreements with the Reserve Bank of India and state governments.

Under the agreements, companies would have access to the central funds to states if they were not paid by the latter against the utility's power bills.

The move was targeted at incentivising private developers to set up big projects, an official said. Since private power developers had to deal with bankrupt state electricity boards (SEB), lenders were usually wary of providing debt to power projects, he said.

Power play

• The power ministry had proposed that new power projects could sell power directly to central power utilities like the National Thermal Power Corporation (NTPC) and the National Hydroelectric Power Corporation (NHPC)
• NTPC had written to the finance ministry saying such an arrangement would be detrimental to its finances and lower its credit ratings
• The finance ministry said allowing the private firms sell power to central utilities would be another form of a counterguarantee, which was against the government's policy