Let REC/PFC raise bonds and on-lend to discoms
While the Appellate Tribunal for Electricity asking the Delhi Electricity Regulatory Commission (DERC) not to take any coercive action against the BSES distribution companies (discoms) till it hears their petition, this rules out the DERC appointing administrators to run BRPL and BYPL within the next few days—this is what the Delhi government had asked DERC to do a few days ago. The tribunal’s directive came in response to a pending case where BRPL and BYPL have asked it to direct DERC to start clearing their dues of R14,800 crore—the petition, in turn, is based on an earlier ruling of the tribunal where it had directed regulatory commissions not to create fresh regulatory assets—jargon for power dues—and to raise tariffs so as to discharge existing dues within a period of a few years. As our page one story points out, in the case of R-Infra, one of the electricity discoms in Mumbai, the tariff hike suggested by the Maharashtra regulator works out to R0.91 per unit in FY14, R0.87 in FY15 and R0.82 in FY16.
Whether or not an administrator is appointed to run BRPL and BYPL, the larger question is what happens to the dues, R14,800 crore for the two Anil Ambani firms and R4,700 crore for Tata’s NDPL. While the DERC can, like its Maharashtra counterpart, come up with a plan to discharge the assets over 3 to 6 years, the fact is that it has not done so for several years; also, given the atmosphere of populism right now—Delhi’s R20 crore monthly subsidies were bettered by Haryana’s R50 crore and Maharashtra’s R700 crore—putting a gun to DERC’s head may not work.
Had Delhi’s discoms been owned by the government, as they are in most parts of the country, the simple solution would be to avail of the central government’s financial restructuring programme (FRP) where the discoms raise bonds guaranteed by the state governments with an implicit promise that tariffs will be raised to compensate, over a period of time, for the gap between costs and recoveries—this was upwards of a rupee per unit in FY12. Substitute Delhi’s discoms with those in the states, and the situation is the same, except Delhi’s firms are privately-owned—so the state government cannot guarantee their bonds. A way out could be getting centrally-owned Power Finance Corporation (PFC) to raise tax-free bonds and lend these to the privately-owned discoms at, say, a 1% margin. The discoms then get funds at around 9-10% as compared to around 14-15% today and DERC can then clear a plan to raise tariffs Maharashtra-style over 3-5 years. A 5 percentage point reduction in borrowing rates on regulatory assets of around R20,000 crore, interestingly, will also mean consumer tariffs can be cut by 40 paise per unit—in other words, the impact of raising tariffs to discharge the regulatory assets can also be reduced substantially.