The Andhra Pradesh government has constituted a high-level negotiation committee to deliberate and bring down the costs in all the high-priced power purchase agreements (PPAs) for wind and solar power projects signed during the term of the previous Chandrababu Naidu-led government, alleging corruption.
Recommended ArticlesView All
Vodafone-Idea Saga — Three parents but none to love
Feb 6, 2023 IST6 Min(s) Read
World Cancer Day 2023: Early detection is crucial for reducing the global burden
Feb 4, 2023 IST5 Min(s) Read
World Cancer Day 2023: A way forward to better management of cancer this year!
Feb 4, 2023 IST6 Min(s) Read
Pakistan economy at alarming level as foreign reserves drop to $3.1 billion from $16.6 billion in a year
Feb 3, 2023 IST3 Min(s) Read
Siva Subramanian, director, India Ratings, said the government’s intention is to reduce the cost of power. Given that the dues have mounted for many distribution companies and the stress they are facing, the government wanted to revisit the PPAs and negotiate on the tariffs, he said in an interview with CNBC-TV18.
This move by the government could likely impact 7000 MW worth of PPAs, he added. These PPAs have been signed over 4-5 years, so the tariffs have ranged between Rs 7 to Rs 5, Rs 6 or even Rs 10.
Talking about the impact on the debt, he said around 75-80 percent of the project cost is debt. So, on an average, if we take 7000 MW multiplied by Rs 5, then Rs 35,000 crore would be the project cost, and 75-80 percent of that could be impacted if it goes through, said Subramanian. So approximately Rs 28,000 crore of debt could be impacted.
According to him, several states have renegotiated in the past. “Many states have attempted this but PPAs has always prevailed in the end. However, there could be some kind of cash flow disruptions in between."
Case studies show that judicial courts have gone in favour of the PPAs, said Subramanian.
When asked about the end game be from the lenders point of view, he said, “Generally, stoppage of payments either precedes or succeeds this kind of attempts. AP for the last 7-8 months has delayed payments for many of the projects rated by them. So since last 5-6 months projects that do not have ample liquidity are facing trouble. All this is adding more pain to those projects,” he said.
“If the developer is strong in terms of maintaining liquidity either at project level or at the developer level, they would be able to sail through but small and medium developers who do not have this kind of liquidity buffers would eventually face a situation where banks would be put to the corner and they would have to recognise this as an NPA,” said Subramanian.