Can’t have special dispensation for power PSUs
It has to be curious that, despite being so cash-strapped—at least till the latest bailout package was put in place—not a single state electricity board (SEB) has delayed payments for power purchased to the public sector NTPC. The SEBs, as their budgets show, often don’t get their subsidy payments from the state governments in time—subsidised supplies to farmers are to be met from state budgets—and their power costs are soaring ahead of their realisations, but they pay NTPC not just on time, they do so before time. Why? Because, as part of the Montek Singh Ahluwalia bailout scheme a decade ago, a tripartite agreement was signed to fix the problem of outstanding dues—under the agreement, if an SEB failed to make a payment, NTPC simply had to request RBI to release the amount and to deduct the money from the states’ balances. Over the decade, NTPC has had to approach the finance ministry on just a few occasions—each time, the payment has got made. At a time when the private sector is increasingly supplying so much power, it is important to extend this arrangement to it as well. After all, there is no justification for protecting an NTPC’s interest while not doing the same for a Tata Power, for instance. Apart from the fact that the distinction between the private and the public sector is rapidly getting extinguished—in the sense less people fly Air India or dial BSNL/MTNL than they do their private sector counterparts—it is worth keeping in mind that if a Tata Power doesn’t get its money, the PSU banks it has borrowed from don’t get their payments.
A proposal that the power ministry is seriously considering, reported in FE today, is more worrying. In a bid to make the power sector more efficient, the government had mandated what is called a merit-order dispatch system—put simply, it means that if 5 companies are lined up to sell their power, the lowest-cost power will be dispatched first. Given that NTPC’s new plants are fairly costly, this puts them at a potential disadvantage—in a power surplus situation, for instance, this could mean that buyers will not take electricity from these plants and may, instead, buy from even new private sector power plants that are more efficient. So, the power ministry is considering a price-pooling mechanism whereby power costs are pooled for all NTPC’s plants. If this is done, it will ensure—thanks to NTPC’s older plants—that NTPC’s new plants will become more competitive vis-a-vis their new private sector counterparts. Price-pooling probably makes sense in the sense it allows power producers to defray costs over various plants, but if it is implemented, it cannot be done selectively.
Faced with a dramatic increase in unrequisitioned power surpluses — which more than doubled to 43 billion units in FY14 from 21 billion units in the previous year — NTPC has proposed a price pooling system that will help lower the per-unit cost of power for its newer plants. Unrequisitioned surpluses are when total requisitions are lower than the committed offtake.
Given that the state-owned power producer’s cost per unit for some of its newer capacities is higher than that of private sector gencos, NTPC has suggested it be allowed to charge customers a blended tariff, which works to R2.91/kWh. This tariff, it claims, will be revenue-neutral for it.
In a letter written to the power ministry, in late April, NTPC points out that despite having signed power purchase agreements (PPAs), buyers were sourcing power from producers other than it citing “reasons of costly power” and “must buy commitments made to private developers”. In the event, states were only paying charges fixed under tripartite agreements (TPAs).
The pooling mechanism proposal, if accepted, will mean big savings for states such as Delhi, where the billed amounts will reduce by nearly 27% but states like Maharashtra and Rajasthan will end up paying more (see graphic).
Delhi ends up paying a higher tariff since it sources power from projects put up specifically for it, which are of fairly recent vintage. Other states that stand to gain are West Bengal, Jharkhand and Assam, where the cost will come down by 33%, 22% and 21%, respectively.
The advantage of this scheme assumes significance following the Supreme Court order on Tuesday allowing NTPC to cut power supply to Reliance Infrastructure-owned Delhi discoms, BSES Rajdhani Power and BSES Yamuna Power, if the latter is unable to cough up R788 crore in unpaid dues by May 31.
As an interim solution, NTPC proposes a transitory mechanism by which the government could subsidise some of the losing states so that the state electricity boards are able to gradually increase their tariffs. Since the power ministry also has a 15% unallocated quota, NTPC suggests this could be allocated to losing states.
The move will hurt several private power producers — right now their costs are often lower than those at NTPC’s newer capacities. The private producers stand a better chance of selling their power under the merit order despatch system — under the rules, irrespective of the PPA signed, the cheaper power is fed through the grid first. So should the power ministry accept NTPC’s proposal for a pooled price, in many cases NTPC’s new plants will end up becoming more competitive than those of private sector players.
Private players argue that if NTPC is to be allowed to do pooling, they too should be allowed to sell their power at pooled rates. A Reliance Power, for instance, would then be able to lower the costs of its Butibori and other plants by pooling them with the costs of the Sasan UMPP.