Power panel to meet on sanctity of agreements

The task force on power sector investment and reforms, led by Planning Commission member NK Singh, will meet on Thursday to take up the report of the Fali Nariman group on ensuring the sanctity of contracts.

Several foreign investors and domestic private players have raised concern on the move by some states to re-open the power purchase agreements (PPAs) signed with project developers.

At least three states "" Gujarat, Tamil Nadu and Kerala "" have indicated their intention to reopen the PPAs signed with private project developers. The states want to renegotiate the assured rate of return for the projects and bring down the interest on the debt component.

According to private players, this can set a precedent for other states and will further dissuade developers from entering the sector.

Justifying the move, state government officials said the loans raised for financing private projects had been sourced at high rates of interest of up to 19 per cent. With the market rates falling, the states want private developers to reduce the interest rate by raising fresh debt from the markets. "The CERC itself has realigned the return to 14 per cent for Central projects," a state government official said.

"When these projects sourced the loans, the interest rates were on the higher side and the risk associated with the sector was high. Since the interest rates have softened during the last few years and projects have started generating power, the promoters have been asked to re-engineer their debt package by raising fresh debt from the markets," an official said.

The PPAs are bilateral agreements between states and developers and the Centre does not have a say in them.

However, a power ministry official said the reopening of PPAs set a bad precedent and the agreements should be honoured by states for ensuring the confidence of private players in the sector.

State governments, however, contend that developers are also open to the idea of reworking the PPAs due to the changes in the circumstances.

The government had constituted the task force with the mandate to catalyse fresh investments in the sector, oversee implementation of the ongoing reforms measures and provisions of Electricity Act 2003. The panel has already submitted its recommendation on the tariff policy to the Centre.