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Open LCs for renewable firms or lose access to generation, Centre tells AP

Open LCs for renewable firms or lose access to generation, Centre tells AP

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Sets two-day dealine for compliance; denying access to Central pool will mean power outages, as state must draw 20 mnn units to achieve 24-hour power supply

The Centre has threatened the Andhra Pradesh government that it will deny access to the Central pool of electricity and power exchanges if it fails to open the letters of credit (LCs) for the wind and solar power producers having power purchase agreements (PPAs) within the next two days.

The move comes just days after the state power utilities filed petitions before the state electricity regulatory commission (APERC), asking for a steep reduction in tariffs in all wind and solar PPAs, even as the Centre took a strong view against the revision of these agreements.

Besides insisting on tariff reduction, the state government also said it has no money to pay the dues to the wind and solar energy producers, pushing them into further despair. Going a step further, state power minister Balineni Srinivas Reddy last week urged the Centre to take over the financial obligations of renewable energy as a policy.

In the toughest stand taken by far in this matter, Union Finance Minister Nirmala Sitharaman set a two-day deadline asking the AP government to open LCs, a mechanism that ensures prompt payment of bills for the energy supplied to the power utilities, say sources. A senior official in the energy department confirmed the development.

The denial of access to the Central pool and the power exchanges will mean inevitable power outages since the state is expected to draw as much as 20 million units from the Central generating stations and exchanges to meet the 24-hour power supply obligation. The Discoms met 165 million unit (MU) demand in the state yesterday.

But opening of LCs as asked by the Finance Minister isn’t that easy for the Discoms as the facility will be given by the banks only if they are assured of margin backup. Going through a severe financial crisis, the state power utilities have been struggling to raise loans to meet payment obligations the past few months.

Recently State Bank of India (SBI) had raised questions about the veracity of a state government guarantee to a Rs 3,000 crore loan sought by the AP Power Finance Corporation (APPFCL), citing the government’s financial position and its stand on the PPAs. The loan amount, if sanctioned, will be used by the power utilities for power purchases and meeting other obligations.

Earlier this year, the proposed Rs 5,000-crore bond issue plan by APPFCL was aborted due to unfavorable market response. However, in April the corporation had issued bonds worth Rs 4,000 crore directly to AP Genco and Krishnapatnam Power Company, which is also a government-owned power generator. These government power firms, in turn, availed loans from banks by pledging a portion of these bonds, sources say.

The YS Jagan Mohan Reddy government had earlier disclosed that the state power utilities have been sitting on Rs 20,000 crore power dues and a Rs 15,000-crore debt.

Source: business-standard
Anand Gupta Editor - EQ Int'l Media Network