Even though the state government has identified the power sector as a key investment area, it has meted out a raw deal for the private sector companies that have already made huge investments in the state.

Blatantly violating the 20-year power purchase agreement that it had signed with the independent power producers, the government has stopped making payments to the private electricity generation firms in a bid to force them to revise the PPA.

"To make the matters worse, there is a constant shortage of power, except in Ahmedabad and Surat, which are, however, being supplied by private companies, such as Torrent Group. The IPPs invested here in good faith without seeking a Central government guarantee and are now regretting for the huge investments made in a wrong place," said an industry expert, who sought anonymity.

"In case these firms close down power production, the state government will face shortage of another at least 900 mw of power daily."

The state has four power producers in the state. While Gujarat State Energy Corporation Ltd and Gujarat Industrial Power Corporation Ltd are state-owned, Essar Power and Gujarat Paguthan Energy Corporation Ltd are the private ones.

So far, these firms have invested around Rs 6,000 crore (Rs 60 billion). While Essar Power has set up a 300 mw unit, GPECL has set up a 615 mw unit. GIPCL has two generation plants of 155 mw and 240 mw, while GSECL has a 156 mw plant.

In the case of private firms, the GPECL PPA was signed in 1993, while the Essar Power PPA was signed in 1995.

According to the PPA, power firms can sell power only to the Gujarat Electricity Board and to no one else within or outside the state.

Apart from deducting 20 per cent of the sum that the companies must get, the state is also deducting a rebate of 2.5 per cent even in case of late payments. Actually, the rebate is for payments made on time.

About a year ago, the government informed all the power producers that it wanted to re-negotiate the terms and conditions of the PPA.

Although the PPAs are for 20 years, they can be changed if mutually agree by both the partners.

Interestingly, the government amended the PPAs of GSECL and GIPCL about a month ago, while the PPAs of GPECL and Essar Power are yet to be re-negotiated.

Moreover, the government filed cases against all the power generation firms, including the state-run ones, with the Gujarat Electricity Regulatory Commission for not abiding the terms and conditions.

There has not been a single hearing of the case, so far. While GERC had no chairman for about a year until May this year, there has been no progress even after the appointment of the new chairman, G Subba Rao.

In a decision taken unilaterally, the government has been deducting 20 per cent of the amount it owes and Rs 30 crore (Rs 300 million) from the total payment to the producers.