The Comptroller and Auditor General (CAG) has criticised the Maharashtra State Electricity Boards power purchase agreement with Reliance Patalganga Power Projects Ltd for giving the power producer undue benefit of Rs 20.90 crore per annum.
The CAG has hauled up MSEB for not getting the interest during construction reduced despite the shorter construction time after the power project was relocated from Nagothane to Patalganga.
``The power purchase agreement stipulates that the project cost shall be adjusted to the extent of the US loan capital disbursed to Reliance Patalganga Power Projects Ltd subject to a ceiling of $300.28 million. However, the nature of adjustments to be made, particularly with reference to a change in the composition of the loan capital in US dollars and rupees, and the consequent change in the interest during construction are not specified in the power purchase agreement which stipulates that the adjustment to the project cost shall be made only upon request of Reliance Patalganga Power Projects Ltd.
This allows Reliance Patalganga Power Projects Ltd to claim an increase, if any, in the project cost from MSEB, without passing on a reduction, if any, the CAG has pointed out.
``Operation, maintenance and insurance charges are payable on the project cost, excluding margin money for working capital. However, the power purchase agreement stipulates payment of such charges on the project cost, including margin money of Rs 31 crore. This would result in avoidable extra tariff payment of Rs 93 lakh per annum, the report adds.
The CAG felt that MSEB should also have insisted that Reliance Patalganga Power Projects Ltd pass on a portion of the benefit of a lower heat rate, as was done in the power purchase agreement with Dabhol Power Corporation.
Replying to the CAGs charges, a Reliance spokesman said, ``The power purchase agreement was reviewed by consultants to MSEB Freshfields of the UK and Vanguard Capital of the UK. Besides, MSEB obtained several major concessions from Reliance during negotiations: no counter-guarantees from the central government, no escrow account for security payment, severe penalty for under-performance, no bonus payment above target availability, no compensation for additional cost of land at Patalganga, and no compensation for power evacuation at 400 kv instead of 220 kv, he pointed out.
Contesting the CAGs observation on the interest during construction, the spokesman said, Even though the construction period has been reduced by relocating the project, there will be no significant change in the interest during construction. At the Nagothane site, the initial 12 months of the 36-month period would have been spent on overcoming infrastructure bottlenecks and land acquisition. In effect, the schedule comes to 24 months, which is the same as in Patalganga.
``A reduction in the foreign exchange component lower than the $300.286 million up to which MSEB has agreed to provide protection will require a matching increase in the rupee component. Since interest rates on rupee loans are higher, the interest during construction will, in fact, be higher in this case.
This will not be compensated to Reliance Patalganga Power Projects Ltd as the interest during construction has already been fixed by MSEB, the spokesman pointed out.
On the provision in the power purchase agreement for adjusting tariffs if Reliance Patalganga Power Projects Ltd rescheduled or prepaid its loan, the spokesman cited clause 4.2 of schedule 8 of the power purchase agreement which has an in-built provision for the payment of interest as per the relevant financing agreement for the project.
In case of rescheduling or prepayment, a revised financial agreement will be applicable for computing interest. Such financing charges will have to be approved by MSEB as per clause 4.62 of the power purchase agreement.
MSEB chairman Ashok Basak refused to comment on CAGs observations the Reliance Patalganga Power Projects Ltd power purchase agreement, saying, ``I cannot give any reply on Reliance Patalganga Power Projects Ltd as I have not studied the CAG comments on that company as yet.
