Power: Andhra Pradesh Govt. wants to review power purchase agreements

News from The Financial Express

First of, after winning the elections, Chief Minister YSR Reddy writes off electricity dues of the farmers, and announces free power. Even before his nomination as Prime Minister, Manmohan Singh says he doesn't like offering free power by any state. Power Minister PM Sayeed announces that free power is okay as long as the state government accounts for it in its budget and finds the necessary revenue to pay for the same from its pocket.

So now YSR Reddy has to find a way of covering this huge gap. So he goes after the private power companies that produce electricity in the state and wants to renegotiate the power purchase agreements. Under the existing arrangement, power companies are charging Aptransco, the state EB, Rs. 1.10 per unit of power sold to it. YSR Reddy says if the cost of this acquisition is brought to 73-78 paise, the money saved would be sufficient to cover up for the free power being offered to the farmers.

Naturally, the private power generators are annoyed, and the financial institutions that have lent money to these entities are also annoyed. Neyveli Lignite Corporation (NLC), a public sector company, which sells bulk of its power to Tamil Nadu and Andhra Pradesh state electricity distribution entities (the two most profligate states - that have announced free power to farmers) is worried that the free power move by these two states will affect its own profitability. NLC, a public sector company, gets around Rs. 1.70-1.80 per unit on an average! A full Rs. 1 over what YSR Reddy wants to pay the private companies. Talk of private sector capitalist pigs robbing the poor!

There should be a regulator for the whole of the country who regulates the cost of per unit. Leaving it to the state level regulatory commission and arming these SERCs with too much powers will result in chaos. In fact, in the aftermath of Electricty Act, 2003, if a particular state is unwilling to pay a decent price, the power generator could sell the entire power he generates to another state that has a more prudent administrative model and is willing to pay the right price.

There are comparisons being made with Dhabol Power Corporation in Maharashtra (that Enron company). There is simply no comparison. Maharashtra State Electricity Board (MSEB) had enetered into a poor contract whereby the cost per unit was upwards of Rs. 7! That is plain cheating on the part of DPC or poor thinking on the part of MSEB while entering into the contract. MSEB was incurring a cost of about Rs. 2.80 in purchasing power from other companies owned by State or Central Government.

Compared to that, the price at which the private companies offer power to the Aptransco is fantastic. In fact, Reliance Energy, another much maligned private player, has agreed to sell power to Aptransco at a mere Rs. 0.98 per unit. YSR Reddy wants to push the price even further down!

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