Bill shock for power producers

Sun 10 Feb 2019


What happens if you don’t pay your electricity bill? The power company cuts you off (unless you happen to be a politician, slumlord or goon), right? Now what happens if you happen to be the power company, and haven’t been paying your bills to your supplier — the power generating company?

Ideally, the same rules should apply. After all, what is sauce for the goose must be sauce for the gander. Only, the same rules don’t apply. All kinds of reasons are trotted out: power distribution companies (discoms) are essential utilities, electricity is a basic requirement, the discoms are all (or, almost all) owned by the government so the money isn’t going anywhere, and so on and so forth.

The power problem

Usually, the generators tend to cave in and simply let the dues mount till they reach a point where they can’t pay their suppliers or their employees and then the cycle of threat and bargaining starts. Last week’s stand-off between India’s largest power producer, NTPC, and the discoms of Andhra Pradesh, Telangana and Karnataka is a classic example.

Stuck with unpaid dues of over Rs. 5,838 crore, of which more than Rs. 4,100 crore were due for more than two months, NTPC threatened to “regulate” supply — effectively, reduce by over 3,400 MW the quantum of power it supplies to these three discoms — from midnight of February 5. Within a day, threat was kept in abeyance, with the three discoms promising to pay “as soon as possible”, although no clear date was given. Needless to say, with all three States ruled by non-BJP parties or coalitions, there was considerable political pressure to not make it seem like a BJP vendetta.

That may have solved the political problem, but it doesn’t solve the power producer’s problem. As of November 2018, the latest month for which data are available, the money owed by discoms to power producers was over Rs. 41,000 crore. That number will climb closer to the Rs. 55,000 crore mark, if you add the dues which are still within the 60-day credit offered by generators. Pending payments are growing at 29% per year.

This is clearly unsustainable. If power producers don’t get paid, their only option is to go belly up or shut shop, since power distribution is, for all practical purposes, a monopoly. If you have only one customer and that customer isn’t paying you, there’s little you can do. This is one of the reasons why over 30,000 MW of capacity is currently under the “stressed asset” category and looking for resolution. With or without resolution, lenders are already facing a monumental haircut. If one adds productive, operational assets to this — because the buyer is not paying up – then we are looking at a systemic collapse.

Currently, the accumulated losses of discoms are in excess of Rs. 17,000 crore. But this is after two years of the government’s Ujwal DISCOM Assurance Yojana (UDAY), instituted after the cumulative losses of discoms crossed Rs. 51,000 crore in 2015-16. Under the scheme, State governments took over the liability for half the accumulated losses, allowing the discoms to start with a near fresh slate. In return, discoms were expected to cut losses resulting from theft, non-metering and leakages to 15% of the total by March 31, 2019, while gradually increasing tariffs to cover the rest. With just a little more than a month left for that deadline, the loss figure is still over 20% — which means a fifth of the power produced doesn’t earn a paisa — while tariff hikes and axing of subsidies hasn’t happened.

India’s power problem, long thought to lie on the generation side, has shifted to the distribution side. We are now comfortable on the generation side. But with State governments stubbornly refusing to change, using discoms as handy vehicles to push all kinds of populist agendas without actually having to spend their budget monies on it, the discoms have virtually reached the point of no return.

A workable solution

The Centre has taken several shots at solving this. Initially, privatisation was thought of as the panacea, but the experience with privatised discoms has been only marginally better (Mumbaikars are up in arms over sharp bill increases after Gautam Adani bought out Anil Ambani’s distribution utility there). Then the Modi government came up with UDAY. But clearly, UDAY too has just kicked the can down the road, since discoms haven’t cleaned up their act.

In 2018, a high-level committee headed by the Cabinet Secretary suggested that public financial institutions like the Power Finance Corporation discount discom receivables and pay power producers. However, these institutions were wary of default by discoms and wanted the government to create a three-way arrangement with the Reserve Bank of India, such that flows to State government treasuries would be diverted to pay the institutions in case of default. This proved unworkable.

Now, yet another committee has been formed, which is of the view that discoms should go into a prepaid mode with power producers. This too looks unlikely. What also looks unlikely is a workable solution — unless the political class stops playing politics with power.

[source:TheHindu]

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