I wonder why this kind situation arises with govt operated companies. Yea, I know the answers are obvious but the amount of laxity on the part of govt. amuses me every time I come across something like this. If you do so, go through this..

HYDERABAD: Andhra Pradesh Power Generation Corporation Limited (APGenco) is on the verge of collapse. A study conducted by three analysts of the power sector said “for all practical purposes, APGenco has become a sick industry even by projections made by the government”.

The study which deeply probed the reasons for distortions of the power sector in AP, squarely blamed the government, both the current Congress one as well as the previous TDP regime, for the predilection of APGenco which has been discriminated against to benefit independent power producers (IPPs) like GVK, Lanco, Spectrum, BSES, which are one way or other owned by politically well connected families.

Two power economists B Saranga Pani and M Thimma Reddy and former engineer N Sreekumar, in their report “Power Sector Reforms in Andhra Pradesh: Their Impact and Policy Gaps,” released recently, said: “The private investors obtained approvals for their proposals with the willing co-operation of the political leadership.”

The study was commissioned by the Centre for Economic and Social Studies, Hyderabad. The report listed at least five ways by which Genco was being systematically dismantled. Firstly, the report said, the purchase of power from Genco has been cut year after year. “Secondly, a level playing field was denied to Genco vis-a-vis IPPs. Thirdly, incentive norms are different for Genco and IPPs. Fourthly, Genco is not allowed to have minimum rate of return on equity (RRE) while IPPs are allowed 16 per cent rate of return on equity. Lastly, the letter of credit and escrow accounts were not made available to Genco as in the case of IPPs.”

By this power purchasers have to keep guarantee money in a designated account that can be forfeited if it fails to pay up for the power. Due to decline in purchase of power from Genco, its thermal units are facing the biggest ever threat of closure. “Not a single unit was purchased from Rayalaseema Thermal Power Plant in 2004-05,” the study says. The plant, which won many awards for efficiency, is located a few km from the chief minister’s native constituency Pulivendula, Kadapa.

The report said, while between 1998-99 and 2005-06, the proportion of power purchased from Genco declined from 67 per cent to 51 per cent, the power purchases from IPPs increased from 11 per cent to 16 and central generation stations and other SEBs increased from from 22 per cent to 33 per cent.

This, the report said, increased the purchase cost by 77 per cent and the increase was attributable to high cost of power purchased from IPPs. The private companies benefited in two ways. In 2004-05 alone, the private companies received Rs 335.7 crore extra over NTPC as fixed costs and Rs 400 crore more by the increased purchases to Genco.

The experts also disagreed with the contention of the government not to review the high cost power purchase agreements with IPPs as was done by Maharashtra and Gujarat.

“The Gujarat government successfully negotiated with the IPPs and brought down the fixed costs by more than Rs 500 crore,” the report said suggesting that a closer look of the Gujarat exercise is needed to reduce the burden of the inflated cost of the IPPs in Andhra Pradesh.

Source: TOI