Narendra Modi’s cash ban spells bonanza for power retailers

Electricity consumers who hadn’t paid their bills for months are queuing up to square their accounts as the old notes can still be used to pay charges until 24 November


Power retailers in the northern state of Haryana saw unexpected collections of Rs750 million in the first ten days after the decision. Photo: Priyanka Parashar/Mint
Power retailers in the northern state of Haryana saw unexpected collections of Rs750 million in the first ten days after the decision. Photo: Priyanka Parashar/Mint

New Delhi: Prime Minister Narendra Modi’s decision to scrap large bank notes have an unintended beneficiary: India’s cash-strapped power companies.

Electricity consumers who hadn’t paid their bills for months are queuing up to square their accounts as the old bills can still be used to pay charges until 24 November. In a surprise move, Prime Minister Narendra Modi withdrew Rs500 and Rs1,000 bills as legal tender from 9 November. Since then, people have formed lines at banks, fuel retail stations and electricity billing offices to use or exchange their old notes.

Power retailers in the northern state of Haryana saw unexpected collections of Rs750 million ($11 million) in the first ten days after the decision, Anurag Rastogi, principal secretary in the province’s power department, said by phone. Other consumers paid bills well before the due date, causing a temporary surge in collections, he said. Neighbouring Punjab received extra collections of about Rs200 million, said S.C. Arora, finance director at Punjab State Power Corp.

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Modi’s government has been trying to revive the poorly-performing power distributors by reorganizing their debt, cutting costs and increasing revenue by reducing theft and improving collections. The retailers purchased electricity at an average price of Rs5.20 per kilowatt hour in the year ended March 2015 and earned an average Rs4.46 per kilowatt hour on sales, according to the latest data from Power Finance Corp.

Staying late

Uttar Pradesh state’s power retailers have seen collections surge but don’t have specifics, said Arvind Rajvedi, commercial director at Paschimanchal Vidyut Vitran Nigam Ltd, the state’s biggest power retailer.

“There’s definitely been a jump in collection of arrears, but we have not been able to assess how much they are,” he said. “On some days, our staff has gone home only after midnight. The counters remain open until the last customer has been served.”

The windfall is temporary at best, said Salil Garg, a director at India Ratings & Research, the local unit of Fitch Ratings. “There would be a very minuscule percentage of customers who didn’t intend to pay, but paid back their arrears using the old notes,” he said. “It’s not going to make a material difference to their finances.”

Some, more efficient distributors such as those in the states of Delhi and Kerala, haven’t seen an impact. “Our collection efficiency is 100%,” said Praveer Sinha, chief executive officer at Tata Power Delhi Distribution Ltd. The Rs500 and Rs1,000 bills accounted for 86% of the money in circulation in a country where 98% of consumer transactions in volume terms are done in cash. Bloomberg

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