PSPCL’s pact with power companies “one-sided, tilted in favour of pvt discoms”, says Punjab AG

Advocate General Atul Nanda seeks inquiry into the wrongdoing, action against those who drafted the PPAs

PUNJAB ADVOCATE GENERAL Atul Nanda on Thursday slammed those responsible for drafting PPAs for the state with power companies, calling them “one-sided” and “tilted in favour of private power producer.” The move comes a fortnight after Punjab Chief Minister Captain Amarinder Singh sought a legal opinion on renegotiating controversial PPAs with GVK Power and Damodar Valley Corporation (DVC) for Raghunathpur Thermal Power Plant.

In his legal opinion submitted to the CM, Nanda has also said that the PPAs have been drafted in a manner that PSPCL can never terminate such agreements unless it consciously breaches them. In that case, the utility will have to face huge financial implications. He has said that the PPAs have put PSPCL in an “extremely weak bargaining position”. He opined that the government should fix responsibility as to how such PPAs were executed in the first place.

The Advocate General has also sought an inquiry into the “wrongdoing” while stating, “On the one hand the power producers enjoy high fixed costs during the term of the PPA and then become entitled to huge damages in law when PSPCL has to breach the PPA merely in order to exit it. It must be inquired as to whether the language of these PPAs, as executed, were appropriately legally vetted, whether the exorbitant recurring, fixed long term costs — amounting to hundreds if not thousands of crores of rupees — was taken into account and whether the people responsible for authorising the execution of these agreements as drafted were conscious of the financial and legal implications of the same.”

The legal opinion places on record the allegations that the previous SAD-BJP government has been facing flak for entering into PPAs to allegedly “benefit the private power plants.” It also brings into focus the lack of action by the incumbent government even as it had promised a white paper on the issue. Even after completing four and a half years, the government has not been able to do anything about the PPAs yet.

Recently, the issue was raised by several Congress MLAs during their meeting with Mallikarjun Kharge. In its report, the Kharge panel asked the CM to renegotiate the PPAs. The CM said the government was in the process of doing so. But with the AG’s opinion now, the government has hit another roadblock, as the terms of agreements have been drafted in such a way that the power utility will be unable to terminate the agreements.

In his opinion, the AG has said, “I must record my concern as to the manner in which these PPAs have been structured and signed. The language of both these PPAs puts PSPCL into an extremely weak bargaining position, loaded with astronomical fixed charges and with all rights are tilted in favour of the private power producers. The document reads like a one-sided agreement in favour of the private power producer and against PSPCL.”

The AG notes that that the PPA dated April 14, 2000, signed with GVK Power, obligates PSPCL to pay huge Annual Fixed Costs which is pending adjudication before the PSERC. As per the PSERC calculations, this is likely to be determined at Rs 500 crore per annum, as opposed to GVK’s claim of Rs 900 crore per annum. The PPA does not even give a right to termination to PSPCL. It is only when the PSPCL breaches the PPA under clause 14.2 that GVK has the option to either terminate the PPA or force PSPCL to perform its obligations by seeking specific performance of the PPA.

“Even if and when GVK chooses to opt to terminate, as per Clause 14.4, then for a period of three years PSPCL will have to continue to pay capacity charges of Rs 1295 crores. No party, much less a public utility whose ultimate endeavour should be to protect the public exchequer, could ever have entered into/executed such a faulty and one-sided agreement,” the AG has said.

He has further stated that the position of DVC is even worse, where PSPCL is paying an exorbitant rate of Rs 4.56 kwh. “Here, a 25-year-PPA has been signed which has no termination clause at all. As per the PPA, after every five years, PSPCL can only submit — with regard to the Ragunathpur Plant — to DVC a proposal to review the PPA and even this is to be on a mutually agreed basis. Thus, PSPCL is burdened with a 25-year-agreement involving fixed charges, whether or not such electricity is drawn and without even a legal option to terminate.”

The only course left available is for PSPCL to stop performing the PPA which will put it in a legal breach of the agreement and then allow DVC to claim damages in law. The DVC on May 10, 2020, in fact rejected PSPCL’s proposal to stop drawing power under this PPA.

“I would strongly urge PSPCL and the department of power to examine as to how such PPAs could have been executed in the first place and to fix responsibility. The PPAs have been drafted in a manner that PSPCL can never terminate such agreements unless it consciously breaches them,” he says.

The AG has also said that since the PPA does not contain any provision in this respect, if DVC does not agree for termination, it is likely to mount a legal challenge.

Interestingly, the government was in the process of preparing a white paper and the CM had called a meeting of a few ministers to run it by them. Jails Minister Sukhjinder Singh Randhawa and Rural Development Minister Tript Rajinder Singh Bajwa had rejected the white paper stating it skipped fixing responsibility. Randhawa had later said that the officials who were responsible for drafting of the PPAs were the ones preparing the white paper also.

The legal opinion was sought from Advocate General after the intervention of the Chief Minister himself, who is learned to have made a noting on the file that the matter is referred to the AG. Before this, the CMD of PSPCL had in June stated that there was no considerable growth in power consumption in the state in the last few years and solar power was available at Rs 2.50 to Rs 2.75 per unit. The CMD had demanded that the existing costly PPAs need to be reviewed and a legal opinion be sought. A day later, ACS, Power, Anurag Agarwal had stated that the PSPCL should first do due diligence and then come with options. Agarwal had said that the matter should be referred to a reputed advocate with experience in the power sector or the AG.

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