Chief minister Charanjit Singh Channi on Saturday approved the Punjab State Power Corporation Limited’s (PSPCL) proposal to terminate the power purchase agreement (PPA) with GVK Goindwal Sahib (2x270 MW) plant. Subsequently, the PSPCL issued the termination notice to the company.

The termination of power purchase agreements (PPAs) made during the previous SAD-BJP government was the promise of the Congress before coming to power in the state and the previous dispensation of Capt Amarinder Singh was criticised for not doing enough to terminate them.

This is the first agreement being terminated by Congress government in Punjab.

Default notice issued for high power cost

According to a government spokesperson, a preliminary default notice was issued by PSPCL to GVK on Saturday for the cancellation of PPA due to high power cost and falling lowest in the merit order, procurement of energy from GVK that had been restricted only within the range of 25% to 30% during most of the times of a year resulting in higher tariff of about ?7.52 per unit for last year.

The chief minister said this step had been taken to safeguard the interest of consumers of the state by way of reducing the burden of costly power.

The spokesperson said the basic premise of entering into a PPA by GVK was to provide cheaper power to PSPCL. GVK had been generating energy by arranging coal from Coal India Limited under the Shakti Policy. As per the PPA, GVK was required to arrange a captive coal mine but it failed to do so, even after more than five years of synchronization with the grid, he said.

The spokesman said the capacity charges are being decided by Punjab State Electricity Regulatory Commission (PSERC) based on capital cost of around ?3,058 crore, which is equivalent to ?1.61 per unit of the fixed cost.

GVK moved appellate tribunal

Going against this decision, the spokesperson said GVK moved the appellate tribunal for electricity (APTEL) for claiming a higher fixed cost to the tune of ?2.50 per unit based on claims of capital cost of about ?4,400 crore, which is pending adjudication.

According to GVK, the spokesperson said that the variable cost is about ?4.50 per unit and fixed cost is around ?2.50 per unit. Thus, the total claim of GVK under tariff comes out to around ?7 per unit, which is increased further due to surrender of its costly power. Therefore, the intention of GVK is clear that it requires to charge higher tariff which is not the basic premise on which the PPA was entered into with PSPCL. This was commercially unviable for PSPCL to continue the PPA with GVK.GVK defaulted on loan payments

The spokesperson said GVK had defaulted by not clearing dues accrued to it, against the loans taken by it from lenders.

Consequently, it had become a stressed asset and a resolution plan was required to be implemented by GVK, which it failed to do.

Accordingly, lenders have approached the National Company Law Tribunals (NCLT) for a resolution plan for GVK, which is under consideration before the tribunal, the spokesperson said.