Six power distribution utilities invoke force majeure clause, tell private sector generators not to expect payment

The Covid-19 outbreak has left private sector power generators out in the cold. Over the last two days, at least six state-run power distribution utilities (discoms) asked private sector gencos, with whom they have entered into power purchase agreements (PPA), to shut down and not expect any payment till further notice.

The discoms of Uttar Pradesh, Punjab, Haryana, Telangana, Madhya Pradesh, and Dadra and Nagar Haveli (a union territory) have invoked the force majeure clause for an indefinite period. According to the Punjab State Power Corporation Ltd (PSPCL), the decision has been taken in view of a “drastic reduction in demand” due to the shutdown of industrial units.

“You are hereby intimated that PSPCL is forced to stop scheduling of power from your plant…As the situation eases out, PSPCL will again start scheduling power from your plant, as per requirement of load/demand of the State and for that you will be informed accordingly,” said PSPCL.

Contract violation?

What is unique in this notice is that discoms are absolving themselves from paying even the fixed charges or the cost of installing a power project, which includes repayment obligations to lenders.

All PPAs come in two parts: fixed and variable. A buyer may be absolved from payment of variable cost but payment of fixed charges is mandatory, unless and until the contract is scrapped altogether.

“The notice may grant discoms unilateral rights to revise the terms and conditions of a PPA, as they may take lower delivery of power and deny paying fixed charges to the extent decided in the contract,” said a source with knowledge of regulatory affairs. He felt the notice was not legally tenable.

According to the Association of Power Producers (APP), a body of private sector gencos, the force majeure notice was issued in complete violation of the PPA.

Ashok Khurana, director general of APP, told BusinessLine that the coronavirus outbreak has indeed caused a national emergency and all stakeholders were ready to share the burden. However, by refusing to pay the fixed charges, the discoms had passed the buck to gencos.

Khurana noted that the RBI had only granted a moratorium on payment of instalments, and not a waiver.

Going overboard

According to APP, discoms have misinterpreted a press release issued by the ministry of power on March 28 in view of the lockdown.

The ministry asked Central PSUs (such as NTPC) to take a lenient view in case discoms fail to pay their dues. The Central Electricity Regulatory Commission was asked to specify a reduced rate of late payment surcharge and discoms were granted a longer window for repayment.

“The States appear to have misinterpreted the intent of the Power Ministry (in) ... the relaxations, by sending force majeure notices to generators, ostensibly to…absolve themselves of their obligations under PPA,” APP wrote in a letter to the Secretary of Power on March 31.

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