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Captive power units held ‘captive’ by AP Govt

Amit Mitra
About a decade ago, both the Centre and the erstwhile Andhra Pradesh Government had encouraged big industrialists to set up their own captive power units in the State, showering them with incentives and tax concessions. But today, the same captive units are being literally held ‘captive’ by both the Andhra Pradesh and Telangana Governments.
Not only are the two State Governments unwilling to pick up the surplus power produced by these units in accordance with the guidelines and commitments made earlier, but they have also reneged on their promises of incentives to the units. To make matters worse, the AP Government has imposed such a heavy cross-subsidy burden on these units that they cannot sell the surplus power to third party consumers as it would be economically unviable at these rates.
Thus, the captive units, which have a combined capacity of about 400 mw, are forced to operate at below 50 per cent capacity levels for the last nine months, even as the AP Government has to pay substantial dues to these units in the form of incentives earlier announced.
After the Andhra Pradesh Government expressed inability to pick up power from them, the captive power units in the State had to turn to Telangana to buy their surplus power in May this year. But even, India’s youngest State had expressed the same inability, citing gloomy pick up in industrial activity and recent capacity addition in the power sector as the chief reasons.
Said Mr Neeraj Sarda, Chairman of Sarda Metals and Alloys: “This is leading to a serious cash crunch for us. We are now appealing to the Andhra Pradesh Government that even if it is not able to pick up our power, the least it can do is reduce the cross-subsidy burden for us, so that we can sell our power to third party consumers. At the current cross-subsidy rates, it is just not viable for us to sell our power.”
Sarda has a 80 mw captive unit, with a surplus of about 40 mw.
It was in 2003-04 that the Centre came up with the policy that major power consumers such as the steel and ferro alloys sector, should set up captive units. To incentivise them, the Government had allowed them to sell 49 per cent of their generation to the state grids, so as to make the operation economically viable. Both the Centre and state government also added their bit by doling out incentives such as tax relaxations.
“When we fail to deliver our promises, the government slaps stiff penalties. But when it is failing to keep its commitments, what are we to do? At least, the State Government can give us bonds, if it faces financial crunch. We can monetise the bonds at a later date,” a senior trade source said.
The Indian Captive Power Producers Association feels that one way these units can wriggle out of the situation is to form into Group Captive Power (GCP) units. “Many states have done this. In fact, what the units are facing is happening in other states also,” says Mr Rajiv Aggarwal, ICPPA secretary.
The AP Captive Power Producers Association is scheduled to meet the State Chief Secretary to discuss this issue.

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