PAC takes note of agreement loopholes allowing project developers to renege on expectations

GANGTOK, 03 Feb: The Public Accounts Committee [PAC] has taken serious note of various lapses while awarding power projects to private players in 2008-09. The 96^th Report of the PAC on the Report of the Comptroller and Auditor General of India for the year 2008-09 was tabled in the Legislative Assembly on 29 January last month.

The PAC has taken serious note of the fact that once the projects are awarded to private developers after the fulfillment of necessary procedures, the failure of the company to construct the project within the stipulated time frame or instances of shutting down after the commissioning led to consequent loss of potential energy revenues of the state.

The Audit Report had revealed that the state government did not incorporate specific conditions in agreements to safeguard its interests in such cases where the power plants had to be shut down.

The PAC has asked for details of the visits conducted by the Eastern Region Power Committee, GOI and that of Sikkim State Electricity Regulatory Commission and their consequent findings on failures of private developers, if any and necessary action taken thereof.

Further, the CAG report had also revealed that modalities and strategy for transfer of projects on expiry of agreement period including the manpower engaged in the projects had not been formulated by the state government.

The committee has recommended that these be worked out and completed within a clearly set timeframe.

The Audit Report had disclosed that as per the agreement entered with the Independent Power Projects [IPPs] in six joint venture projects of 100 MW and above with the state’s share of 26 percent equity by way of execution of equity subscription agreement, which was supposed to be executed within six months from the date of signing the agreement for award of the power projects, had not been signed even after three years of award of project.

In response, the Energy and Power department had stated that the process for execution of equity share subscription agreement had been initiated and a draft agreement has been forwarded to the state government for approval.

The PAC report adds that the state government is working out details of the equity amount to be infused by the state and other aspects in coordination with developers.

With regards to 10 power projects signed between 2002-03 not being charged any ‘processing fees’ or ‘upfront premium’ the department said that it was a “conscious decision of the state government not to charge the upfront premium on the developers since the developer had to do the pre-feasibility study at their own cost and collection of such fees would unnecessarily burden the capital cost of projects thereby raising the cost of generation”.

It was further stated that this was done in order to attract more developers to the state.

The PAC accepted this explanation and recommended the department to ensure that such projects ultimately benefit the state in the long run.