NTPC’s problem is not so much BSES as it is DERC
Given the BSES twins, BRPL and BYPL, have been regularly delaying payments to NTPC—the PSU says it has no other defaulters across the country—it is not surprising the power giant has turned its guns on BSES, even going to the extent of threatening to cut off power supplies to the capital. NTPC’s argument is that if the Tata-owned TPDDL which also operates in the capital has no problems paying on time, why should BRPL and BYPL? After all, their working conditions, and tariffs, are broadly similar. From NTPC’s point of view, the argument is a valid one, and it is a good thing that TPDDL is able to leverage its balance sheet to borrow money to be able to pay suppliers on time—though being much bigger means the BSES twins have more outstanding dues. The real issue, though, is not so much about BSES or TPDDL’s efficiency levels, or even the strength of their respective balance sheets. It is more about the Delhi Electricity Regulatory Commission (DERC) failing to do its job and the Central Electricity Regulatory Commission (CERC)/Appellate Tribunal for Electricity (ATE) not ensuring this is corrected.
The point is a simple one. The three electricity distribution companies (discoms) have collectively been paid R27,192 crore (see our lead story today) less than they should have over the years. So, if the costs of power are R1 per unit, the DERC fixes tariffs at, say, 65 paise—the balance 35 paise are accounted for as a ‘regulatory asset’. The three discoms took loans from banks to carry on operations, but as the outstandings have risen dramatically, even the banks are hesitant to finance them anymore. When the companies went to ATE to protest and talked of how, in cities like Mumbai, the regulator had come out with a schedule of tariff hikes to pay back these outstandings—‘regulatory assets’, in jargon—ATE asked DERC to deal with the matter; it helped that, in 2011, ATE had passed a judgment outlawing such under-charging and ruled that previous regulatory assets had to be paid off in a short period of time.
In the case of Delhi, however, nothing of the sort happened. While the discoms say they are owed R27,192 crore by Delhi’s electricity consumers, the DERC has not even finalised the accounts for the last two years. As against this, DERC has come up with a schedule to allow firms to recover R8,000 crore—that’s less than a third of the dues—over an 8-year period. Interestingly, banks are still willing to finance the firms, provided some conditions are met. One, there should be a guarantee that, in the future, the discoms will be allowed to charge customers based on their costs. Two, past regulatory assets will be cleared within a few years. Three, till they are, the discoms will be paid an interest cost on their outstandings that is equal to the rate at which they borrow from the market. Given DERC’s stance on discharging regulatory assets and ATE’s ruling, it should be easy for DERC to give such an undertaking. Until it does, BSES isn’t going to get the bridge loans it needs, suppliers will cut off electricity to the capital, and privatisation will continue to get a bad name.