Punjab Chief Minister Charanjit Singh Channi on Saturday approved a proposal of power utility Punjab State Power Corporation Limited (PSPCL) for terminating the power purchase agreement (PPA) with private sector electricity generator GVK due to high cost.

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PSPCL has issued a termination notice to the company, according to an official statement.

The development assumes significance as several Punjab Congress leaders, including Navjot Singh Sidhu, have been pressing for scrapping 'faulty' PPAs signed during the previous SADBJP regime to provide electricity to people at cheaper rates.

"A default notice has been served by the PSPCL to GVK on Saturday for cancellation of the 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 per cent to 30 per cent during most of the times of a year resulting in higher tariff of about Rs 7.52 per unit for the last year," the statement said.

Channi said this step has been taken to safeguard the interests of consumers by way of "reducing the burden of costly power".

A spokesperson of the Chief Minister's Office said the basic premise of entering into the PPA with GVK was to provide cheaper power.

The GVK power project was set up at Goindwal Sahib with a capacity of 2X270 MW. GVK has been generating energy by arranging coal from Coal India Limited. As per the PPA, the company was required to arrange a captive coal mine but it failed to do so even after the lapse of more than five years of synchronisation with the grid, he added.

The spokesperson said the capacity charges are being decided by the Punjab State Electricity Regulatory Commission (PSERC) based on capital cost of around Rs 3,058 crore, which is equivalent to about Rs 1.61 per unit of fixed cost. He said GVK went against this decision and moved the Appellate Tribunal for Electricity (APTEL) for claiming higher fixed cost to the tune of Rs 2.50 per unit based on claims of capital cost of about Rs 4,400 crore, which is pending adjudication. As per claims made by GVK, variable cost is around Rs 4.50 per unit and fixed cost about Rs 2.50 per unit, the spokesperson pointed out. Thus, the total claim of GVK under tariff comes to around Rs 7 per unit which increases 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," the spokesperson said.

This has created a commercially unviable situation for PSPCL to continue the PPA with GVK, he added.

The spokesperson further said GVK had allegedly defaulted on 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 it failed to do, he alleged.

Accordingly, the lenders approached the National Company Law Tribunal (NCLT) for a resolution plan for GVK. The matter is under consideration before the tribunal, the spokesperson added.

(Edited by : Thomas Abraham)