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Govt set to terminate Agreement with GVK on Ratle power project

Default proceedings to be initiated

Sanjeev Pargal
JAMMU, Feb 5: Nearly seven years after M/s GVK Developmental Projects Private Limited was awarded construction of 850 Mega Watt Ratle Hydroelectric Project over river Chenab at village Drabshalla in Kishtwar district, the Government has decided to terminate the Power Purchase Agreement (PPA) reached with the Company. The Government was likely to go for fresh global tendering for the project after getting the Cabinet nod.
Official sources told the Excelsior that the Government has taken a formal decision to terminate the PPA signed between Jammu and Kashmir Power Development Department (JKPDD) and M/s GVK Ratle Hydroelectric Project and procurement of power on long term basis from Ratle hydroelectric power station to be set up on BOOT (Built-Own-Operate-Transfer) basis over river Chenab in Kishtwar district.
“After termination of the PPA, the Government has decided to go for valuation and assessment of the assets of the project by engaging a third party after giving the seller (M/s GVK) an opportunity to associate with the process of evaluation,” they said.
The Government would take all necessary steps through Jammu and Kashmir State Power Development Corporation (JKSPDC) for expeditious development of the project.
Sources said the Government could go for fresh global bidding for the project, which had run into rough weather after M/s GVK had suspended work over the project on July 12, 2014 citing law and order situation.
In an official document, the Government has strongly contradicted the issues raised by M/s GVK.
“The Seller (M/s GVK) complained that lease deed has not been signed but the reason for it is that they seek incorporation of provisions in the deed, which are inconsistent with the State’s laws. The Seller has demanded exemption from Value Added Tax (VAT) and other taxes, but there was no such commitment to exempt these taxes. It (the Company) has expressed apprehension that Pakistan might demand changes under Indus Water Treaty (IWT), which could affect the project cost/design energy, but the PPA already factors it in as a Force Majeure, and at this stage, the Seller’s apprehensions that some changes may be necessitated is premature.
“The Company has claimed that the Circular issued by JK SPDC on employing locals in the project has created trouble, but the Circular was only meant to facilitate employment of locals subject to suitability. The SPDC had even stated that it would withdraw the Circular if the need for that is established. The Company’s claim that slow disbursement of compensation caused ill-will among locals was not true,” sources said.
Noting that the Company had earlier proposed to forego 50 per cent of equity brought in by them amounting to Rs 230 crores but in lieu of that they wanted the process to be initiated to take over the project including the financing arrangements with proper due diligence, sources said a Committee was set up to examine their request, which reached a clear and unanimous conclusion that a `Seller Event of Default’ had indeed taken place and advised that it be dealt with in the manner provided for in the Power Purchase Agreement.
Sources said the report of the Committee was also examined in the Power Development Depart-ment and later by a high-level Committee headed by Financial Commissioner Planning, Develo-pment and Monitoring Department, which included Administrative Secretaries of Power, Finance and Law Department as members.
“The high-level Committee was also of the considered view that proceedings for ‘Seller Event of Default’ should be initiated against the Company.
Sources said the Government proposed to terminate the agreement so that no more time is wasted and options for execution of the project are re-worked. However, this will be subject to approval of the Cabinet. The Government would take all the steps after they are vetted by the Law Department to avoid long litigations or arbitrations as in that case fate of the project would suffer further.
The Ratle Hydro Electric Project, a run-of-the river scheme, was the first Hydro Power Project in the country, which was awarded on tariff based International Competitive Bidding process for development on Built-Own-Operate-Transfer (BOOT) basis for a period of 35 years.
The project was proposed to be completed by February 2018.

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