CAG pulls up Tangedco for non-termination of PPA with PPN

CHENNAI: Comptroller and Auditor General of India (CAG) has pulled up the Tamil Nadu Generation and Distribution Corporation (Tangedco) for failing to terminate the power purchase agreement (PPA) with the PPN Power Generating Company Ltd resulting in avoidable payment of Rs 453 crore without obtaining a single unit of power and recommended fixing responsibility for non-termination.

In the compliance audit report for the year ended March 2021, it said that TNEB entered into a power purchase agreement with PPN for the supply of 330 MW generated through a fuel mix of gas and naphtha in the ratio of 70:30.

It said that the TNEB gave consent for use of 100 per cent naphtha (a higher-cost fuel) as an alternative fuel till natural gas was made available based on the PPN statement that the gas would be available from mid-1998.

PPN gave an undertaking to the TNEB to limit the fuel supply agreement to 15 years.

The CAG said that Tangedco purchased from PPN up to June 2016 and made the payments as per the terms provided in the PPA. After completion of the approved FSA, PPN requested (June and August 2016) further extension of FSA to operate the plant with naphtha for another five years up to 2021.

The Tangedco replied that the permission to use naphtha as an alternative fuel was granted as a temporary measure to enable PPN to achieve the financial closure of the project.

"Tangedco further stated that PPN may claim the fixed charges as and when the plant is made available on natural gas and no payment would be made for any invoices for the period after June 2016. The board of the Tangedco had also decided not to extend the FSA with naphtha as fuel for a further period and resolved to file a petition before the TNERC seeking to direct the PPN not to declare availability without a valid FSA. However, PPN continued to submit their invoices for fixed charges beyond June 2016 and its total claim up to April 2021 was Rs 813.24 crore," it said.

Audit noticed that Tangedco neither terminated the PPA nor filed any petition before TNERC but paid Rs 453 crore to the PPN.

As per the PPA, the availability of fuel to operate the project was the obligation of the PPN. Tangedco failed to issue a notice of default as provided in the PPA, it said.

The government replied that Tangedco did not file the petition before the TNERC following the advocate general advice confirming the legal liability to honour the PPA to its full tenure of 30 years. However, CAG recommended the termination of the PPA and also fix responsibility for the non-termination of the agreement.