The curious case of Dadri II

By Somit Dasgupta

On March 29, 2022, the Centre reallocated 728 MW of power from the Dadri II station (owned and opeated by the National Thermal Power Corporation, or NTPC) from Delhi to Haryana. The reallocation was done ostensibly because of a letter from the Delhi government issued in 2015, asking for a reallocation for Dadri II. The reallocation matter has been widely reported in the press and, according to these reports, the Delhi government and the Delhi distribution companies (discoms) have lodged a strong protest, and the matter has now reached the Delhi High Court that has stayed the order till the end of this month.

A few facts on this subject are worth highlighting. First, the request for reallocation was made in 2015 when the peak demand in Delhi was about 5,800 MW, compared to more than 8,000 MW expected this summer. So, the ground reality has completely changed. Second, it is a valid power purchase agreement (PPA) that is valid till 2035. Whether the Centre reallocate a PPA is debateable, notwithstanding Section 55 of the CERC tariff regulations, and this issue will definitely be argued in the courts. PPAs, of course, can be terminated in case there are issues of non-payment or if the discom(s) loses its license for whatever reason, but that is not the case here. Third, the reallocation was made on March 29, and was to be made effective from April 1, 2022, leaving almost no time for the Delhi discoms to arrange for alternative power. Getting power from the power exchange—when it involves such a huge quantum—would be difficult and, in any case, the price of power in the exchange is going through the roof, at almost Rs 20 per unit. The Central Electricity Regulatory Commission (CERC), however, has now capped the price at Rs 12 per unit.

Incidentally, the PPA of Dadri I is also under litigation. The BSES discoms want to exit the PPA since its life of 25 years is over and no power is being drawn from Dadri I because of its high energy cost. The consumers of Delhi, therefore, were unnecessarily paying the fixed cost without any benefit. The matter was last heard in the Appellate Tribunal for Electricity (Aptel) and the order (pronounced on February 8, 2022) stated that the discoms affected were free to exit the PPA and that the fixed charges collected by NTPC after the completion of 25 years (i.e., December 1, 2020) of the PPA should be refunded to the discoms with interest. The generator (NTPC) wanted to keep the PPA alive even after its life of 25 years and keep pocketing the fixed charge collected from the hapless consumers. NTPC is well aware that Dadri I is a test case and if the discoms are allowed to exit this PPA, other similarly placed gas stations (like Anta and Auriya of NTPC) will also meet the same fate.

One would not really like to labour on why the Centre decided to reallocate power from Dadri II, and readers are intelligent enough to draw their own conclusions. Rather, one would like to spend some time describing how litigation concerning PPAs are causing harm to the sector. Of course, the brunt is being borne by the renewable sector whose PPAs are being questioned repeatedly by the states due to the falling cost of solar tariffs. There are several states which are guilty of such high-handedness, though the latest in the series is Andhra Pradesh. It is quite obvious that such action by the states has vitiated the investment climate and is one of the reasons why the tempo of installation of renewable capacity has come down. The case of Dadri II is of course different, but, here again, it is the poor PPA which is the bone of contention.

As far as Delhi discoms are concerned, there is no doubt that, in this case, privatisation has been successful where losses have come down from more than 50% in 2002 (the year of privatisation) to single-digit figures of about 8% today. We do not have too many examples in India of such success, and we need to showcase these for demonstration to prospective investors. The government has itself conceded that privatisation will be one of the modes to improve the power sector and that the distribution sector in the Union territories would be privatised. A beginning was made in this regard with Chandigarh. Therefore, it would be good if all stakeholders get together and ensure that the Delhi discoms continue to portray themselves as discoms worthy of emulation. By reassigning their valid PPAs, the discoms’ attention is diverted from consumer welfare to a fight for survival.

One will now have to wait to see how this story unfolds. The government has said that no decision should be taken without hearing Haryana, to whom the power has been reallocated. In case Delhi eventually loses its allocation from Dadri II, it may be forced to accept power from the costly Dadri I, which it has earlier renounced. One cannot help but wonder if this is what it is all about.

Senior visiting fellow, Icrier, and former member (economic & commercial), CEAViews are personal