Viability at stake

With reference to the front-page report, “SC pulls the plug on Tata, Adani power tariff relief” (April 12) by Shreya Jai and Hamsini Karthik, while the Supreme Court’s judgment prevents the two companies from passing on the increase in imported coal costs to consumers, it is likely to put such companies further in the red.

The government needs to have a relook at power purchase agreements, particularly what constitutes force majeure conditions. Considering the huge investment required to set up a large power plant, it is critical that power companies have more leeway to pass on cost increases to consumers.

The quality of coal in India is often not of the requisite quality; this compels power generation companies to import coal from countries such as Indonesia. Unless large companies are able to pass on cost increases due to unforeseen circumstances, including rupee depreciation and increase in international coal prices, to power consumers, such companies are likely to run into financial crises as principal and interest repayments kick in on top of huge working capital requirements.

Instead of allowing such companies to become financially unviable, with attendant consequences such as a jump in nonperforming assets (NPA) of banks, it would be commercially prudent to allow these companies to raise power tariffs.

The commercial viability of the power sector is in public interest both because of the huge capital invested and the large number of jobs at stake. An improvement in their financial position would help reduce NPAs of banks and the quantum of the bailout package of public sector banks. This in turn would help control fiscal deficit and inflation.

Srijit Basu Gurgaon