We have even offered to put all the funds we get into an escrow account. Let DERC pay various power suppliers after giving us money for salaries and interest payments,” says Reliance Infrastructure CEO Lalit Jalan, in the context of NTPC being allowed to cut off power supply to R-Infra-owned Delhi discoms. In a conversation with FE, Jalan argues that DERC going back on its commitment to pay off — discharge, in jargon — all ‘regulatory assets’ quickly is what has made banks reluctant to lend to BSES. Since its current regulatory assets are R22,000 crore, each year of delay adds R3,000 crore by way of interest costs. Edited excerpts:
From June 1, how much of Delhi will go dark?
It is difficult to say since NTPC does not sign separate PPAs for each of its plants — if it did, we could have paid for power from some plants and not for the others. So how much gets cut depends on NTPC.
You could lose your licence if there are large power cuts...
We are allowed just a 1% level of load shedding.
Can you mobilise the resources to pay NTPC? The amount is just R788 crore.
The banks and PFC/REC (Power Finance Corporation and Rural Electrification Corporation) are unwilling to lend unless DERC commits to hiking tariffs fast enough to pay off our dues. We have also gone to the Delhi government asking it to, along with us, pledge its shares — 49% — in BSES to banks... The government is not willing to do this though our contract allows for such pledging of shares.
The same thing happened in 2011, why isn’t the Delhi government chipping in as it did then?
It helped that, in 2011, both the Centre and Delhi were under a Congress government. So the CM was able to get the central power minister to also intercede. NTPC accepted a letter of comfort from the Delhi government. The government and we brought in R1,000 crore and the banks, in turn, gave us R4,000 crore of loans... We have exhausted all of that now.
A letter of comfort means little. So what really convinced the banks?
What convinced them was the DERC tariff order of August 26, 2011, which said the regulatory assets — till then — would be made good by 2015. There was also the ATE (Appellate Tribunal for Electricity) order which said no fresh regulatory assets were to be created. So banks felt the loan was a temporary one, and was fully financeable. Turns out fresh dues are being created every year — we had a revenue shortfall of R900-1,000 crore in Q4 — and the time period over which part of the regulatory assets will be made good has now been increased to eight years.
Why are there such large ‘truing up’ differences every year?
For various reasons. The appellate tribunal had said that 30% of the regulatory assets would be given a return of 16%, the specified return for equity, and the rest would earn an interest rate equal to SBI’s PLR (State Bank of India's prime lending rate). DERC unilaterally lowered the equity returns... We have contested this in ATE. In other cases such as power purchases, the original tariff orders make unreasonable assumptions on power costs, for instance... We ask for truing up. Where expenses are disallowed, we go to ATE and have got favourable judgements, but these have yet to be implemented. The impact of the ATE judgements on expenses alone adds up to Rs 4,500 crore more of regulatory assets for BSES.
Can you get money under the financial restructuring package scheme?
The Delhi government had written to the finance ministry some time back but it was turned down, since we are not a state-owned body.
Delhi’s consumers owe you Rs 22,000 crore, but they also owe the Tatas Rs 5,500 crore. How is it that the Tatas don’t default on loans?
Too much is made of this. For one, the Tatas supply power to just a fourth of Delhi, so they are a third of our size. They also have a better customer mix, but the most important difference lies in the regulatory assets. We have regulatory assets of Rs 21,500 crore and we owe suppliers around Rs 7,000 crore — this means we are servicing Rs 14,500 crore of debtors while the Tatas are servicing only Rs 5,500 crore of debtors.
Is it possible for you to procure power from some other generator or buy merchant power?
Even if we source power from elsewhere, we still end up paying the fixed charges. For instance DVC has discontinued supply to us but the fixed charges are accruing. Merchant power is an option.
Do you have similar problems with the regulator in Mumbai?
Not at all. The regulator has put out a well-defined scheduled for refunding the regulatory assets which makes it easy to borrow from banks. And every time there is an increase in the cost of purchase, the regulator allows us to adjust the surcharge automatically. In the case of DERC, this is done with a lag of a quarter and in some cases, the gap is much longer.