UP signs power purchase agreement with Gujarat government and Adani Power

The Mayawati-led BSP government in Uttar Pradesh has entered into a year-long power purchase agreement (PPA) with the Gujarat government and private utility Adani Power for 600 MW of electricity.

"State governments plan well in advance. They not only procure power for the short-term but also enter into medium-term contracts," said Power Trading Corporation's director (finance) Deepak Amitabh.

The state government's move may have been for political gains as state elections are to be held next year, but it has also helped narrow the demand-supply gap. As per a report of the Central Electricity Authority, the state received 6,028 MW of power in June against a requirement of 6,564 MW.

The PPA comes at a time when Gujarat is facing a problem of plenty. There are few takers for its 3,000 MW of surplus power, which is set to double in the coming months as private power producers add capacity.

Adani Power's average realisation dipped to as low as 2.82 a unit in the first quarter of the current fiscal, as against 3.36 in the corresponding quarter of the previous fiscal. Under the PPA, it will get 4.70 for every unit sold, including transmission charges.

Uttar Pradesh, on the other hand, is one of the largest buyers of power in bilateral trade and power exchanges. It also pays one of the highest tariffs in the country to procure it. In May, the state accounted for 20% of bilateral power trade, against only 3.8% in 2010 and 5.5% in 2009.

With elections less than a year away, it is also proving to be a lucrative market for power traders such as PTC, the country's largest power trading entity. Market players, however, have to consider the distribution company's ability to pay for expensive power, Amitabh said. PTC supplied power to five states, including Tamil Nadu that voted for assembly elections this year.

Bihar Chief Minster Nitish Kumar promised more electricity connections and economic growth to voters in his manifesto ahead of assembly elections this year.

The situation's not much different in Gujarat either. "Modi government has tied up for power with large industrial houses. However, power supply to farmers and rural Gujarat improves only at the time of Panchayat or assembly elections," said Gujarat opposition leader and former minister of finance, Shaktisinh Gohil. He, however, criticised the state government for exporting electricity instead of ensuring uninterrupted supply to rural areas.

"Ahead of elections, demand for coal by power utilities rises despite the poor financial health of state utilities, which are known for inadequate generation and load shedding. Total debt of state utilities is estimated at 1.25 lakh crore in the country," Feedback Infra associate director Rakesh Jain told ET on the sidelines of 'Power Sector India Roundtable 2011' in Gandhinagar.

This politics-power nexus may prove to be a bonanza for voters, some of whom may be reluctant to pay a higher price for electricity, but it has its down side: It hampers effective check on power theft and slows down privatisation of power distribution. This explains why Gujarat-based Torrent Power will have to wait longer to take over Kanpur's electricity distribution network.