3 years after Pinarayi govt scrapped power purchase agreements, cheaper power still eludes Kerala

Thiruvananthapuram: A move projected to save Kerala ₹800 crore has left the state waiting for cheaper power that is yet to arrive, three years after it scrapped long-term power purchase agreements worth 465 MW. The alternative sources cited by the KSEB are yet to materialise, even as the state grapples with an acute power shortage.

The agreements, signed during the Oommen Chandy government, were scrapped after the second LDF government recommended their cancellation. Following instructions from the then Chief Minister Pinarayi Vijayan, Power Minister K Krishnankutty placed a note before the Cabinet on November 8, 2022, seeking a decision on cancelling the agreements. The Kerala State Electricity Regulatory Commission subsequently cancelled them in May 2023, based on the Cabinet recommendation.

The KSEB had projected savings of around ₹800 crore from scrapping the agreements and assured the government that the state could meet its power requirements through cheaper sources from 2026-27. Among the sources cited were 500 MW under the Centre’s Shakti B(V) scheme, power from Neyveli Lignite Corporation’s Talabira station and power from NTPC’s Talcher-III station, all expected to become available from 2026-27. The KSEB had also informed the government that power from these sources was expected to cost less than ₹4 a unit.

None of these projected sources, however, materialised, even as the state grapples with an acute power shortage. Nor has the state seen the expected increase in generation capacity, as claimed by the minister then. Krishnankutty had also told the Cabinet that the Thottiyar and Idukki Extension projects would be completed during the period. Of the two, only the Thottiyar project has been completed, while the Idukki Extension project is yet to be commissioned.

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The agreements cancelled by the Regulatory Commission involved the purchase of 115 MW from Jhabua Power Ltd at ₹4.15 a unit and 350 MW from Jhabua-Jindal Power Ltd/Jindal Thermal Power Company at ₹4.29 a unit. The agreements were signed in 2014 by the UDF government.

The key objection was that the agreements did not comply with the bidding norms of the Union power ministry. The Centre had informed the state that it could not intervene after the agreements were signed, leaving the matter to the state government and the Regulatory Commission.

The then KSEB chairman, B Ashok, had written to the government stating that scrapping the agreements would result in savings of around ₹800 crore. A committee appointed by the government in 2021 subsequently recommended cancelling the agreements. The law secretary at the time, however, pointed out that there were legal avenues to rectify the deficiencies in the agreements.

Ashok, now Principal Secretary (Higher Education), said the objections to the agreements were not his alone, as was evident from the committee report. While several states had entered into long-term power purchase agreements based on the Centre’s 2014 bidding process, Kerala alone had made around nine changes to the terms, he said.

“Several states entered into long-term agreements following the Centre’s auction in 2014, but Kerala was the only state to make changes to the agreement. The Commission pointed this out in 2015 and demanded that permission be obtained from the Centre and the state government for the changes brought about,” Ashok said.

He said the previous government had not granted permission for the changes and that the agreement had more shortcomings than benefits. “The deficiencies in the power purchase agreements were mentioned in the report. It was in this backdrop that I stated that there were limitations to winning the bid under these contract terms and that preparing a fresh bid would be ideal. The KSEB, meanwhile, had also failed to establish the viability of the agreement before the Commission,” he said.