Kolkata: State-owned West Bengal State Electricity Distribution Co. Ltd (WBSEDCL) has in the six months till 30 September managed to post a net profit of Rs 22 crore only by recognizing Rs 727.65 crore of unrealized revenue as “potentially recoverable”.
Unless the state administration raises tariffs, which seems unlikely, the utility will not be able to recover dues from consumers and will have to restate accounts for the period, showing a net loss of Rs 684 crore.
This is an example of how “politically controlled” electricity distribution companies in India “dress up” accounts to stay afloat, the head of a consulting firm said on condition of anonymity. “But effectively, they have all been run to the ground,” he said. “They only refuse to recognize it as long as Indian accounting norms allow them to conceal their losses.”
The distributor’s realized revenue in the six months ended September fell 2.4% from the same period last year to Rs 4,898 crore.
Malay Kumar De, principal secretary in West Bengal’s power department, declined to comment, saying the published financial results were “self explicit.” Executives at the utility were not available for comments.
“There was a lot of debate in the board on whether or not we should recognize the unrealized revenue as recoverable,” a person who sits on the distributor’s board said on condition that he would not be named. “Had we not done that, its credit rating would have immediately been cut to junk.”
The power firm charges an average tariff of Rs 4.27 per kilowatt-hour, or one standard unit—one of the lowest in the country—and wants to revise it to Rs 5.60 per unit in line with current coal prices.
In recognizing unrealized revenue as recoverable, the company has assumed it will be allowed by the state government to raise tariff. But there is no sign of that because the firm has so far written to the regulatory commission at least five times, asking for more time to file its tariff petition.
In comparison, CESC Ltd, a private firm that supplies power in Kolkata and adjoining areas, has filed a tariff petition with the regulator, seeking a revised average tariff of close to Rs 6 per unit for the current fiscal year.
But by the end of the current fiscal, the state-run utility’s board might have to reverse its current decision and report a “steep loss” for the full year if the state government refuses to allow it to revise power charges, said the director cited earlier.
“In that case, we are staring at a cash loss of at least Rs 1,000 crore (for the full year),” he said.
The distributor had in fiscal 2011 posted a net profit of RS 95 crore, after having put aside Rs 294.6 crore towards impairment of fixed assets.
To be sure, West Bengal until recently had the healthiest government-controlled power utilities in India, which were profitable even without receiving any subsidy from the state, according to the consultant cited above.
But the Trinamool Congress-controlled state government isn’t allowing the power distributor to file a petition with the regulatory commission for tariff revision. Nearly all state governments are reluctant to raise power tariff in the backdrop of high inflation and slowing growth.
As of 30 September, the firm had borrowed Rs 1,000 crore through secured bonds listed on the Bombay Stock Exchange (BSE), and total outstanding debt stood at Rs 6,704 crore, having grown by Rs 1,365 crore in the past year.
In the first half of the current fiscal, the distributor raised Rs 500 crore through private placement of BSE-listed bonds, over and above fresh borrowings of close to Rs 1,000 crore through “short-term loans” taken to meet “routine operating expenditure”, according the firm’s director cited above.
The amount raised through bonds is to be used for capital expenditure, or expansion of power distribution capability, the director said.
“What worries us is that it had to take short-term loans to meet routine operating expenditure,” he added. “Banks will soon stop lending to it, and it isn’t clear how it will make ends meet.”
Concerned about the ability of state-owned power utilities to repay loans, banks have begun scaling back exposure to the power sector. In many cases, bank support has been made conditional on utilities raising power tariff and establishing financial viability.
The state’s power generation company, West Bengal Power Development Corp. Ltd also has gaping holes in finances—it has been forced to borrow an amount similar to the distributor to stay afloat, yet is unable to pay Coal India Ltd for coal. It currently owes at least Rs 600 crore to the miner, according to Coal India chairman and managing director N.C. Jha.
There is “absolutely no certainty” that the power producer will be able to clear Coal India’s bills any time soon, according to a power department official, who also declined to be named.
Because of its inability to pay for coal, the firm has had to scale back generation. “Power demand is low in the winter months, yet outages running into several hours have become routine in rural areas,” said the power department official. It is only a matter of time before power outages hit district towns and the suburbs of Kolkata in a big way, he added.