Last week’s order of the Appellate Tribunal for Electricity, in a case filed by National Thermal Power Corporation (NTPC), should set at rest the year-long concern about the maintainability of the rights of state-owned power generating companies if they wish to take punitive action against errant state electricity boards. In 2007, NTPC had sought permission from the power regulator, the Central Electricity Regulatory Commission (CERC), to reduce power supply to the Jammu & Kashmir board, which had failed to furnish the required letter of credit in accordance with an agreement that had been concluded among the Union power ministry, central power generating stations, state electricity boards and the Reserve Bank of India. A year later, much to the surprise of power generating companies, CERC decided not to admit the petition, ruling that since NTPC could seek recourse to other measures in case of a payment default, the opening of a letter of credit was no longer required as a “pre-emptive measure” against payment defaults. It is this order that the appellate tribunal struck down last week. CERC will now have to instruct the Northern Regional Load Despatch Centre (NRLDC) to reduce or regulate supply of power to the J&K board as it defaulted in opening an LC in favour of NTPC. The sanctity of contract has been established and the purpose of an LC that guarantees cash flow for a supplier in case of default has been recognised. The tribunal has not minced words while delivering its verdict, and described CERC’s ruling as “self-contradictory”, for the CERC order had conceded that while it did not wish to dilute the clause regarding the opening of LCs, at the same time it declined to instruct the NRLDC to reduce power supply to the defaulting board.
Other state electricity boards are bound to take note of this development and will be discouraged from departing from the well-regarded practice of opening an LC in favour of power generating companies before they get power supply. The practice of opening an LC, it will be recalled, was started in 2002 to impose financial discipline on the boards, which had run up huge arrears to the central power generating companies. There are good reasons to suspect that boards had begun banking on the CERC order, hoping that it would free them from having to open LCs. While the J&K board is the only state power utility which has so far refused to open an LC, quite a few others had filed applications before the appellate tribunal, opposing NTPC’s appeal. If the tribunal had not struck down the CERC order, NTPC would have faced difficulty in convincing other boards too, to furnish LCs against future power supply.
An important aspect of the tribunal’s order pertains to the applicability of the Electricity Act to Jammu & Kashmir. Though the law does not apply to the state, the tribunal held that the supply of electricity is made at the bus bar of the generating station and not within the territory of J&K. Since compliance with the tribunal’s direction is not required to be made within J&K state, the order does not violate the spirit of the law. Law makers and jurists may find this a subject for further debate.
