State governments will be re-opening signed power purchase agreements (PPAs) to incorporate the new power tariff notification issue on June 9 even if the promoters threaten to invoke the "change of law" condition.
Sources said a power purchase agreement is effective only upon financial closure _ which gives them (state governments) the leeway to incorporate changes in the agreement.
Under the new amended tariff notification, profits on operating norms like station heat rate have been eliminated and income tax on incentives is no longer permitted as a pass through.
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As there were considerable doubts on the scope of the notification, the ministry of power clarified to the state governments that the new notification would normally apply only to agreements that have not been executed and delivered by the parties by June 9, 1998.
Some promoters of independent power producers (IPPs) said they would invoke the change of law in case state governments followed the power ministry's clarification and re-opened their power purchase agreements.
However, the promoters of the $1.4 billion 1,000 mw Videocon Power project, which is headed for financial closure in a month pointed out that they have structured their agreement in such a way that it came into effect upon signing with the state government.
They have already told the Tamil Nadu government and the ministry of power that in case the government does incorporate the new tariff notification, they would invoke the "change of law" condition. Industry sources pointed out that once some state governments initiate the process of re-opening, others would follow suit. After the State Electricity Regulatory Commission (SERC) is in place in the states, the affected IPPs and consumers can pressurise the states to get the power purchasing agreements re-opened. The immediate impact of the notification is on the three fast track projects _ the ST-CMS' 250 mw Neyveli unit in Tamil Nadu; Ispat's 1,000 mw Bhadrawati power project in Maharashtra and the Hinduja-National Power-promoted 1,040 mw power project in Andhra Pradesh _ where the Centre has specified that the counter-guarantees for the projects would come into effect only after the state governments incorporate these changes in their agreements.
The agreements for these projects had already been signed with the respective state governments. However, after the signing of the counter-guarantee, both the Maharashtra and Tamil Nadu governments have agreed to incorporate changes in the power purchasing agreements.
The promoters of the Hinduja project, who signed their agreements in April this year, said they were working with the state government to incorporate the new tariff notification.
The Madhya Pradesh government has similarly initiated a re-opening of power purchasing agreements, after asking 13 IPPs to rework their tariff schedules to allocate the escrow cover for the projects.