Electrocuting SEBs PDF Print E-mail
Friday, 10 July 2015 00:00
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Shobhana's edit

Power sector can't run with losses of Rs 3 lakh crore


With the accumulated losses of discoms now estimated at close to Rs 3 lakh crore at the end of March, 2014, it is evident the finances of state electricity boards (SEBs) are not merely in shambles, the situation could soon become irretrievable even. At the root of the problem are the irregular and inadequate hikes in tariff—as ICRA points out, the average increase in tariffs mooted for FY16 is just 5% compared with the average of 6% last year. Such small increases can never be enough to take care of the cost of supplying power, which is why regulatory assets are piling up. However, it would appear that most state governments lack the political will and courage to charge consumers more realistic rates. Indeed, even those state governments that had committed to tariff hikes while availing themselves of the financial restructuring programme (FRP) have reneged on the agreements; some are now looking for relief in the form of longer moratoriums and lower interest rates. However, that will only add to the strain on banks’ balance-sheets; already, RBI has red-flagged the fact that R53,000 crore of bank loans could be vulnerable to default. The Centre must ensure there are no defaults, and one way to get SEBs to fall in line is for the Centre to hold back some share of their tax revenues and use these funds to repay bank loans. The states cannot have it their way for ever; if they don’t have the resources to subsidise tariffs for certain sections of consumers—and it is clear they don’t since the cost coverage ratios have remained weak for most states, implying they are not able to recover expenses even after accounting for subsidies—they shouldn’t be offering the lower tariffs.

Indeed, the unwillingness of state governments to make consumers pay the right price for the electricity they use has resulted in jeopardising the entire power ecosystem; with discoms on the verge of bankruptcy and unable to buy power, producers too are losing money. The sharp fall in the plant load factor—from75% in FY2011 to 65% in FY15—is not just the result of fuel shortages, but also of the low demand from discoms. Power producers have also been hobbled by the shortage of both coal and gas. While the government has attempted to resolve the issue, the bidding at the recent auctions for coal has been so aggressive that ICRA estimates it could result in under-recoveries ranging betweenRs 0.40 per kWh and Rs 1.20 per kWh. That would put pressure on the finances of power producers, already reeling from the stress of projects being delayed. In fact, capping the capacity charges, as is the new norm for competitively bid power purchase agreements, is a bad idea; while the government may want to protect consumers from having to pay higher tariffs, it cannot do so at the cost of generators. That will only discourage investment in the sector, leave banks more vulnerable to defaults and and jeopardise any revival in industry.


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