Punjab 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 the 270 Mega Watt power generation unit Goindwal Sahib Thermal Power Project of GVK Power & Infra Ltd in Tarn Taran district of Punjab.

The PSPCL has issued a termination notice to the company. A preliminary default notice has been served by PSPCL to GVK today for 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 percent to 30 percent during most of the times of a year resulting in higher tariff of about Rs 7.52 per unit for last year.

Channi said this step had been taken to safeguard the interest of consumers of the State by way of reducing the burden of costly power.

Divulging details, a spokesperson of the Chief Minister’s Office said that the basic premise of entering into PPA by GVK with PSPCL was to provide cheaper power to PSPCL. GVK had been generating energy by arranging coal from CoIndia Limited under SHAKTI Policy.

As per PPA, GVK was required to arrange a captive coal mine but it failed to do so, even after the lapse of more than five years of synchronization with the grid, he added.

The spokesperson said the capacity charges are being decided by Punjab State Electricity Regulatory Commission (PSERC) based on a capital cost of around Rs 3058 Crore, which is equivalent to about Rs.1.61 per unit of fixed cost.

Going against this decision, the spokesperson mentioned that GVK had moved to Appellate Tribunal for Electricity (APTEL) for claiming the higher fixed cost to the tune of Rs.2.50 per unit based on claims of the capital cost of about Rs 4400 Crore which is pending adjudication.

As per claims made by GVK, the spokesperson said variable cost is around Rs 4.50 per unit and fixed cost is around Rs 2.50 per unit.

Thus, the total claim of GVK under tariff comes out around Rs Seven per unit which increases further due to the surrender of its costly power.

Therefore, the intention of GVK is clear that it requires a higher tariff which is not the basic premise on which PPA was entered into with PSPCL. This has created a commercially un-viable for PSPCL to continue PPA with GVK, the spokesperson said.

“Moreover, the GVK had defaulted for not clearing dues accrued to it timely, against the loans taken by it from various lenders.

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

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