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Bypass for stressed gencos PDF Print E-mail
Friday, 23 November 2018 00:00
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Not clear if states will allow direct deduction from RBI account

 

The UDAY scheme, given how it slashed the interest burden for state electricity boards (SEBs) and had ambitious targets to reduce their aggregate technical & commercial (ATC) losses, was supposed to be the genuine turnaround plan for the sector. Slashing of interest rates not just benefitted the SEBs, it also helped the banks because their loans to SEBs were now replaced by state-government securities that, unlike the loans, had a zero chance of default. That was the plan. In reality, the ATC losses didn’t come down as fast as envisaged, primarily because the target was unrealistic; so, as compared to the 15% ATC target for March 2019, the current all-India ATC is around 22%. And the gap between the cost of supply and the revenue earned was supposed to be around 55 paise but is well over double this in various states. And, thanks to state electricity regulatory commissions (SERCs) failing to do their job, few states raised tariffs in keeping with the rising costs of generating power and the financial position of SEBs hasn’t improved much beyond what the slashing of interest rates achieved.

Not surprisingly, the SEBs have tried to keep things going by delaying payments to suppliers. Between March and August this year, SEB dues to generating companies (gencos) rose from Rs 16,564 crore to Rs 26,500 crore; of this, Rs 17,761 crore is due to private sector firms. There are, in addition, what are called ‘regulatory dues’, or increases in tariff due to new government levies such as a green cess or a port congestion surcharge. Normally, all additional charges are to be passed on to the buyers—in this case, the SEBs—but nearly all refused to pay and challenged this in court. In most cases, the courts upheld the need to pay and, in some cases, these rulings have been appealed. These ‘regulatory dues’ add up to another Rs 18,506 crore in the case of private sector gencos.

Normally, this may not have mattered, but with 52,000 MW of power assets deeply stressed, the overdues are really hurting. Most of the stress, including the overdues, are due to lack of reforms in the power sector—so, for instance, 10,600 MW of gas-based power projects have no gas while another 20,000 MW have no PPAs since the SEBs are too cash-strapped to want to sign long-term agreements. In the absence of genuine reform—for several decades!—a committee headed by the Cabinet Secretary has suggested that a late-payment fee be imposed on SEBs and that an automatic payment system be put in place involving the banks and RBI—since all states have accounts with RBI, the proposal is that if a payment is not made, this should be deducted from the state’s accounts. Till the fundamental problem is not resolved, it is not clear how this short-term fix is going to work. More important, since this cannot happen till the state governments agree, it is not clear whether it will happen. The problem is that, with the states/SEBs having already got the big concessions via the interest-rate cut, the Centre’s hold over them is that much weaker.

 

 

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