If utilities not paid dues, a letter of comfort is needed
With the unpaid dues of the two BSES-owned electricity distribution companies (discoms) rising to almost Rs 9,000 crore and the state transmission utility threatening to cut off supplies unless its Rs 1,900 crore dues are paid, Delhi’s consumers are facing the threat of power blackouts soon. Given the situation keeps recurring every few years, the fact that there hasn’t been a permanent resolution of matters is unpardonable—two years ago, around this time, NTPC had also threatened to cut off supplies to BSES over unpaid dues. While the battle between the Delhi government which owns 49% of the two discoms and the Anil Ambani group which holds the rest goes on—over whether the latter is overstating costs and ripping off consumers—the government as well as the regulator are responsible for much of the mess. Based on the last order of the regulator, the regulatory assets for the BSES firms were R8,156 crore at the end of FY14—regulatory assets are funds due to the discoms but which they have not been allowed to collect by way of tariff hikes. In addition, while the regulator had not allowed BSES to charge certain expenses in the past, the latter has now won the case in the appellate tribunal—based on the regulator’s affidavit in the Supreme Court where it has challenged the award, this adds to another R4,500 crore. Even if you ignore the interest on this R12,656 crore of dues and the balance that is due to BSES for FY15 and FY16—given the regulator usually budgets for lower power purchase costs while setting a tariff at the beginning of the year, there are usually ‘truing up’ costs each year—the amount due to BSES far exceeds what it owes. Once it gets its dues, clearly, repayment will not be such a big issue.
Naturally, though, the company cannot be allowed to recover its dues overnight since this will imply raising tariffs several times over. What could be done, however, is to help it raise a cheap loan to repay its creditors. This has been done in the past, and is something BSES has been working on. But it requires two conditions to be fulfilled. First, it requires a letter of comfort from the Delhi government, saying that, if BSES defaults, the government will make good the payment—given that the Delhi government owns 49% of BSES and how much money Delhi’s citizens owe BSES, giving this letter should be easy, but the Kejriwal government refuses to do so. Two, it requires the regulator to clearly state that regulatory assets will be liquidated over a short period—despite various orders from the electricity tribunal on this, this has not been done. Also, since repaying just the annual interest costs on the BSES regulatory assets means electricity tariffs have to be raised by as much as one rupee, it is in the government’s interests to get these paid off at the earliest.